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BC Goes Bust

Depression hit, and even the finance minister lost his shirt. Second in a series.

By Will McMartin 28 Nov 2008 | TheTyee.ca

Veteran political analyst Will McMartin is a Tyee contributing editor.

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The Tolmie cabinet. The premier is in the front-row centre, holding his hat in his right hand. Finance Minister Shelly is to his immediate left.

B.C.'s new finance minister, William C. Shelly, must often have marvelled at his own, personal financial success in the weeks and months before he delivered his first budget address on Feb. 21, 1929. He was engaged in numerous commercial interests and most, if not all, were extraordinarily profitable.

A millionaire following the sale of his bread-making operations to the Canadian Bakeries Ltd. conglomerate, Shelly in 1925 became -- along with several other high-profile B.C. businessmen -- an early investor in Home Oil Co. Ltd., a little-known Alberta oil-drilling company. He also became the firm's president.

Starting with $150,000 from seed investors (200,000 par shares priced at $1, minus commission), Home Oil began drilling in Alberta's famed Turner Valley. The first well to blow-in did so on June 9, 1927, and within a year the company's shares had reached a high of $4 in Toronto.

By then, Shelly was running for election to B.C.'s legislative assembly. He topped the polls in Vancouver City (which then elected six MLAs), and on August 21, 1928, was sworn in as finance minister in Simon Fraser Tolmie's new Conservative government.

About the same time, after a brief respite, Home Oil resumed its drilling operations. On midnight, Saturday, Feb. 9, 1929, the company hit a bonanza. The stock market responded accordingly, pushing the firm's shares to $7.50 on the following Monday. In less than two years, Home Oil's market capitalization had grown to one and a half million dollars.

About a week later, Shelly rose in B.C.'s legislative assembly to deliver the province's fiscal budget for 1929/30. Already a wealthy man, his fortune, day by day, was growing much, much larger.

Lubricating progress

It was a good time to be in the oil business, mostly because automobile ownership had exploded following the First World War. (Henry Ford introduced the assembly-line in 1913/14.) Where Canada had just 70,000 registered vehicles at the start of the war, by 1929 that figure was 1.2 million. (In B.C., the comparable figures were 7,600 and 95,500.)

The '20s marked a period of incredible technological change. Much of it was derived from electrical generation and the wiring of factories and homes. In turn, that sparked demand for indoor lighting appliances, as well as labour- and time-saving devices -- washing machines, stoves, refrigerators (although early models had an alarming tendency to explode) and more.

Radio was perhaps the most-popular innovation, followed closely by the telephone.

Outside the home, the airplane was transforming the North American economy. Between 1921 and 1931, the volume of air freight in Canada grew from 80,000 pounds to 2.4 million pounds annually, and passenger-miles went from almost nothing to more than four million a year.

The automobile also brought a fundamental change on consumer behaviour, as increased mobility led to the development of large department stores, which offered a far wider selection of goods than was available at the corner or village store.

By the end of the 1920s, the contemplative man or woman could sit back and wonder at the progress of the world around him or her. And they could do so with an alcoholic beverage in hand, for the decade also marked a resumption in the legal sale of liquor. Prohibition ended in most Canadian provinces during the decade -- B.C. was among the first, in 1920 -- although it remained in force for many years in the United States.

A booze bonanza

The popularity of automobiles and alcohol had a significant, and positive, impact on the finances of Canadian provinces during the 1920s.

In B.C. in 1921/22, motor-vehicle fees and licences delivered about $803,000 to the provincial treasury, while gasoline taxes were non-existent (they were introduced in 1923/24)). By 1929/30, the two combined generated $3.4 million.

B.C.'s liquor revenues in 1921/22 were about $1.1 million; by the end of the decade they totaled $4.8 million.

Other sizeable revenues in 1929/30 were derived from the provincial income tax ($5.5 million), various royalties, licences and leases in the Lands department, mostly from forestry ($4.1 million), land taxes ($2.1 million) and federal transfers ($739,000).

The '20s also brought important changes to the province's spending, in part because of the increased need for roads suitable for automobiles. Indeed, excluding interest charges, the largest current account expenditures in 1929/30 were for "roads, bridges, ferries, wharves, etc." at $2.5 million.

Other sizeable spending items included grants to municipalities ($1.8 million), school districts ($1.6 million) and hospitals and charities ($1.2 million), with the provincial police ($780,000), mothers' pensions ($760,000), and teachers' salaries ($709,000) also representing significant expenditures.

BC's budget crashes

B.C.'s finances did not immediately suffer as a result of Wall Street's great crash in October 1929. In fact, revenues for the fiscal year 1929/30 came in $796,000 above the figure estimated by finance minister Shelly in his Feb. 1929 budget.

Revenues totalled a record-high $26.1 million -- nearly $5 million higher than the preceding year.

However, expenditures also finished over-budget (by nearly a million dollars). It meant yet another deficit, although one of the smallest in provincial history, $135,000.

When he unveiled his 1930/31 budget -- three months after the stock market crash -- Shelly estimated revenues would climb about two million dollars to just over $28.1 million. He also calculated a small increase in expenditures, leaving a tiny surplus of $43,000.

It was not to be. Revenues plunged by more than $3.8 million, while spending exceeded the budget by more than one million dollars. The result, up to that time, was the biggest shortfall in B.C. history -- $4.8 million.

Oil stock booms

In his book The Great Depression, 1929-1939, Pierre Berton explained how, before the great crash, investors were buying shares on margin and reaping sizeable gains as the stock market soared ever higher. Interestingly, one of the examples he provided was of Home Oil Co. Ltd., of which B.C.'s finance minister was a major shareholder.

"In January you could buy a hundred shares of Home Oil for $350 [or $3.50 per share] with a down payment of less than $50 and sell them in March for $1,585 [or $15.85 per share]," Berton wrote. "But hardly anybody sold, because everybody believed stock prices would continue to rise. And for another six months they did."

Home Oil's stock-market valuation made William C. Shelly, B.C.'s finance minister and the company's president who had bought his seed shares for just a dollar apiece, an extremely wealthy man. By March 5, Home Oil hit an all-time high of $18, and Shelly's personal stake in the firm was estimated at close to $2 million.

A half-year later, as the stock market weakened, investors began to sell their Home Oil stock. On Oct. 25, the day after Black Thursday, the company's shares were down to $12.65.

Shelly was not among the sellers. It must have seemed a wise move at the time, for the company's revenues showed substantial growth. And, for a while, Home Oil's share price stabilized, but more bad news was in the offing. By the fall of 1930, production at the company's wells began to decline, and in the following year, the Alberta government passed legislation restricting production.

Farmers head west

Across the Canadian prairies in the Great Depression, and especially after the region was hit by an enduring drought and plagues of grasshoppers, countless farmers had to abandon their land and thousands of farmhands were without work. Urban-dwellers whose jobs depended on agriculture were forced to go on relief. Many prairie residents decided to move westward, toward the Pacific coast.

It is hard to believe today, but for most of the first third of the 20th century, British Columbia, in terms of population, was smaller than each of the three prairie provinces. That changed within a single decade, as B.C. during the Great Depression went from being the smallest to the largest province west of Ontario.

In 1932 (with a population estimated at 707,000), B.C. slipped past Manitoba, and seven years later (with 792,000 residents), surpassed Alberta. Then, in 1942 (having grown to 870,000), B.C. edged past Saskatchewan.

According to B.C. historian Jean Barman, the 1941 census found that prairie-born residents represented 15 percent -- or nearly one in every six -- of British Columbia's non-native population.

Building goes bust

There was little work to be found in B.C. in the early 1930s, however, as the economic downturn grew steadily worse.

In 1929, the value of building permits issued in Vancouver was $21.6 million. Two years later, that figure had skidded to just $10.1 million, and in 1934 was a tiny $1.4 million.

It was the same elsewhere across the province. Victoria's building permits from 1929 to 1934 fell from $3.9 million to just $432,000. In Kamloops over the same period, the drop was from $241,000 to $34,000.

Such was the growth of men without work in B.C. during the Great Depression -- many of whom "rode the rails" to the West Coast (i.e., hopped on freight trains travelling through the Rocky Mountains) -- that Ottawa and Victoria negotiated a cost-sharing agreement to provide the transients with relief.

Spiraling unemployment

In August 1931, 35,842 people were registered as unemployed. Less than a year later, in April 1932, that figure had more than doubled, to 73,628, and by the end of 1933, the number was an incredible 114,279.

To provide work for the unemployed, 237 relief camps were set up across the province, with the costs shared between the federal and provincial governments. By May 1932, close to 15,000 men had been transferred to these work sites, where they built roads, parks, airfields and other forms of public infrastructure.

Provincial expenditures on relief (excluding grants to municipalities) totaled about $992,000 in 1930/31, and nearly doubled to $1.8 million in 1931/32.

Within a couple of years, however, Victoria no longer could afford to pay its share, and responsibility for the relief camps was transferred to the care and operation of the Canadian Army.

BC's deficit king

Home Oil Co. Ltd was nearly wiped out in the years following the stock market crash. From a high of $18 in the spring of 1930, the company's stock two years later was trading at just fifteen cents.

Most of Home Oil's initial, well-heeled investors survived intact, with one notable exception -- William C. Shelly. According to one report, he "lost everything."

Shelly left the finance ministry on Oct. 29, 1930, transferred by premier Tolmie to a less-demanding portfolio (president of the council). Not long thereafter he quit as Home Oil's president, and retired from politics for good in 1933, content to remain in the bread-making business as an executive at Canadian Bakeries.

The quintessential businessman who thought the province should be run like a business, Shelly had overseen B.C.'s finances for just over two years. During that time, he delivered the biggest deficit in provincial history, and nearly ruined his own finances.

One-Percent Jimmy

Shelly's successor at the finance ministry was James William Jones, a Conservative from South Okanagan. He held the portfolio until the fall of 1933, through the worst years of the Great Depression, and gained one of the most unique nicknames in B.C. political history -- One-Percent Jimmy.

His fiscal policies also prompted a controversial review of the province's finances, undertaken by a group of businessmen known to history as the Kidd Commission. In turn, the commission's report led to a dramatic clash between B.C.'s business community and professors at the University of British Columbia.

On Tuesday: BC crawls out of the economic rubble.

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