ECONOMIC CATACLYSM: SOUTH DAKOTA AND THE GREAT DEPRESSION

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ECONOMIC CATACLYSM SOUTH DAKOTA AND THE GREAT
DEPRESSION

• By
• Ralph J. Brown
• Professor of Economics
• USD
• USD.edu/rbrown

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South Dakota on the Eveof the Great Depression

• SD was a small rural state in 1929
• Population 690 thousand
• 81 rural
• 16 of population in 10 largest cities
• Sioux Falls 33,362 people
• Aberdeen 16,465
• Rapid City 10,404 (5th largest)

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Eve of Great Depression cont

• Most farm-related state in nation
• 48 of total earnings from farms
• of farms peaked at 81,400 in 1931
• Avg size 434 acres
• Value per acre 36
• Farm Income very high - 1 billion
• 1929 in 2000 s

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Eve of Great Depression cont

• Relatively undiversified economy
• Mfg 4 of total earnings
• Wholesale/Retail 20 of total earnings
• Goods-producing 56 of total earnings
• (farm, mfg, mining, const)

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Eve of Great Depression cont

• Per capita personal income in 1929
• SD 3,641 in 2000s 61 of US
• US 5,983 in 2000s
• SD rank 37th in per capita personal income

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Off the Charts- US Business Cycle 1890-1940
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SD P.C. Pers. Income

• Year PCPI PCPI (2000s)
• 1929 426 3,641
• 1930 366 3,267
• 1931 241 2,411
• 1932 189 2,146
• 1933 129 1,519
• 1934 184 2,071
• 1935 309 3,397
• 1936 244 2,657
• 1937 323 3,393
• 1938 320 3,439
• 1939 345 3,743

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SD Sharpest Income Decline
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LEAVING SOUTH DAKOTA
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Population Declined 80,000 People
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CHRISTMAS DINNER(1935)
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Real Income 1929-33

• Real per capita income
• SD -58
• US -26
• Real farm income
• SD -115
• US -41
• Real nonfarm income
• SD -9
• US -23

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CCC AT WORK
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Relative Importance by Sector 1929-33

• Contribution
• Category SD US
• Total Per Income 100 100
• Nonfarm Income 16 85
• Farm Income 84 15

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SD Farm Economy GD

• The previous slide understates the impact the
  Great Depression on SD agriculture.
• Farm economy suffered from
• a. drought grasshoppers (not related to GD)
  1931, 33, 34, 36
• b. collapse in prices due to (GD)
• cattle -63, hogs -65,
• corn -27, wheat -31

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SD Nonfarm Income- Less Severe
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THE FARM ECONOMY
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Farm Economy Took Biggest Hit
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FARM FORECLOSURES
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DUST STORM
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Drought
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Crop Yields Down Sharply
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Crop Yields Down Sharply
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Moving On
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Prices Also Down Sharply
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Prices Down Sharply
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Livestock Prices Down Sharply
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Current Farm Program Started in 1930s
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HOG REDUCTION PROGRAM
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BANK FAILURES
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Thousands of Banks Fail
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Collapse in Bank Deposits
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Bank Loans Collapse
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STATE GOVERNMENT

• Governor Berry (1933)
• 25 reduction in State spending
• Higher education cut 40
• Gross Income Tax (limited to 2 years)
• Replaced in 1935 with net income tax and 2 sales
  tax.
• In 1937, raised sales tax to 3 and eliminated
  income tax.

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STATE GOVERNMENTFEELS THE PAIN
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WHAT HAVE WE LEARNED?

• GD was devastating event for SD
• a. PCPI fell greater than any other
  state SD -58 US -23.
• b. farm income -115.
• c. nonfarm income only -9.
• SD population 1929-41 -80,000 people.

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• SD suffered from two forces GD and severe
  drought
• a. GD causes a dramatic drop in crop (-30)
  livestock (-65) prices.
• b. Severe drought caused drop in crop yields.

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• Bank Failures were widespread
• a. number of banks fell 60.
• b. deposits fell 60.
• c. bank loans fell 70.

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• Overall the Great Depression was the most
  cataclysmic economic event in US and SD history.
• SD was the most severely affected by the Great
  Depression

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APPENDIX

• Causes of the Great Depression
• Great Depression Timeline

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CAUSES OF THE GREAT DEPRESSION

• Inappropriate Monetary Policy by Federal Reserve
  System
• a. allowed money supply to fall by 1/3 from 1929
  to 1933,
• b. allowed ½ banks to fail.
• The workings of the Gold Standard exacerbated and
  spread depression worldwide.
• Passage of Smoot-Hawley tariff had disastrous
  effects on world trade.
• Stock Market crash was not major cause

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FED Fails
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Great Depression Timeline

• 1929
• Recession begin August 1929
• Stock mkt crash late October Black Tuesday
  10/29/29
• Congress passes Agricultural Marketing Act

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Great Depression Timeline

• 1930
• Treasury Secretary Andrew Mellon liquidate
  labor, liquidate stocks, liquidate real estate
• Smoot-Hawley tariff passed
• First bank panic begins late in 1930
• 1,350 banks fail-FED malign neglect
• GNP falls 8.6

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Great Depression Timeline

• 1931
• 2nd bank panic in spring
• 2,293 banks fail-FED failure
• Britain goes off gold standard
• FED raises discount rate - tightens
• GNP falls another 6.4
• Bank of United States fails

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Great Depression Timeline

• 1932
• FED purchases bonds on open market starting
  expansionary policy
• RFC created
• Bonus army riot in Wash DC
• Revenue Act of 1932 large tax increase
• 1,493 banks fail-FED failure
• International trade down2/3 since 1929
• GNP falls 13.0

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Great Depression Timeline

• 1933
• Roosevelt inaugurated First 100 days
• Declares bank holiday
• America goes off gold standard
• Farm Relief Act, TVA, Farm Credit Act,
  Glass-Steagall Act, FDIC, NIRA, etc
• 4,000 banks fail
• GNP falls 1.3 Unemployment rate now 24.9

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Great Depression Timeline

• 1934
• Economy begins recovery
• GNP 10.8 unemployment rate falls to 21.7
• FCC SEC acts passed
• FDIC

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Great Depression Timeline

• 1935
• Supreme Court declares National Recovery Adm
  unconstitutional
• WPA and REA created
• NLRA passed
• GNP grows 8.9 unemployment rate down to 20.1

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Great Depression Timeline

• 1936
• AAA declared unconstitutional
• Top tax rate 79
• GNP grows 13.0 unemployment rate down to 16.9

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Great Depression Timeline

• 1937
• FDR 2nd Inaugural Address I see one-third of a
  nation ill-housed, ill-clad, ill-nourished
• May 2nd depression
• NLRA Act constitutional