|Governor-General John McDowell|
The Great Depression resulted from the outbreak of the Franco-German War in the late autumn of 1878. The war took Europe's bankers by surprise, and a panic struck the money markets of Paris and Berlin, and spread from there to London and New York City. However, markets in both London and New York recovered within a week, and the monetary crisis eased soon afterwards.
Although the immediate financial crisis had passed, there would soon be a second shock. British Prime Minister Geoffrey Cadogan reacted to the outbreak of war by ordering a mobilization of the British army and doubling the naval appropriation for 1879. The higher taxes that resulted, combined with rising interest rates and fears that the war would spread to the British Empire, caused investment in the C.N.A. to drop off. Beginning in early 1879, British bankers began to call in their loans to the C.N.A., and by the end of the year the money being withdrawn from North America surpassed new investments.
North American banks attempted to cover British withdrawals for the first three months of 1880. Then, in April, the North American Trust closed its doors and announced its insolvency. The following week, North American Steel announced that it was closing down two mills due to lack of capital. Thomas Edison's National Electric declared bankruptcy in May, and this set off a panic that struck every confederation. Although Sobel does not explicitly say so, the effects of the Great Depression were undoubtedly increased by the collapse of international trade resulting from the wave of insurrection and chaos that struck Europe during the Bloody Eighties.
Governor-General John McDowell responded to the withdrawal of British investment by ordering the Treasury to make deposits in key financial institutions throughout the C.N.A., assuring their liquidity. When the National Electric declared bankruptcy, McDowell arranged for an emergency loan fund to be administered by the newly-created National Financial Administration. Under Administrator Howard Carson, the N.F.A. made 354 loans totalling more than N.A. £3.5 million from 1880 to 1884. Carson was able to revive the Northern Confederation Trust, prevent the bankruptcy of North American Steel, and prevent a wave of foreclosures from striking Michigan City.McDowell also helped farmers by establishing the Rural Credit Association, which was empowered to grant loans of up to N.A. £400 to farmers whose holdings were endangered by foreclosures.
In response to McDowell's measures, the C.N.A. Businessmen's Association called him "the strongest and wisest leader our nation has ever had." Carl Bok, the president of the Mechanics National Union, ended his labor union's traditional political neutrality by offering McDowell "the support of our members throughout our land, and this definitely extends to the political campaign of 1883."
In spite of McDowell's efforts, the C.N.A. was plagued by looters, rioters, and an upsurge of radicalism in the early 1880s. The Confederation Bureau of Investigation, originally established to expose government corruption, was repurposed to combat radicalism and subversion. The C.N.A. was also the recipient of a wave of immigration from Europe, as some 1.5 million people fled the economic and social chaos there until McDowell closed the C.N.A.'s borders in 1882.
In his Age of Renewal speech on 11 October 1882, McDowell promised more widespread reforms to be undertaken in his second term, and his Liberal Party went on to win a majority of 82 seats in a Grant Council that was split between his party, the Conservative Party, and the radical new People's Coalition. The growing radicalism of the North American voters allowed the P.C. to replace the Conservatives as the official opposition, and left them poised to take advantage of any mistakes McDowell might make.
Sobel's sources for the Great Depression are Arthur Watkins' The Great Depression of 1880-1883 (London, 1915); Hector Welles' The People's Coalition During the Great Depression (London, 1967); Abner LeFevre's The Age of Renewal: The First McDowell Administration (New York, 1968); and Sir Monte Barkins' Long-Term Dislocations in the C.N.A Economy in the Great Depression (London, 1970).