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<p>Newfoundland's debt crisis of the 1930s culminated in its renunciation of self-governing dominion status and ensuing control by Britain’s Commission of Government. According to conventional wisdom, this fiscal and political crisis was the joint outcome of various factors like the Great Depression, collapse of fish prices, Newfoundland's huge debt accumulation due to military spending in WWI and building of a railway system in the 1890s. This study re-examines this extraordinary episode and argues that the Newfoundland Government had committed the sunk cost fallacy and status quo bias when it nationalized the railway in 1923. These findings are consistent with both behavioural economics and new political economy. Had it not been financially involved in the railway, as our counterfactual analysis suggests, Newfoundland could have avoided the crisis despite the other adverse factors. Our results not only clarify certain controversies in the literature but also offer lessons for debt-ridden countries today.</p>

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A railway to economic and political collapse: Newfoundland’s sovereign debt crisis of the 1930s

  • 期刊论文

  • 发表日期：

    2025年9月26日

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  • Kam Hon Chu

摘要

Newfoundland's debt crisis of the 1930s culminated in its renunciation of self-governing dominion status and ensuing control by Britain’s Commission of Government. According to conventional wisdom, this fiscal and political crisis was the joint outcome of various factors like the Great Depression, collapse of fish prices, Newfoundland's huge debt accumulation due to military spending in WWI and building of a railway system in the 1890s. This study re-examines this extraordinary episode and argues that the Newfoundland Government had committed the sunk cost fallacy and status quo bias when it nationalized the railway in 1923. These findings are consistent with both behavioural economics and new political economy. Had it not been financially involved in the railway, as our counterfactual analysis suggests, Newfoundland could have avoided the crisis despite the other adverse factors. Our results not only clarify certain controversies in the literature but also offer lessons for debt-ridden countries today.