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The Depression And Arkansas: Historians Shine Light on Dark Era

7 min read

(Editor’s Note: This is the latest in a series of business history feature stories. Suggestions for future "Fifth Monday" articles are welcome. Please contact Gwen Moritz at (501) 372-1443 or by e-mail at gmoritz@abpg.com.)

There’s no doubt that the current recession is hurting people throughout the United States, including Arkansas. Interviews with Arkansas historians and a little research, however, illustrate the gulf – and the parallels – between this recession and what came to be called the Great Depression.

In February 2009, the nation’s unemployment rate stood at 8.1 percent, the highest since 1983. Economic forecasters expect it to reach double digits by year’s end. In Arkansas, the jobless rate in January, the latest figure available, was 6.4 percent.

But statistics on the Depression in Arkansas, compiled by John L. Ferguson, the late state historian, reveal:

• In 1933, unemployment in Arkansas reached 37 percent. That year, 245,000 Arkansans were unemployed, compared with 24,000 without jobs in 1929.

• Taxes were delinquent on one-third of the rural land in the state.

• From 1929 to 1933, more than half the manufacturers in Arkansas closed.

• Bank deposits in the state fell to $62 million in 1932, compared with $137 million in 1929.

Nationwide in 1933, at the Depression’s height, nearly 25 percent of the total work force was unemployed – 12.8 million people. Between 1929 and 1933, wages for those who did have jobs fell almost 43 percent. Nearly half of the nation’s 25,000 banks failed. It was the worst economic disaster the nation had experienced.

Bill Bowen, former chairman and CEO of First Commercial Bank, was a teenager during the Depression. Asked what lessons that era taught, Bowen referred to the excesses in spending and credit that led up to the Depression. Then noting the parallels to today, he was succinct. "We didn’t learn a damn thing."

How It Started
Although the stock market crash of 1929 marks the beginning of the Great Depression in the United States, that event didn’t have – at first – much effect on Arkansas, which had few investors in the market.

For Arkansans, no strangers to hard times, the harder times had already begun, in the 1920s. A decline in cotton prices, in a state where cotton still was king, and the Great Flood of 1927 proved to be a staggering one-two punch. It was a blow exacerbated by the nation’s economic crisis and wrongheaded decisions by the state’s business and political leaders.

"The Depression’s impact on Arkansas differed from that suffered by industrial regions, but that does not mean the state was insulated from hard times," said Ben Johnson, dean of liberal and performing arts and professor of history at Southern Arkansas University.

"Plummeting cotton prices battered the state’s economy in the 1920s, helping to give rise to the notion that Arkansans did not notice the Depression because they were already poor," Johnson said in an e-mail.

"There is a measure of truth to that, but conditions worsened even in Arkansas as the financial crisis dragged the nation’s industrial sector into the doldrums where the farming economy had been residing."

Then came the flood.

At its height, 13 percent (some reports said 50 percent) of Arkansas was under water. Homes, crops, roads and railroads were destroyed. More than 143,000 people were forced to find shelter in refugee camps. Recovery was slow in circumstances similar to those afflicting New Orleans in the aftermath of Hurricane Katrina.

In the 1920s, about eight out of 10 Arkansans relied on agriculture as their primary source of income. With the plunge in the price of cotton, the state’s main cash crop, and the destruction wreaked by the flood, Arkansas’ agriculture sector was devastated. And the social "safety net" of unemployment benefits, welfare and Social Security didn’t exist. Arkansans didn’t even have a federal stimulus package to give them hope.

So when the national economic hurricane hit, the state was poorly positioned to ride out the storm, said Fred Williams, professor of history at the University of Arkansas at Little Rock.

Drought and Debt
After the flood came the Great Drought of 1930-34. Crops burned up and the price of farmland plummeted. Many farmers – in a state of farmers – lost their homes and land.

The sharecropping system, for all its faults, helped keep people fed, but even it began to break down. Merchants, facing depressed prices for their goods and declining inventory, cut off credit. In a state where cash was scarce, no credit meant no food.

There was real starvation, said Michael Dougan, retired professor of history at Arkansas State University. "Food riots" took place in England and North Little Rock. These, however, were not violent and consisted mostly of shouting and shoving. But the national publicity generated by these disturbances brought a response from the Red Cross, and 165,000 people applied for food within three days.

In addition to the havoc caused by nature, the state’s political leaders unwittingly contributed to the downward economic slide by saddling Arkansas with crushing debt, Williams said.

Gov. John Martineau, a progressive who ran on a slogan of "better roads and better schools," signed a measure in 1927 passed by the General Assembly that obligated the state to take over all the county road improvement districts, Williams said. In doing so, the state took on $160 million in debt. At that time, the state government’s entire annual budget was only $14 million to $15 million, Williams said. Debt payments swallowed about three-quarters of the available revenue.

When the drought started in 1930, the state had no budget reserves. When the farming sector began to fail, so did many of the merchants, banks, hardware stores and farm equipment suppliers supported by those farmers. That, in turn, led to a drastic decline in tax revenue, Williams said.

Arkansas’ entire economy faltered, and the state was unable to provide the relief needed by its people.

Banks Go Belly-Up
In November 1930, the largest bank of A.B. Banks’ banking group, the American Exchange Trust Co., failed, taking down the remaining 50 banks in his chain, and many Arkansans lost their savings. From Nov. 15 to Nov. 24, 70 banks failed in the state. Before President Franklin D. Roosevelt declared a four-day "bank holiday" in 1933, about half the banks in the state – about 204 – had been closed, Dougan said. The bank holiday gave Congress time to pass the Emergency Banking Act in a largely successful effort to stabilize the banks and restore the public’s faith in them. Adding to the state’s woes was a stunning lack of foresight in its business and political leaders.

"A.B. Banks was a patron of Gov. Harvey Parnell, who continued the practice of wanton issuance of highway bonds and who had passed an income tax over strong business opposition (although this tax produced only a trickle of funds at this point)," said Johnson.

"Gov. Marion Futrell was elected in 1932 proclaiming that government profligacy and the modern dalliance with manufacturing and finance were at the core of the crisis and that a return to frugality and the agricultural economy were the balm." Johnson said.

"He whipped through the General Assembly and popular referendums measures that would handcuff state government’s ability to scare up revenue."

 The Causes, the Parallels
Historians and economists to this day differ over the causes of the Great Depression. Following are some of the ones most often cited:• The stock market crash was the trigger. It eroded business and consumer morale and investor confidence. Both businesses and consumers began to slow their spending. Many Americans began to panic and took their money out of the banks.

• The banks began to fail. Banks, spurred by the economic growth of the 1920s, had expanded into speculating in land and the stock market with little government regulation – not unlike the "irrational exuberance" that helped bring about the current recession, Dougan said. Bank deposits were uninsured, so when banks failed, people lost their money. The surviving banks, unsure of where the economy was headed and concerned for their own survival, made matters worse by failing to make new loans.

• Consumers stopped buying, which led to manufacturers producing less, which led to layoffs and a rise in unemployment. In a circular effect, much like today, as more people lost their jobs, people spent less.

• Overproduction or under-consumption? Historians and economists still debate over whether the grossly unequal distribution of wealth and income throughout the 1920s contributed to bringing the nation’s mass consumption economy to a halt.

• Inaction by the government and bad legislation didn’t necessarily cause the Depression, but they certainly deepened it and possibly prolonged it. As businesses started to fail, Congress passed the Smoot-Hawley Tariff Act in 1930 to protect American companies. The legislation increased tariffs on goods imported into the United States to 50 percent. This increased prices, which caused people to buy less and also caused other nations to retaliate, resulting in less trade. At that time, the prevailing opinion in government held that recessions were self-correcting. Government stood back and did little until Roosevelt entered office and began his New Deal programs.

• Others place some blame on the Federal Reserve Board for increasing interest rates, exactly the wrong thing to do when an economy is slowing.

The list could go on. Ultimately, the Great Depression came down to a crisis in confidence. Americans had lost confidence in the economy, and not until the federal government began taking action in an effort to restore the economy did Americans’ confidence return. And not until their confidence returned did the economy began to recover. Some of the government’s programs were effective; many weren’t. But the very demonstration of action, any action, helped calm the public.

New Deal programs put thousands of Arkansans to work, constructing roads, buildings and other projects that still stand today. Those programs – a hand-up, as Williams called them – were never meant to be long term, but they kept people alive – and gave them hope – until the hard times ended.       

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