1. Southern Agriculture After Civil War

2. 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

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

4. Per Capita Income
1860
1880
1900
1920
1940 US
100 NE
139
137
132
124 NC 68
103 SA 65 45 59 69
ESC 51 49 52 55
WSC
115 60 61 72 70 W
190
163
122
125

5. 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?

6. 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?
No 40 acres and a mule
What accounts for slow growth of Black Income relative to White Income?

7. Mean Male Income by Race 1940-1980 (1984 dollars)
No census statistics available before 1940, but other work indicates Black income relative to white was about 37% in 1910

8. 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

9. Important Questions
What happened to the organization of Southern Agriculture?
Were the same crops grown?
Did the plantations survive operated with wage labor?
How is the answer to this question related to the first two?
Flawed Institutions?
Government action or inaction?
Outside factors?

10. 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

11. 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

12. 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

13. 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

14. Contractual Costs Share Fixed Rent Wage Negotiating 1 3 2 Enforcement
Output
Landowners input
Workers input
1 highest

15. 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

16. Tenure Choice in North and South
year
own
rent
share
South
1880 64 12 24
1890 62 14 25
1900 53 18 30
N 1880 81 6 13 78 8 75 9 16

17. Looks different if you look at land area in tenant farms
North
South
1880
24 %
24%
1890 27 28
1900 30 31
1910 34 37

18. 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

19. Differences Farms are smaller in the South.
Census treats a rented farm in the South the same as North.
Using Ransom and Sutch sample if you keep farms with more than 200 acres with no labor variables, they produce 25% of cotton

20. Special Census of plantations taken at various times
Tenant Plantations
5 or more tenant farms owned and operated as one farms
Special Census of plantations taken at various times

21. 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 (Table 12.5 in text).

22. Black Standard of living under slavery
Basic Slave Conditions
Diet.
Use census of large plantations, business records, and instructions to overseers. Take amount of food produced, subtract portion fed to animals, sold, etc. and assume residual used to feed slaves.
Basic diet consisted of corn and pork and contained sufficient calories to sustain high levels of work.
Basic slave ration contained calories a day and contained high levels of protein, iron, calcium, and vitamins-high enough to meet modern daily recommended requirements.
Diet not that much different than that eaten by free whites, but slaves worked much harder.
Housing and clothing.
5 adults lived in an 18x20 foot cabin, w/1 or 2 rooms, a plank floor, fireplace and shuttered windows
They each received 4 sets of cotton shirts and pants or dresses and 2 pairs of leather shoes plus coats and blankets as needed.

23. What is rate of expropriation?
Marginal Revenue product (how much one more slave contributes to output of plantation) (some disagreement about labor’s share of output) $85.80 to 62.46
In a competitive labor market W=MRP

24. Subtract value of slave consumption give us expropriated income ( $28
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

25. 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
Indifference curve analysis

26. Measuring the Benefits to Freedom-An Indifference Curve Analysis
Free worker would rather be at A—with less income and more leisure.
Using the gang system, the slave owner forced blacks to work more (point C) where MRP =MC of coercing the slave to produce and then expropriated a portion of the slave’s output (moving the slave from point C to B).
At point C, the slave is consuming a non-optimal bundle of income and leisure.
Income at point B can be estimated using plantation and agricultural census records.
Income
Slavery C
After
Expropriation A B I3 I2 I1
Leisure 50
112
112
112

27. Measuring the Benefits to Freedom-An Indifference Curve Analysis (2)
After emancipation, the gang system was no longer viable.
The opportunity cost of leisure was reduced (purple dotted line).
The freed slave will reduce his work effort moving to point D.
At point D, even though money income is lower, the slave is better off (higher indifference curve) because he has increased the amount of leisure he is consuming.
It is also possible that money income would increase after emancipation but the value of freedom, measured by the increase in money income, would still underestimate the value of being freed.
To truly measure the value of freedom, must account for the value of increased leisure of freed blacks.
Income
After
Expropriation B
Freedom D I3 I2 I1
Leisure 50
112
112
112

28. Computing the value of freedom 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

29. 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. (D on graph)
First problem, census gives information about the value of output for the farm and the amount of various inputs used. Blacks who were not owners didn’t keep all the profits of the farm.
Must take into account 3 different arrangements depending on whether blacks owned land, capital, or just provided labor.
owners, sharecroppers, and sharerenters.
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

30. Methodology (Ng and Virts)
Equations 1, 2, and 3 show how income is measured for each class of tenancy.
If the estimate for each type of tenancy is weighted by the relevancy of they type of tenancy, and estimate of average income per person can be computed.
The numbers are then adjusted for the age distribution of the family.
Black families had more children so per capita income is too low.

31. 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.

32. 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.

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

34. 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

35. 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.

36. Sharecropping Sharecropping is not exclusively a black institution
1880 computed from Ransom and Sample, 1900 from Census.
1880
Owners
Renters
Share
White 74 8 19
Black 32 25 43
1900
Owners
Renters
Share
White 60 11 29
Black 22 38 41

37. 1880 computed from Ransom and Sutch sample
White
Blacks
Owners 84 16
Renters 36 64
Share Croppers 45 55
1900 Census of Agriculture
White
Blacks
Owners 86 14
Renters 42 58
Share Croppers 64 36

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

39. Not all sharecroppers part of large units

40. Plantations after the Civil War

41. Role of Plantations?
Literature both underemphasizes and overemphasizes the importance of plantations.

42. 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

43. Persistence of Plantation System

44. 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

45. 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

46. 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.

47. Black/White Income

49. 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.

50.
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

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

52. 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.

53. 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?