© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The South After the Civil War

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Two main questions: 1)What happened to the standard of living of African Americans after emancipation? 2)Why did the South Stagnate and fall behind the North in the generations following the Civil War?

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Emancipation  What happened to the standard of living of former slaves as a result of the Civil War?  How much better off (in economic terms) were emancipated African Americans compared to under slavery?

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Effects of Emancipation  13 th Amendment to the Constitution freed the Slaves.  Land reform (breaking up the ownership of the large plantations) was passed by congress but vetoed by President Johnson.  Before the Civil War, in the South the wealthiest 1/5 owned 75% of the land.  In 1870, the wealthiest 1/5 owned 73% of the land (only a 2% drop).

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Distribution of Agricultural Output Per Capita by Race in the Deep South

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Distribution of Agricultural Output Per Capita by Race in the Deep South, 1857 and 1879 After Civil War:

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. How much income was expropriated (stolen) during Slavery?  Calculate the Value of Production from each slave:  Marginal Revenue Product (MRP)  how much one more worker contributes to output of plantation  Estimates: $62.46 to $85.80

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. How much income was expropriated?  Marginal Revenue Product (MRP)  ($62.46-$85.80)  Value of slave consumption: ( $ )  Subtract value of slave consumption give us expropriated income ($33.51 to $55.76)  Rate of expropriation is: Expropriated Income / MRP : 50% to 65%. 54%-59% of a slave’s income was expropriated

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. What is the (monetary) value of Freedom?  Higher Wages  To the extent that labor markets are competitive, (no expropriation) Wages=MRP  More leisure  Value to being able to choose consumption bundle

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Computing the Value of Freedom  Can estimate income by taking value of output and subtracting costs of production and then dividing by the number of people on farm.  Must adjust income estimates for the effect of increased leisure.  What happened to work hours after emancipation?

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Computing the Value of Freedom  What happened to work hours?  Ransom and Sutch estimate slaves worked 1,552- 2,052 hours per year which dropped to hours after emancipation.  What is value of leisure (free time)?

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Computing the Value of Freedom  What is value of leisure (free time)?  Value of leisure = wage rate,  But how do you find that?  Most black workers were not paid a fixed wage  Need to estimate based on the value of agricultural production in the south

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Incomes of Slaves and Sharecroppers

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Value of Freedom  Emancipated slaves experienced a large annual increase in their material standard of living.  Argument that blacks didn’t (economically) benefit from freedom is wrong.  Emancipation did significantly increase black welfare.

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Conclusions:  Standard of living increased by between 80% and 180% following emancipation.  Higher income earned from working  Fewer hours spent working (more leisure time)  Value of having free choices (what to consume, how many hours to work, where to live, …)

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  What happened to the standard of living of African Americans as compared to Whites in the South following emancipation?

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Black income relative to white?

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Black/White income (1880)  In 1880, African Americans are poorer than Whites, in part, because the majority live in the South where income is much lower than the national average.

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Black income relative to white?

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Black/White income (1880)  Very little evidence of labor market discrimination  Labor income per worker is about the same for blacks as whites (ratio: 0.89)  Part of Black/White income gap is due to different levels of ownership of land and capital

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use  We would expect if markets work properly, that African Americans would acquire land and capital (both physical and human) and move to areas where higher income could be earned  However, this does not seems to have happened in this time period

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. In the period from 1880 to 1900, blacks increased their incomes in absolute terms. African Americans in the last portion of the 19 th century did not match the progress of whites.

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Possible explanations for the continued income disparity between Blacks and Whites in the South  Market Based:  Tenure arrangements especially sharecropping  Credit monopoly (no access to credit markets)  Government Imposed  Disenfranchisement  Segregation of public facilities and schools  Limits to mobility of labor

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. What happened to Southern Agriculture after the Civil War?  Farms become smaller in the South.  Loss of economies of scale  Decrease in productivity  Increase in tenancy farming  Tenancy: some form of land rental rather than ownership

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Farm size after Civil war  In 1860:  Plantations with more than 50 slaves made up four percent of the farms and produced 32% of cotton  In 1880:  Ransom and Sutch estimate that farms with more the 200 acres made up less than 1% of farms

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Farming after Emancipation  Before the Civil War:  The plantation owner owned land, labor and capital.  After Civil War:  The plantation owner owned land and capital, had to hire labor.  Need to develop mechanisms to acquire labor

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. How do they pay the workers?  How do you get workers for your land?  Options:  Hire workers/ pay wages  Sharecropping  Renting the Land  Which is best method?  Consider Transaction costs

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Transaction costs and contracts  Wage contract gives land owner most incentive to provide inputs, worker the least. Highest monitoring costs for land owners  Fixed rent contract gives tenant the most incentive to provide inputs, land owner the least. Land owner does not need to monitor  Share-Cropping contracts gives land owners and labor partial incentive, landowner must monitor both inputs and output.

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  No type of contract is clearly the best:  it depends on which input is most important or easiest to specify  However, in this time period in the South, sharecropping is the most common arrangement between workers and landowners

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Benefits of Sharecropping  Sharecropping:  At the end of the harvest the owner and the worker share the crop.  Both have incentive to maximize production because they are sharing the profits.

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Benefits of Sharecropping  If crop is labor intensive gives labor more incentive to work hard than a fixed wage.  Worker has incentive to stay through the whole year-  not leave during the busy harvest season when workers are in high demand.

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Benefits of Sharecropping  If land owner inputs are important, a sharecropping arrangement gives more incentive to provide inputs than fixed rent  Instruction in how to farm  Managerial expertise  High quality cotton  Risk sharing between landowner and farmer

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Farm Land in the Deep South, 1880

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Sharecropping  Tenure by Race shows % of blacks who are sharecroppers goes down, as does % who own farms 1900OwnersRentersShare White Black OwnersRentersShare White74819 Black  The failure to become farm owners appears to be a factor in failure of black income to rise.  Suggests lack of protection of property rights

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Credit Market  How were crops financed?  Crop lien laws  Used the growing crop as security  Lots of opportunities for opportunistic behavior  Very few banks, mostly land owners and country store merchants  Farmers buy goods and supplies on credit

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Interest rates are high  Cash price lower than credit prices- implied interest rates of 40%-70%  Lots of stores but may have local monopoly  Poor farmers have very little access to affordable credit.

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Economic Stagnation in the South  In 1860, the South’s output per capita was greater than in the North.  By 1870, the North’s per capita output exceeded the South’s by more than 50%:  $81.50 compared to $47.60  This disparity persisted for many decades.

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Commodity Output Per Capita by Region

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Slow Economic Growth  What accounts for the slow growth of Southern Income relative to North?  Immediately after the Civil War, a disruption and slow economic growth in the South is to be expected due to the war.  However, the South grows more slowly than the North for almost 100 years.  No evidence for convergence of income levels before 1950s

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Per Capita Income (index) US100 NE NC SA ESC WSC W

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Immediate fall in Per capita GDP after the Civil War is not hard to explain:  Decline in labor force participation of slaves  Loss of economies of scale  Loss of capital assets  What explains the continued poor economic performance in the South?

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Other Source of Southern Backwardness  Dependence on Cotton  Increase in supply outside of US  Stagnant Demand  Boll Weevil  Cotton is the last major US crop to mechanize harvesting  Technical difficulty or backwardness of producers?  Lack of funding for education for both blacks and whites.

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Flawed Government Institutions  : period in which there were many adverse historical developments for blacks.  The segregated public school system was created. (In Louisiana, for example, spending on black students was 17% of that on white students)  Blacks were disenfranchised.  Black Codes were instituted (example- vagrancy laws, forced labor).  Blacks’ property rights were imperfectly enforced.  Reduces incentive to acquire property and education

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Flawed Government Institutions  Not clear what motivated these laws  Reduced average income of both White and Black Southerners  May have increased the income of White Southern elite