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 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

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

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

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? How is the answer to this question related to the first two? Flawed Institutions? Government action or inaction? Outside factors?

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 Share Fixed Rent Wage Negotiating 1 3 2 Enforcement Output Landowners input Workers input 1 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 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

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

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

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

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

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).

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 4100-4200 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.

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

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

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

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

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

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

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 2,052 -1009 hours per year which dropped to 1503-994 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

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.

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.

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 1880- 1900, 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.

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. 1880 Owners Renters Share White 74 8 19 Black 32 25 43 1900 Owners Renters Share White 60 11 29 Black 22 38 41

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

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

Not all sharecroppers part of large units

Plantations after the Civil War

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

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

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.

1880-1900 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 19th century did not match the progress of whites.

Flawed Government Institutions Period 1880-1900, 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.

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?