ECONOMIC CATACLYSM SOUTH DAKOTA AND THE GREAT DEPRESSION

							ECONOMIC CATACLYSM: SOUTH DAKOTA AND THE GREAT DEPRESSION
By Ralph J. Brown Professor of Economics USD USD.edu/~rbrown

South Dakota on the Eve of 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)

Eve of Great Depression con’t
► 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

Eve of Great Depression con’t
► Relatively

undiversified economy

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

Eve of Great Depression con’t
► Per

capita personal income in 1929

SD $3,641 in 2000$s 61% of US

US $5,983 in 2000$s
SD rank 37th in per capita personal income

Off the Charts- US Business Cycle 1890-1940

SD P.C. Pers. Income
Year

1929
1930 1931 1932

PCPI

$426
$366 $241 $189

PCPI (2000$s)

$3,641
$3,267 $2,411 $2,146

1933
1934 1935 1936 1937 1938 1939

$129
$184 $309 $244 $323 $320 $345

$1,519
$2,071 $3,397 $2,657 $3,393 $3,439 $3,743

SD Sharpest Income Decline
INDEX OF REAL PER CAPITA INCOME
140 120

Index 1929=100

PLAINS
100

US
80 60 SD lowest in nation sharpest decl ine
1934 1936 1938 1940

SD
40
1930 1932

Source: Bureau of Economic Analysis

LEAVING SOUTH DAKOTA

Population Declined 80,000 People
South Dakota Population
700000 690000 680000 670000 660000 650000 640000 630000 620000 610000 1930 1932 1934 1936 1938 1940

Source: Bureau of Economic Analysis

CHRISTMAS DINNER(1935)

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%

CCC AT WORK

Relative Importance by Sector 1929-33
Category Total Per Income Nonfarm Income Farm Income
Contribution SD US 100% 100% 16% 85% 84% 15%

SD Farm Economy & GD
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%
► The

SD Nonfarm Income- Less Severe
INDEX OF REAL NONFARM INCOME
140 130

US

Index 1929=100

120 110 100 90 80 70 1930 1932 1934 1936 1938 1940

SD

PLAINS

Source: Bureau of Economic Analysis

THE FARM ECONOMY

Farm Economy Took Biggest Hit
INDEX OF REAL FARM INCOME
140 120

Index 1929=100

100 80 60 40 20 0 -20 1930 1932 1934 1936 1938 1940

US PLAINS

SD

Source: Bureau of Economic Analysis

FARM FORECLOSURES

DUST STORM

Drought
GROWING SEASON PRECIPITATION
17 16 15 14 1931-2003 Average

inches

13 12 11 10 9 8

Aberdeen, Brookings, Yankton Average

1930

1932

1934

1936

1938

1940

Source: S.D. Crop & Livestock Reporting Service

Crop Yields Down Sharply
CORN YIELD
28 24 1919-29 Average

Yield Bushels per Acre

20 Corn Yield 16 12 8 4 1930 1932 1934 1936 1938 1940 1930-40 Average

Source: S.D. Crop & Livestock Reporting Service

Crop Yields Down Sharply
WHEAT YIELD
14

Yield Bushels per Acre

12 1919-29 Yield 10 1930-40 Yield

8

6

4 1930 1932 1934 1936 1938 1940

Source: S.D. Crop & Livestock Reporting Service

Moving On

Prices Also Down Sharply
CORN PRICES
$1.1 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 1930 1932 1934 1936 1938 1940 1919-29 Average

1930-40 Average

Source: S.D. Crop & Livestock Reporting Service

Prices Down Sharply
WHEAT PRICES
$1.4 1.2 1.0 0.8 0.6 0.4 0.2 1930 1932 1934 1936 1938 1940 1930-40 Average 1919-29 Aveage

Source: S.D. Crop & Livestock Reporting Service

Livestock Prices Down Sharply
PRICE OF HOGS AND CATTLE
11 10 9 8 Hogs 1919-29 1930-40 Cattle 1919-29 1930-40 $9.58 $6.16 $7.56 $6.11

Hogs

Per cwt

7 6 5 4 3 2 1930

Cattle

1932

1934

1936

1938

1940

South Crop & Livestock Reporting Service

Current Farm Program Started in 1930s
GOVERNMENT PAYMENTS
24 20 16 12 8 4 0 1930 1932 1934 1936 1938 1940

Mainly AAA Program Price Supports Acreage Limitations

Millions $

Source: SD Crop & Livestock Reporting Service

HOG REDUCTION PROGRAM

BANK FAILURES

Thousands of Banks Fail
NUMBER OF BANKS
100 90

Index 1929=100

80 70

1929 US 25,350 SD 396 PLAINS 6,477

1933 14,624 212 3,314

US
60 50

PLAINS SD

40 1930 1932 1934 1936 1938 1940

Source: Statistical Abstract of the U.S.

Collapse in Bank Deposits
BANK DEPOSITS (demand & time)
130 120 110

Index 1929=100

100 90 80 70 60 50 40 1930 1932 1934 1936 1938 1940

PLAINS
US

SD

Source: Statistical Abstract of the U.S.

Bank Loans Collapse
BANK LOANS
100 90

Index 1929=100

80 70 60 50 40 30 20 1930 1932 1934 1936 1938 1940

US PLAINS SD

Source: Statistical Analysis of the U.S.

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.

STATE GOVERNMENT FEELS THE PAIN
SD STATE GOVT TAX REVENUE
24

33-36 estimated
20

Millions $

16

12

8

4 1930 1932 1934 1936 1938 1940

Source: Statistical Abstract of U.S. and Estimates

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.

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.

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

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

APPENDIX
of the Great Depression ► Great Depression Timeline
► Causes

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

FED Fails

Great Depression Timeline
1929
begin August 1929 ► Stock mkt crash late October – “Black Tuesday” 10/29/29 ► Congress passes Agricultural Marketing Act
► Recession

Great Depression Timeline
1930
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%
► Treasury

Great Depression Timeline
1931
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
► 2nd

Great Depression Timeline
1932
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%
► FED

Great Depression Timeline
1933
inaugurated “First 100 days” ► Declares bank holiday ► America goes off gold standard ► Farm Relief Act, TVA, Farm Credit Act, GlassSteagall Act, FDIC, NIRA, etc ► 4,000 banks fail ► GNP falls 1.3% Unemployment rate now 24.9%
► Roosevelt

Great Depression Timeline
1934
begins recovery ► GNP +10.8% unemployment rate falls to 21.7% ► FCC & SEC acts passed ► FDIC
► Economy

Great Depression Timeline
1935
Court declares National Recovery Adm unconstitutional ► WPA and REA created ► NLRA passed ► GNP grows 8.9% unemployment rate down to 20.1%
► Supreme

Great Depression Timeline
1936
declared unconstitutional ► Top tax rate 79% ► GNP grows 13.0% unemployment rate down to 16.9%
► AAA

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