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Laurier House National Historic Site of Canada

III: Figuring out the Facts

1) The social and economic impact of the Depression
Mackenzie King's budget of 1938
Mackenzie King's efforts to persuade the provinces and the Cabinet to support Unemployment Insurance

1) The social and economic impact of the Depression

When the New York stock market collapsed in the autumn of 1929, and brought the western world's trading system down in ruins with it, Canada was amongst the most vulnerable victims. With a semi- developed industrial system she was heavily dependent upon foreign trade, and particularly upon the export of grain, raw materials and semi-finished products. Over the decade of the 1930s Canada's national income and gross national product actually declined. And aggravating the general impact of the depression were the facts of its unequal incidence amongst classes and regions. Many urban middle-class families suffered relatively little while a swollen working class bore the brunt of drastically lowered wages and unemployment. In the Maritimes and across the prairies economic decline was catastrophic. Hit by drought and grasshopper plagues as well as by the shrunken demand for wheat, the prairies suffered total financial collapse. Shock waves from the western dust bowls and from the stagnating fisheries and coal-steel industry of the Maritimes reverberated through the national economy and were not lessened by any substantial recovery of world-markets. By 1933, in addition to social devastation in the Maritimes and across the prairies, some 23 per cent of the labour force was unemployed (compared to 3 per cent in 1929). Thus, besides thousands of western farm families on the verge of starvation, there were well over one and a half million Canadians with no source of earned income. The mere statistics fail to picture the wasted lives, the long lines of forlorn men waiting at city soup kitchens or shivering against the wind on the tops of freight-trains as they rode hopelessly about the country in search of non-existent jobs, the farms lost to mortgage companies, the accumulated savings of a generation vanished in loans against a fishing schooner, the closing of a corner store, the shutting down of a small plant. In the Commons J. S. Woodsworth portrayed the country's social nadir:

In the old days we could send people from the cities to the country. If they went out today they would meet another army of unemployed coming back from the country to the city; that outlet is closed. What can these people do? They have been driven from our parks; they have been driven from our streets; they have been driven from our buildings, and in this city [Ottawa] they actually took refuge on the garbage heaps.

(Extract from Kenneth McNaught, The Pelican History of Canada. Harmondsworth, England: Penguin, 1969, pp. 246-47.)


  1. During the Great Depression, would you have preferred to live on a farm or in a city? Explain your answer.
  2. In what part of the country would you have preferred to live?

2) Mackenzie King's budget of 1938

Mackenzie King's plans for a balanced budget in 1938 were opposed by some members of his Cabinet who believed that it was necessary for the government to increase its expenditures and budget for a deficit. While Mackenzie King believed that deficits were undesirable, he reluctantly agreed that the government should inject money into the economy in order to stimulate recovery. Although it was not fully appreciated at the time, the budget of 1938 represented a major shift in government policy.

The budget of 1938 was a turning point in fiscal policy in Canada. For the first time a government had consciously decided to spend money to counteract a low in the business cycle. In addition to the expenditures in the budget the government also offered loans to municipalities for local improvements and passed a National Housing Act to encourage the building of homes. Consistent with this Keynesian approach, the government also reduced some taxes and offered some tax exemptions for private investors. The idea of a static and balanced budget was gone. In its place was a fiscal policy of stimulating economic recovery by government deficits and by direct economic incentives.

The new fiscal policy did not work any miracles. Recovery would not come until the war, when deficit financing and government investment in the economy became a patriotic duty. But the budget of 1938 marks the beginning of a new concept of the role of government in Canada. Until then the federal government had concentrated on providing public services such as railways and canals, police forces and national defense, post offices, and more recently old age pensions and unemployment relief. The taxes it had collected were designed to pay for these services. It had now undertaken a new and significantly different responsibility: that of balancing the total economic investment, private and public, in order to balance the national economy. The implications would be far-reaching. The government budgets of our day are dominated by this new role. Looking back to the 1930s we can now see that it was the most radical and most constructive innovation of that depression decade.

(Extract from H. Blair Neatby, The Politics of Chaos: Canada in the Thirties. Toronto: Macmillan, 1972, pp. 85-86.)


  1. Why did the municipalities require loans from the federal government?
  2. What is meant by a Keynesian approach?
  3. Did the budget of 1938 represent the first step in the development of the welfare state in Canada?
  4. Do you agree with Mackenzie King's view that federal deficits are wrong, or with his Cabinet ministers who recommended increased expenditures to stimulate the economy?

3) Mackenzie King's efforts to persuade the provinces and the Cabinet to support Unemployment Insurance

Though resolved to give priority to the prosecution of the war and the timing of the election in relation to the war, Mackenzie King had .... other objectives at this time. He wanted to make progress in establishing Unemployment Insurance......and the defeat of Duplessis in November 1939 had removed the main obstacle to agreement with the provinces on an amendment to the constitution to bring Unemployment Insurance under federal jurisdiction. On January 5 [1940], Mackenzie King noted in his diary that he believed we can now get the consent of Ontario, Quebec, New Brunswick and Alberta. If we do not get the latter I would go ahead notwithstanding. Parliament and the public will appreciate the necessity of having Unemployment Insurance to help to meet the post-war conditions. The contribution will be easily paid during the years of prosperity and it would be two years before benefits can be paid out under the Act. If we succeed in putting through .... the Unemployment Insurance ....... it will make a pretty good record for the present administration in this Parliament. There was in fact no problem about Ontario because, as early as 1938, all the provinces except Alberta, Quebec, and New Brunswick had agreed to a constitutional amendment to establish federal jurisdiction over Unemployment Insurance. On January 8, C.G. Power told Mackenzie King that Adelard Godbout, the Premier of Quebec, was favourable; and Mackenzie King himself secured the concurrence of the Governments of Alberta and New Brunswick. Actually he had more difficulty in getting all his colleagues committed to proceed with Unemployment Insurance. The main objection was from Ralston on the ground of the cost in time of war. It was, Mackenzie King noted on January 16, a real fight, but I have the satisfaction of knowing, if the measure is enacted, that it is due to the fact that I have taken a definite stand in Council.

(Extract from J.W. Pickersgill, The Mackenzie King Record. Vol. 1: 1939-1944, Toronto: University of Toronto Press, 1960, pp. 60-61.)


  1. In view of Mackenzie King's opposition to increased government expenditures in 1938, why did he now reverse himself and take a definite stand in favour of Unemployment Insurance? Was he responding to a change in public opinion, or did he want to allay fears of a post-war depression and maintain public confidence in his government?