Mitchell, Georgia in the mid-2000’s. one of hundreds of small farm towns that emerged in the decades following the Civil War. Such towns multiplied with the expansion of short line railroads and gave rise to a smalltown middle class of merchants, bankers, agents, cotton gin owners, mechanics and later, auto dealerships, movie houses, drug stores small hotels and most importantly, banks. Many of these towns are all but abandoned. Others, like Mitchell in Glascock County, are kept alive by people with deep roots and fond memories who wish to save the look, the feel, and the values of such communities. Photo by the author.
The banking disaster in Georgia in the mid-1920’s, grabbed me when I was trying to reconstruct my grandfather’s career as a small-town banker. What I uncovered was the amazing story of the “Terrible Twenties” in the deep south. Briefly, the story follows the fate of small rural towns into a dark place, as a devastating decline in cotton prices, a crash in land values and a crooked banking scheme all combined to crush the hopes of not only my family, but that of tens of thousands of families in the rural South. It was a perfect storm.
My study led me to the conclusion that the rural south was in an economic depression from the Civil War until the Second World War except for a burst of prosperity generated by World War I. That experience gave rise to the myth that cotton had made a comeback as a profitable staple crop. The war had created the illusion of a “new normal,” in effect the return of “King Cotton” of the pre-Civil War years. But it was only a dream.
The Recession of 1920 was especially hard on the small- town middle class. Smalltown businesses grew wings during the years of the First World War, years that inspired and rewarded the aspirations of an emerging rural middle class. Instead, the end of the Great War saw a generational decline in opportunities. The twenties in the rural South were to be more than a preview of what was to come in the Great Depression years of the 1930’s. These were also years of desperation.
Characterized in Erskine Caldwell’s novel Tobacco Road published in 1932, the destitute, illiterate, and degenerate stereotype of rural southerners became set in concrete.The story is based on his observations while coming of age in rural Jefferson County Georgia in the 1920’s. His characters and their scandalous behavior popularized an image that would become commonplace in Hollywood movies, novels, and articles in popular magazines. Radio and television comedies stereotyping and ridiculing poor southerners -Black and white- were popular throughout the 1950’s and 1960’s. Humor and homespun witticisms provided by script writers did little to soften the unflattering narrative that rural southerners were undereducated, lazy, and overweight. Often overlooked is that Caldwell’s stories are set in the 1920’s when, as a young man he was cataloging what he saw around him in Wrens, Georgia. What he saw and wrote about was the destitute farmers and sharecroppers. The “reectable” small town business people resented this and felt they had been tarred with the same brush as the hard-bitten rural poor.
Small town businessmen in the 1920’s sought opportunity in the changing economy, opening department stores, built mini-palaces in which to show the silent movies that had become so popular, profited from automobile dealerships (especially Model T Fords which were cheap), Coca Cola bottling plants, service stations and auto-parts stores -and most of all banks. But where do you find the capital to start a new business? The answer was to start a bank and use “other people’s money.”
Bankers in the twenties were loaning money to relatives and business associates who had set up corporations that often existed on paper only for the purpose of receiving the cash. Chain banking and deposit insurance schemes multiplied. Small town businesspeople naturally sought opportunities to share in the material progress enjoyed by the rest of America, especially urban America. Having tasted success in the war years, small-town businesspeople must have felt entitled and were willing to do whatever was necessary to grab their share of prosperity.
Banks also carried the possibility of turning worthless farmlands into cash. When cotton prices collapsed in 1920, banks found the real estate notes they had issued during the war years were now virtually worthless. Bankruptcy sales on the courthouse steps officially announced the humiliating fact that the farmer princes of the wartime economy were “cash broke” if “land rich.” So were their adult children and their neighbors. Small towns began to “drie up” throughout the twenties. Sharecroppers and tenants desperately fled to jobs in the industrial cities of the middle and northern states. Detroit was a common destination. Auto assembly line workers earned comparatively high wages. In this way, migrants freed themselves from the despair of farm life, but typically carried nothing of value with them. With no savings are accumulated generational wealth, they were locked in to hour wages.
Stalling briefly in 1921, the nation’s manufacturing economy -and the stock market- boomed. Protected by high import taxes and driven by the amazing wartime increase in efficiency, America’s obsession became business. The focus of big business and its handmaiden, the Republican administrations in Washington, was to capitalize on world markets, especially among the war-torn European states. One scheme discussed in the Commerce Department called for the federal government to create a fund to be used to buy up cheap domestic staple harvests and “dump” them on foreign markets. Followers of today’s news will easily understand the problem: wages were not keeping up with prices. Despite well publisized accounts of the damage wrought by the “boll weevil,” OVERPRODUCTION of cotton was at the heart of Georgia farmers’ problems.
Speculation on the stock market and Florida real estate was generating great fortunes. Even normally cautious bankers were tempted to roll the dice and ride the wind of fortune. “You have to spend money to make money,” the saying goes. It is also said that “Bankruptcy is to capitalism as Hell is to Christianity (Gore Vidal). The precipice in rural bankers future lay in the expansion of deposit insurance schemes, “chain” banking, and the transfer of finacial control to “financial agents”- companies that could move money around to “stabilize” members during seasonal and cyclical cash flow problems.
For ambitious small- town capitalists, it was banks that could accumulate the capital to float their enterprises. When deposits were insured by private companies set up for the purpose, the lid came off and banks loaned money for all sorts of ventures, but most critically in order to invest in the booming Florida real estate market and the New York Stock Exchange. Often, this involved loaning money to larger banks or commercial banking operators (“financial agents”) that were not banks at all. These institutions were capable of making loans in the millions for enormous construction projects or to finance corporate acquisitions and industrial startups. They also took over many banks through contactural arrangements and interlocking directorates. Some of the most admired bankers in the south were organizersof such businesses and in effect owned are controlled dozens -in some cases a hundred or more banks.
Amazing Florida developments, such as the construction of entire communities, resort hotels and even islands were financed directly or indirectly by banks using depositors’ money. And just think! Depositors’ money was insured -until it was not. The officers of the largest deposit insurance schemes made off with the money.
Soemone had to pay. A half dozen offenders, those associated with the failure of the Bankers Trust Company in Atlanta were arrested by the FBI and convicted in the federal courts. Meanwhile, the banking community continued to reassure its depositors, insisting Georgia banks were sound except for a handful of small rural banks. The massive adverstising that Bankers Trust had engaged in had discouraged local newspapers from exposing its practices to the very end. The US Secretary of the Treasurer (a wealthy banker himself), as well as officials of the most important national and local banking associations played down the 1926 scandal as only impacting a few of small rural banks. It was to be business as usual.
NEXT: In a future post I plan to recount the tragic consequences of the failure of the South’s rural economy in the 1920’s, particularly following the collapse of the Bankers Trust deposit insurance scheme. Few details of this have found their way into textbooks, or into state and local histories. It is hard to dig out. State banking officials were not forthcoming. And I can find little written about the trials of the rural middle class in the twenties, but have found many signs of desperation, including suicides, bankruptcies and bankers accused of absconding with depositors money. What of all the foregone dreams and aspirations of people affected? Generational wealth evaporated for many. Plans for travel, college educations and care for the ill among many other hopes were dashed. This all seems to be relevant in our own times, given the recurring disclosure of mismanaged or criminally managed banking operations that impact huge numbers of investors and depositors. As southerners, curious about our past, we continue to conflate historical memories and to transpose events in the twenties into the decade of the thirties. What happened in the twenties is all but ignored -except for state gubernatorial politics, the Ku Klux Klan and the Boll Weevil.