Montana’s and the West’s “Golden Days”

Montana’s low average pay and income are often the centerpiece of public discussions about the state of the Montana economy and appropriate public economic policy. In 2001 Montana fell within the poorest five states in the union in terms of per capita income, clustered there with Idaho, Utah, and New Mexico. Arizona was not very far ahead.

It is often pointed out that just a few decades ago Montana was comfortably in the middle of the pack among the states. But this can be carried further back and made more dramatic. In 1880 Montana was the second highest state or territory in the nation in terms of per capita income. Now it is in the lowest ten. In fact, in 1880 the Mountain West as a whole had per capita incomes that were almost 70 percent above the national level. Now it is the second poorest region in the nation in terms of per capita income, beat out only by the Deep South.

What explains our earlier “golden age” and the continuous slide from those glory days? Extractive industries have always argued that the slide was due to the decline in the prominence of mining and other natural resource industries. Over the last half-century it is easy to show that they are wrong. Changes in the industrial structure of the economy can explain only 10 to 20 percent of the change in relative pay and income. But the character of early mineral development in Montana and the Mountain West does explain a good deal of the higher incomes received back at the end of the 19^th century. The details of the forces behind those high incomes tell us some cautionary tales about placing too much stock in average pay and income numbers as measures of economic well-being today.[1]

One of the reasons that per capita incomes were high in Montana in 1880 was that an unusually large percentage of the population worked and there were very few non-working dependents that had to be supported by those incomes. There were eight men for every three women and the men, in general, were young adults. Not surprisingly, there were also not many children. With most of the population adult male and working full time, per capita incomes were very high. Montana was largely a mining camp.

Mining camps have one other feature: They usually have high costs of living because none of the supplies necessary to support the population are produced locally and have to be imported from distant locations to the isolated mining camps. That provides another important piece of the explanation for the higher per capita incomes: They had to be high to offset the high cost of living. In the Mountain West as a whole in 1880, the cost of living was 30 percent above the national average. Montana surely shared in this.

This “golden period” in our economic past, then, was associated with natural resource development, but hardly appears to be a model that we would want to emulate now or ever. In addition it was not sustainable, and it is not clear that the higher incomes were associated with higher levels of well being. We cannot blame the decline in per capita incomes on the decline in mining, since mining would become a permanent feature of the Montana and Mountain West economies in the 20^th century. We have to blame the decline in per capita income on the influx of women, on the men who welcomed the presence of women, and on the children who were the inevitable result. That shift to a more normal demographic makeup, increased the number of dependents and decreased the percentage of the population that worked full-time. Per capita income had to fall. Should we mourn that and dream of returning to the raucous days of early mining camps where men could be men and the few women were limited to the bordellos and children were rarely to be seen?

We also have to blame economic development for the decline in average incomes. As permanent populations grew, we began producing locally many of the things we needed but used to import. The initial shortage of housing also resolved itself as construction proceeded. That helped to bring down the cost of living until it fell well below that found in large urban areas. Since people no longer had to be compensated for higher costs of living, pay did not have to be as high. Obviously, those downward adjustments in both incomes and cost of living did not change our economic well being. One offset the other.

When one looks at the higher per capita incomes received by residents of the Mountain West in 1880, 85 percent of the “bonus” is explained by higher cost of living and much higher levels of paid labor due to the lop-sided demographic nature of the population. Only 15 percent of the higher income was associated with higher levels of worker productivity and real hourly pay.

In short, in our “golden era,” we were not all that well off even though the economic statistics suggest that Montanans were almost the most prosperous citizens in the nation. Just as those economic statistics tell a false story about our early days, they also tell a false story about our current economic well being. We are not the impoverished people our politicians tell us we are. Now it is the lower cost of living and the value of the natural and social amenities found here in Montana that compensate us for our lower incomes. Trading what we have here now for life in a turn of the century mining camp or, for that matter, life in contemporary New York or Los Angeles metropolitan areas is unlikely to improve our level of well being.

[1] The data for these comments comes from “US Regional Growth and Convergence, 1880-1980,” Kris James Mitchener and Ian W. McLean, Journal of Economic History, 59(4):1016-1042, December 1999.