THE STORY OF BENNY - From Bigshot to Penniless Beggar......
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It was the early 1920s and Benny had just finished high school.
All his friends thought that he was real smooth, the cat’s meow.
Benny never really did well in school but he was pretty clever
and knew how to get by. He was also lucky, things usually
seemed to go right for him.
Soon after finishing school Benny went to work for the
Ford Motor Company. Three months after he started there, Ford
raised their wages-Benny was making $85 dollars a day! He was
rolling in money. It was good times. Benny would take all his
buddies to the speakeasies and spend a lot money on booze. But
a few months later Benny was promoted to foreman and he
began to change-he began to save his money. In 1922 he got
married and bought a house in one of the new suburbs that were
cropping up around town. Benny had a big mortgage and paid
high interest but it didn’t matter-times were good and he knew
that he was going to make it big.
Everyone believed in him. In 1925 he bought an old building on Main Street and turned it
into a theatre for the new silent movies that were coming out. He was making a lot of money....but
he was also spending a lot of it. As like many other people did, Benny bought a Ford Model T and
a bunch of fancy new appliances that were being sold in the department stores. He also bought a
couple more movie houses and even a hotel for the tourists who were coming to town in their new
cars. In 1927 Benny and a few business partners opened a construction company and got some
major contracts to pave every street in town. By 1928 people said that Benny was worth millions
but the fact was that he was actually up to his ears in debt. Like many people during the 20s, he
had borrowed a lot of money from the banks to help finance all of these businesses. But Benny
wasn’t worried; “Every day the economy just keeps getting better” he used to say confidently.
Eventually things got so good that Benny opened up a factory that made radios which he shipped
in large quantities to the United States and England.
By the end of 1928 Benny was worth over a million dollars but he wasn’t repaying any of his
debts and he used all of his businesses as collateral for his loans. That’s because in the 1920s the
economy was booming and everyone had jobs and lots of money to spend. With money people
could go to Benny’s movie theatres and see every movie he brought to town; the increasing
mobility of people as a result of the automobile meant that more tourists would be staying in his
hotel; with all this travelling Benny got a lot of contracts to build more roads in and around the
city, and last but not least many people at home and abroad bought his radios. Businessmen like
Benny made a lot of money and they thought that the good times would go on forever! Benny
believed that each year people would buy more and more radios and that more and more people
would stay in his hotel. Consequently, he produced twice as many radios in 1928 than he had the
year before and he built a huge addition to his hotel. He also bought 10 new dump trucks and
hired 50 new workers believing that he was going to get more road building contracts.
However, Benny and other businessmen like him made some terrible mistakes. They
thought that everybody in the country was making a lot of money just like they were.
Unfortunately, there were three main groups of people in Canada who weren’t doing so wellfarmers, miners, and other factory workers. These people did not enjoy the economic boom of
the 20s, for one thing they didn’t earn high wages like other people. Because of this, they
couldn’t spare any money to buy the fancy new products that were being sold. Furthermore, they
couldn’t afford to buy cars or even travel for that matter! They couldn’t even afford to buy
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Benny’s radios or stay in his hotels. Finally, since they couldn’t afford to come to town, the new
roads that Benny had hoped to build never went through.
In 1928, Benny was finding that he had a lot of radios that he couldn’t sell. He also had lots
of vacant rooms in his hotel and the men and machines in his construction company were just
standing around because there was no work to do. Benny was forced to take drastic measures-he
fired most of his employees! Firing his employees had a devastating effect on the entire citythese people had no money and therefore could not buy anything. As a result, there was less
demand for products and services so other companies had to fire their employees. This was bad
news for Benny-eventually he had to close two of his movie theatres. This left even more people
without a job!
The same thing that was happening to Benny was happening all over the world. Early in
1929, the United States put high tariffs or taxes on goods from Canada. A bit later, Europe did the
same thing. The purpose of these tariffs was to prevent people from buying cheaper foreign
products and encourage them to buy domestic ones instead. Benny found that these tariffs raised
the price of his radios so much that he wasn’t able to sell them in the US and Europe. As a result of
this, he was forced to close his radio factory.
The final nail in Benny’s coffin was the fact
that the stock market crashed. This meant that the
value of stocks dropped significantly. When the
prices fell, stockbrokers wanted people to pay
the full value of the stocks that they had bought on
margin or credit. This was terrible for Benny-he
owed two million dollars for stocks that he had
purchased in the 20s- he had to sell everything he
owned to pay for his debt! Benny was broke and
now he couldn’t find a job anywhere. The Ford
Motor Company would not hire him back because
no one was buying cars. Benny was last seen in
1933 at a soup line the Salvation Army. Benny had
gone from being a big shot to a penniless beggar...
Questions:
1). Name 4 ways that Benny made money in the 1920s.
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2). List three ways that Benny overproduced goods during the 1920s.
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3). What 3 groups of people did not enjoy the boom of the 1920s?
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4). What mistakes did Benny and other Businessmen like him make? What did they do to try to fix
this problem? What was the effect of their solution?
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5). What was the final nail in Benny’s coffin? How did this affect him and others like him?
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Causes of the Great Depression
The stock market crash of 1929 did not cause the Depression. Rather, it was symptom that the economy of
North America was very, very sick. What had happened to the once strong and healthy North American
economy? What were the causes of the sickness? What remedies could be prescribed to make it well
again?
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There seem to be as many explanations for the Depression as there are experts to diagnose the illness.
However, some of the major causes are as follows:
1. Over-Production and Over-Expansion
During the prosperous 1920s, Canadian and American
agriculture and industry reached high levels of production.
Almost every industry was expanding. They spent large
amounts of their profits adding to their factories or building
new ones. Huge supplies of food, newsprint, minerals, and
manufactured goods were being produced in Canada and
simply stockpiled. Automobile centres such as Oshawa and
Windsor produced 400 000 cars in 1930. To do this made little
sense because Canadians already owned over a million cars
and in the best year ever, had purchased only 260 000. The
Canadian market could only absorb so many goods. Even in
the general prosperity of the 1920s many Canadians could still not afford to buy everything they wanted. As a
result, large stocks of newsprint, radios, shirts, shoes, and cars began to pile up unsold in warehouses. Soon
factory owners began to panic and slowed down their production until some of the surplus goods could be sold.
Workers were laid off. This meant that fewer and fewer families had money to spend on goods already
produced. This in turn slowed down sales even more.
Industrialists seemed to have forgotten a basic lesson in economics: you should only produce as many items
as you can sell. In the 1920s, wages were simply not high enough for people to buy everything being turned out
in the factories.
QUESTIONS:
a) Name some products that were stockpiled.
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b) Why were Canadian families not buying these products?
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c) Explain how over-production led to factory slow downs.
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d) Explain: “You should only produce as many items as you can sell.”
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2. Canada’s dependence on a few primary products.
Canada depended too much for its wealth on a few
primary or basic products. These included wheat, fish,
minerals, and pulp and paper. Canada’s most important
exports were these goods. They are known as
STAPLES. As long as there was a heavy demand in the
world for these products, Canada would prosper.
However, if there was a surplus of these goods on the
world market, or if foreign countries stopped buying
from Canada, our economy would be in serious trouble.
In the Depression, certain areas of Canada, which
depended largely on one primary product, found themselves in deep economic trouble. The
Maritimes and the West were especially hard hit.
Secondary industries involve the processing or manufacturing of primary products. These would
also suffer from any slowdown in production. A good example is wheat. In the late 1920s Canada
faced growing competition from Argentina and Australia, which were also wheat-exporting countries.
The price of what on the world market began to fall. To add to the problem, western farmers were
faced with terrible droughts in the summers of 1929, 1931, 1933-37. Without adequate rainfall, no
crops grew. With little income, farmers could not purchase machinery and manufactured goods from
eastern Canada. Many could not afford to pay the mortgages on their farms. With no wheat to be
shipped and flour to be ground, railways and flour mills began to feel the pinch. The farmers’
problems had caused a chain reaction on my parts of Canadian society.
QUESTIONS:
a) Name examples of primary industries.
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b) Name four industries that would also suffer if the farmer could not sell his wheat or had no
wheat to sell.
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c) What would the economic consequences of a decline in the world sales of wheat be for
Canada? What would the chain reaction be?
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3. Canada’s dependence on the United States
The economy of Canada in the 1920s was
closely linked with that of the United States.
This is still true today. In those years we
bought sixty-five per cent of our imports
from the Americans. Forty per cent of our
exports were sent to the U.S.A. The
Americans were our most important trading
partner. The U.S.A. had replaced Britain as
the largest buyer of Canadian products and
the largest supplier of investment funds for
our industries. Even then we were in
danger of what today is called a “Branch
Plant Economy”. It was not surprising that
when the American economy got sick,
Canada also suffered. One comedian said, “When the United States sneezed, the rest of the
world got pneumonia.” When the Depression hit the United States, banks closed, industries
collapsed, and people were out of work as factories shut down. No longer did Americans
need our lumber, paper, wheat, and minerals. It was inevitable that Canada’s economy would
suffer too.
QUESTIONS:
a) How much did Canada export to and import from the U.S.A.?
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b) Why did a depression in the U.S.A. have such serious repercussions in Canada?
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c) What do you think is meant by a “Branch Plant Economy”? Give Examples.
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4. High Tariffs Choked off International Trade
In the 1920s European nations were recovering from
a devastating war. They needed many of the
surplus manufactured goods that the U.S. and
Canada produced. Unfortunately, they were heavily
in debt from the war and often could not afford to
buy them.
At the same time, many countries adopted a
policy known as “Protective Tariffs”. In order to
protect their home industries from foreign
competition, they placed high tariffs (taxes) on
foreign imports. Country X found that its goods
were being kept out of County Y by high tariffs.
Soon country X placed high tariffs on imports from
Country Y. Thus world trade began to slow down.
Surplus goods in one country were kept out of
another country that needed them. While high
tariffs were used to protect home industries, they
choked off international trade.
QUESTIONS:
a) Why do countries put high tariffs on foreign goods? Who benefits from high tariffs? Who
suffers?
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b) Why was international trade so important to Canada?
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c) How did tariffs between countries choke off international trade and contribute to the
Depression?
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5. Too Much Credit Buying
All through the twenties, Canadians were encouraged by
advertising to “Buy Now, Pay Later”. A famous
comedian, Will Rogers, said that the way to solve the
traffic problem was to remove from highways all cars that
hadn’t been paid for. He meant that so many cars were
bought on credit that very few cars would actually remain
on the road. Will Rogers was only joking but his remark
points up the fact that by 1929, credit buying was a well
established custom. Why wait to buy a washing machine
or a phonograph or a tractor or a piano when you could
have it now with a small down payment?
Many families got themselves hopelessly into debt
with credit buying. The piano that cost $445 cash was
purchased with $15 down and $12 a month for the next
four or five years. It ended up costing far more than what
it was worth. Sometimes by the time the purchases were
paid for, they were ready for the junk pile. One radio
comedian joked that he had said to his wife, “One more
payment and the furniture is ours.” To this she replied,
“Good, than we can throw it out and get some new stuff!”
If the wage-earner took sick or was laid off work it was often impossible to keep up the
payments. As the Depression worsened, many people lost everything. Their refrigerators,
stoves, washing machines, cars, and even their homes were repossessed by their creditors
(the people they owed money to.)
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QUESTIONS:
a) How did too much credit buying lead to problems for many people during the
Depression?
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b) Is it ever wiser to buy on credit rather than with cash? If so, when?
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c) Why do many people prefer to pay cash while others use credit? Which way seems best
to you?
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The Business Cycle – “Good Times………Bad Times”
Many people feel that the Great Depression was caused by the Stock Market Crash (Black
Tuesday, October 29, 1929), while others will blame it on the people of the 20s and the careless
lifestyle that they led. Some will say that it was the fault of big business for overproducing and the
government letting them do so. Still others will say that it is a natural thing and that it will happen
again no matter what we do. Do you think we will have another Depression?
The Roaring 20s was a period of economic growth and
prosperity. There were many new discoveries that resulted
in high employment. People were optimistic and felt that the
good times would last forever.
Higher
Production
= More
things are
sold
People have
more $ to
spend =
Increased
Demand for
Goods
PROSPERITY
(Lots of
Jobs!)
The Great Depression is sometimes called “Ten Lost Years”.
It was a period of economic decline and collapse. During the
time, many people had no money and could not find a job.
They were very pessimistic about their future and thought
that the misery would last forever.
Lower
Production
= Less
things are
sold.
People have
less $ to
spend =
Decreased
Demand for
Goods.
Boom Period!
Bust Period!
Greater
Profits are
Made = More
people are
Employed.
Smaller
Profits are
made =
People Lose
their jobs.
RECESSION
(Fewer
Jobs!)
Come up with your OWN definitions for the
different parts of the BUSINESS CYCLE:
PROSPERITY:
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The Business Cycle
RECESSION:
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DEPRESSION:
RECOVERY
(Jobs
Starting Up
Again!)
DEPRESSION
(Not Many
Jobs!)
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RECOVERY:
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