Southern Agriculture After Civil War

Effects of Emancipation Emancipation was the most far reaching property right change in United States economic history, perhaps in world economic history – Serfdom in Western Europe disappeared gradually – Emancipation of serfs in Russian Empire only thing comparable

Important Questions What accounts for the slow growth of Southern Income relative to North? No evidence for convergence before 1950s

Per Capita Income US100 NE NC SA ESC WSC W

Immediate fall in Per capita GDP not hard to explain – Fall from $77 in 1859 to $46 in 1869 to $61.5 in 1879 – Decline in labor force participation of slaves – Loss of economies of scale of coercion – Loss of capital assets – 1859 was a above average year for cotton What explains continual poor performance?

Important Questions What happened to Black standard of living as a result of Civil War? – How much better off were emancipated Blacks compared to slaves? What accounts for slow growth of Black Income relative to White Income?

Mean Male Income by Race (1984 dollars) No census statistics available before 1940, but other work indicates Black income relative to white was about 37% in 1910

Answering the first question does not necessarily answer the second. Southern income could not have been as far below Northern income if the income of White Southerners had not been below White Northerners

Important Questions What happened to the organization of Southern Agriculture? – Were the same crops grown? – Did the plantations survive operated with wage labor?

What happened to Southern Agriculture after the Civil War? Cotton and Tobacco production does not decline – Big change is now Whites as well as Blacks are growing cotton Decrease in both the rice and sugar production

Farm size after Civil war In 1860 Plantations with more than 50 slaves made up 4 % of the farms and produced 32 % of cotton In 1880 Ransom and Sutch estimate that Farms with more the 200 acres dependent on wage labor made up less than 1% of farms

Farming after Emancipation Consider change in ownership of factors of production Before the Civil War, plantation owner owned land, labor and capital. Finance was done through factors who loaned money based on the growing crop. Had a personal relation with planters

After Civil War, plantation owner owned land and capital, had to hire labor. In order to pay wages needed credit, but factors are no longer willing or able to lend. How do you pay labor? Share of crop (group share or squad) Alternative would be to rent land out for fixed rent or share Which is best? Consider Transaction costs

Contractual Costs ShareFixed RentWage Negotiating122 Enforcement Output 122 Landowners input 213 Workers input highest

No type of contract is clearly the best, it depends on which input is most important or easiest to specify Share looks like the highest However share is most popular

Tenure Choice in North and South yearownrentshare South N

Looks different if you look at land area in tenant farms NorthSouth %

Differences Farms are smaller in the South. Census treats a rented farm in the South the same as North, but were they? Tenant Plantations – 5 or more tenant farms owned and operated as one farms Special Census of plantations taken at various times

Data for Postbellum Period Roger Ransom and Richard Sutch-One Kind of Freedom Got a NSF grant and cross referenced the 1880 population and agricultural censuses. Published Census records have two problems Do not report separate data by race until 1900 Do not recognize plantations

Ransom and Sutch sample has many farms with missing wage data Using Ransom and Sutch sample if you keep farms with more than 200 acres with no labor variables, they produce 25% of cotton. If you delete the farms with no wage data they produce 1%

What happened to Black Standard of living after emancipation? What was standard of living under slavery? Estimates by Vedder, Ransom and Sutch, Fogel and Engerman. Marginal Revenue product (how much one more slave contributes to output of plantation) (some disagreement about labors share of output) $85.80 to 62.46

Value of slave consumption ( $ ) Subtract value of slave consumption give us expropriated income Equals expropriated income (33.51 to 55.76) Rate of expropriation is Expropriated income / Marginal Revenue product 65% to 50%. If you throw out the high and low estimates, its 54%-59% not much difference

What is the value of Freedom? To the extent that labor markets are competitive, no expropriation W=MRP MRP could be higher or lower than under slavery More leisure Value to being able to choose consumption bundle

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? Ransom and Sutch estimate slaves worked 2, hours per year which dropped to hours in 1880 – What is value of leisure? – it’s the wage, but how do you find that? – Most black workers were not paid a fixed wage

The Value of Freedom  Free blacks experienced a large annual increase in their material standard of living.  Since emancipation was a once in a lifetime event, it is appropriate to measure effects over lifetime.  In PV terms, blacks received a lump sum payment of 26 to 30 times average income-- about $500,000 in today’s dollars.  Argument that blacks didn’t benefit from freedom is wrong i.e. Civil War wasn’t a waste of time. Emancipation did significantly increase black welfare.

Back to the two big questions Why was the South backward? What explains Black/White Income levels

Possible Explanations Flawed institutions Market Based – Tenure arrangements especially share cropping – Credit monopoly Government imposed – Disenfranchisement – Segregation of public facilities and schools – Limits to mobility of labor

Market based institutions Why would Southerners deliberately adopt a set of institutions that made both Whites and Blacks worse off? If large landowners were in a monopoly position why would they choose an inefficient tenure arrangement? Expect low wages, high rent.

Sharecropping Sharecropping is not exclusively a black institution 1880 computed from Ransom and Sample, 1900 from Census. 1900OwnersRentersShare White Black OwnersRentersShare White74819 Black322543

1880 computed from Ransom and Sutch sample WhiteBlacks Owners8614 Renters4258 Share Croppers6436 WhiteBlacks Owners8416 Renters3664 Share Croppers Census of Agriculture

Blacks moving into renting, but not ownership – Suggests lack of protection of property rights Number of white renters and sharecroppers are increasing

Alternate explanations of Sharecropping Combination of high cost of monitoring labor and owners providing an important input. – Managerial knowledge – High quality cotton Evidence to support – Reduction in sharecropping with increase in mechanization – Persistence of Tenant Plantations

Persistence of Plantation System

Credit Market How was crop financed? Crop lien laws – Used the growing crop as security – Lots of opportunities for opportunistic behvaior Few banks, mostly land owners and country store merchants – Lots of country stores – Entry easy – No rich owners

Interest rates are high (Cash price lower than credit prices Lots of stores but may have local monopoly Evidence suggests tenants move a lot Not clear if this is due to monopoly or high risk

Crop mix Did country stores cause over specialization of cotton? Not clear why they would force such a crop mix on farmers Small farms were not self-sufficient before the Civil War, but Plantations were.

Black/White income Little evidence of discrimination Labor income per worker is about the same for blacks as whites Part of Black/White income gap is due to different levels of ownership of land and capital Nationally Blacks are poorer than whites because most Blacks are in the South where income is lower than the national average.

We would expect if markets work that Blacks would acquire land and capital (both physical and human) and move to areas where higher income could be earned Does not seems to have happened

In the period from 1880 to 1900, blacks increased their incomes in absolute terms. Relative to whites, blacks in the last portion of the 19 th century did not match the progress of whites.

Flawed Government Institutions Period , was the period in which there were many adverse historical developments for blacks. – The segregated public school system was created. – Blacks were disenfranchised. – Black Codes were instituted. – Blacks’ property rights were imperfectly enforced. Reduces incentive to acquire property

What happened to blacks after emancipation-a summary Emancipation had an enormous immediate positive effect on black material welfare. – Part of the increase in material welfare was enjoyed by blacks as in an increase in consumption of material goods (more income). – Just as important as the increase in material income was the increased consumption of leisure. – Using the prevailing wage rate to value leisure, the increased consumption of leisure was more important than the increased material income following emancipation. – Equivalent to a $500,000 lump sum payment in today’s dollars. Immediately following emancipation, blacks achieved a degree of equity with southern whites. – In the labor markets in which the majority of blacks participated, they earned incomes comparable with whites. Any differences in income were probably due to skill differences resulting from recent emancipation. – The black/white income ratio in 1880 of.37 is attributable: To blacks being emancipated in a poor region-the South. Being emancipated in rural rather than urban areas. In the period from , the legal and social environment of blacks deteriorated. – Segregated public schools, Jim Crow Laws, disenfranchisement, etc. – Without reliable income estimates, the question of whether these adverse historical developments adversely affected black welfare have been unanswered. – During this period, black continued to improve their material condition but not as fast as whites.

Other Source of Southern Backwardness Dependence on Cotton – Increase in supply outside of US – Stagnant Demand – Income elasticity low 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.