Lecture6 - Civil War Cotton Market Sharecropping Regional...

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Unformatted text preview: Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence The peculiar region: The (long) legacy of slavery American Economic History University of California, Berkeley Department of Economics September 16, 2010 Econ 113 (UC Berkeley) Lecture 6 9/16/2010 0 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Today's Agenda: Collapse of the Post-bellum South Southern economy collapsed following the Civil War. Why? Civil War damage: destruction of capital Cotton market: fall in demand Emancipation led to reduction in black labor supply Loss of efficiency of plantation gang labor South remained underdeveloped for nearly century following the Civil War South failed to converge to rest of U.S. until mid-20th century Substantial and persistent differences in status of blacks and whites Econ 113 (UC Berkeley) Lecture 6 9/16/2010 1 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Post-bellum Southern output declined relative to U.S. Econ 113 (UC Berkeley) Lecture 6 9/16/2010 2 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence South remained behind rest of U.S. for almost a century Econ 113 (UC Berkeley) Lecture 6 9/16/2010 3 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Hypothesis 1: Loss of capital due to Civil War Econ 113 (UC Berkeley) Lecture 6 9/16/2010 4 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Direct costs of the Civil War to North and South comparable Costs of War not likely an important factor in relative Southern decline... Econ 113 (UC Berkeley) Lecture 6 9/16/2010 5 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Hypothesis 2: Collapse of cotton market Econ 113 (UC Berkeley) Lecture 6 9/16/2010 6 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence South remained largely agricultural after Civil War Source: Wright (1986). Econ 113 (UC Berkeley) Lecture 6 9/16/2010 7 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence South remained cotton-intensive Cotton: remained predominant crop of the South Narrow geographic limits for tobacco, rice, and sugar Cotton was most profitable choice by a wide margin Factor endowments: acid soils and early rainfall limited choices Could not grow grains, grasses, and legumes like temperate-zone states Animal parasites and cholera killed hogs and reduced cattle yields Econ 113 (UC Berkeley) Lecture 6 9/16/2010 8 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Cotton market: demand was limiting factor American cotton: dominated world market Size of U.S. crop determined price Elasticity of demand was nearly 1 in century prior to WWI Aggregate income was limited by demand, not productivity Chronology of cotton market: 1. 1830-1860: 5% annual growth in cotton demand 2. 1860-late 1870s: cotton demand plunged and then stagnated Econ 113 (UC Berkeley) Lecture 6 9/16/2010 9 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Cotton prices fell as production recovered: 1867-1879 Source: Wright (1986). Econ 113 (UC Berkeley) Lecture 6 9/16/2010 10 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Return of the cotton market 3. 1880-1900: cotton demand grew at 2.7% per year, but population at 2% 4. 1900-1920: cotton demand accelerated to 3.5% per year Textile growth facilitated expansion of world trade 5. 1920-1930: cotton demand fell at 0.5% per year Also, increased competition from Brazil, Egypt, and India lowered prices South lost virtually all of relative income gains by 1920 Econ 113 (UC Berkeley) Lecture 6 9/16/2010 11 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Did the cotton market cause the South to be poor? Did changes in demand for cotton cause postbellum southern downturn? Demand high before the Civil War and lower well afterward Perfect competition: price taker Can plant its way out of poverty by increasing quantity Monopoly: could not increase quantity to increase profits Sensitive to demand shifts Profits might not change if quantity due to elasticity Econ 113 (UC Berkeley) Lecture 6 9/16/2010 12 / 37 Civil War Cotton market: C Was the market perfectly competitive? monopo P Cotton Market Sharecropping Regional Convergence Racial Convergence P = MC Q1 Q2 Q If perfectly competitive, could increase Q (at same P) for greater income In a competitive cotton market: ...however, the evidence shows that price fell as quantity increased South can "plant its way out of poverty" by Econ 113 (UC Berkeley) Lecture 9/16/2010 increasing Q from Q1 to Q2. 6 T m 13 / 37 Competitive or olistic? monopolistic? ...or was the market Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence P P1 P2 MC MR Q1 Q2 Q D 1 2 1 2 The evidence is more consistent with a Elasticity of 1 impliesmarket: might not change total income monopoly cotton in Q to Q is associated with in P to P In this case, South cannot plant out of Monopolistic nature of cotton not important factor in Southern decline... poverty. An increase from Q1 to Q2 is Econ 113 (UC Berkeley) Lecture 6 9/16/2010 14 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Hypothesis 3: Black labor supply fell after Emancipation Econ 113 (UC Berkeley) Lecture 6 9/16/2010 15 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Freed blacks worked fewer hours per year Black man-hours worked per capita (Percent decline from 1850s to 1870s) Percent decline Rural population working Days per year Hours per day Total effect Source: Ransom and Sutch (1977). 17-24% 8-11% 9-10% 28.3-37.2% Econ 113 (UC Berkeley) Lecture 6 9/16/2010 16 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Most of decline in labor-hours by children and women Annual black man-hours worked per capita 1850s 1870s % Decline Men Women Children Total 3055-3965 2584-3507 1913-2549 2306-3047 2396-3337 1175-2074 896-1548 1448-2187 19-22% 41-55% 39-53% 28-37% Source: Ransom and Sutch (1977). Econ 113 (UC Berkeley) Lecture 6 9/16/2010 17 / 37 Civil War Cotton Market Sharecropping 5 Regional Convergence Racial Convergence Fig. 3: Decline of Southern Output after the Civil War: Why declining labor supply could decrease output Econ 113 (UC Berkeley) Lecture 6 9/16/2010 18 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Hypothesis 4: Sharecropping less efficient than gang labor Econ 113 (UC Berkeley) Lecture 6 9/16/2010 19 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Sharecropping emerged following slavery Sharecropping: contract between family and landowner Landowner provided land, house, tools, and seeds Landowner received one-half of the crop grown in returned Share tenancy: families provided more and so received more Landowner provided land and house Family provided tools and seeds Retained 2 3 to 3 4 of crop Cash tenant pays rent for plot of land keeps all of crop Wage labor: day labor hired temporarily for cash Econ 113 (UC Berkeley) Lecture 6 9/16/2010 20 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Benefits of sharecropping relative to wage labor Benefits: Workers encouraged to remain on land throughout harvest Incentivized sharecropper to care about crop outcome Workers preferred since more independent Harvest-rush problem: Cotton work varied by season Land could be used for other crops like corn during off-seasons Cost: possible loss of efficiency Smaller scale and more independent than gang labor Wage labor like not paid sufficiently to work as gang labor Econ 113 (UC Berkeley) Lecture 6 9/16/2010 21 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Average farm size declined after Emancipation Econ 113 (UC Berkeley) Lecture 6 9/16/2010 22 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Rise of sharecropping following Emancipation Distribution of farms: 1880 White Black Owned Tenanted Share Rented 66% 34% 8% 26% 20% 80% 26% 54% Source: Ransom and Sutch (1977). Econ 113 (UC Berkeley) Lecture 6 9/16/2010 23 / 37 Why was tenancy less productive than Testing Hypotheses 3 and 4: Plantation slaves hurt growth slavery? Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Growth in farm output per capita, 1860-1880 y: in capital farm output per capita, Growthgrowth inper capita, 1860-1880 (+) 1860-1880 Growth:in land perlabor force made of slaves in 1860 (0 effect) S share of capita, 1860-1880 (+) Growth:in livestock per capita, 1860-1880 (+) P share of labor force made of plantation slaves in 1860 (negative effect) Share of the labor force made up of SLAVES in 1860 (neutral) k: growth in force made up of PLANTATION (positive effect) Share of the labor capital per capita, 1860-1880 SLAVES in 1860 (-) t: growth in land per capita, 1860-1880 (positive effect) lusion: No evidence that slaves withdrew labor. Evidence favors the unique h: growth in livestock per capita, 1860-1880 (positive effect) of productivity in plantation areas. Econ 113 (UC Berkeley) Lecture 6 9/16/2010 24 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Summary Findings 4 factors considered for relative declining Southern income Loss of efficiency due to the transition from gang labor to sharecropping Civil War costly for South but also for North Cotton market was monopolistic with price inversely related to quantity Labor supply fell, but more so, sharecroppers were less efficient Econ 113 (UC Berkeley) Lecture 6 9/16/2010 25 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Why did the South take so long to converge to North? Convergence: poorer region grows faster than leading region Occurs through factor inputs and/or efficiency Factor inputs: should reallocate from South to rest of U.S. Would expect labor to migrate out of South to region with higher wages Would pull up southern wages and depress northern wages Labor would also migrate to the South Delayed convergence: South was not integrated into national economy Econ 113 (UC Berkeley) Lecture 6 9/16/2010 26 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence South does not convergence until mid-20th century Econ 113 (UC Berkeley) Lecture 6 9/16/2010 27 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Convergence throughout South starts in 1940s Source: Wright (1986). Econ 113 (UC Berkeley) Lecture 6 9/16/2010 28 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Hypothesis 1: Structural economic transformation Agriculture became less important in the economy Econ 113 (UC Berkeley) Lecture 6 9/16/2010 29 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Hypothesis 2: Educated South could induce Northern 371 migration Human Capital and Growth 60 50 40 30 20 10 0 P re -1865 1866-70 1871-75 1876-80 1881-85 1886-90 1891-95 1896-1900 1901-05 Northern Whites Northern Blacks Southern Whites Southern Blacks FIGURE 3 MEAN SCHOOLING LEVELS IN MONTHS Note: Because yearly school attainment data before 1910 are biased due to the interpretation Source: 113 (UC Berkeley) Econ Connolly (2004). Lecture 6 that a year of schooling in an ungraded Southern school with shorter school terms was equal to 9/16/2010 30 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Hypothesis 3: Labor flow in and out of South Labor failed to flow into the South European immigrants settled in North for better wages Migration into South negligible until 1960s Labor failed to flow out of the South Black migration minimal until 1920, picked up in 1940s Econ 113 (UC Berkeley) Lecture 6 9/16/2010 31 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Slow change in economic status of freed blacks in South `The masses of American Negroes, in the rural South and in the segregated slum quarters in Southern and Northern cities, are destitute." In particular, "they own little property; even their household goods are mostly inadequate and dilapidated. Their incomes are not only low but irregular. They thus live from day to day and have scant security for their future." -Gunnar Myrdal, An American Dilemma (1944) Former slaves: many remained in the South following the Civil War Left slavery with little skills other than in agriculture Many remained in agriculture, specifically growing cotton Cotton remained labor-intensive, blacks often worked least-skilled jobs Econ 113 (UC Berkeley) Lecture 6 9/16/2010 32 / 37 Civil War accumulation continued into the early 1890's. value in 1875. Still, black wealth per capita Cotton Market Sharecropping Regional Convergence Racial Convergence Black-white gap in wealth persisted after Emancipation TABLE 1-ASSESSED VALUE OF TOTALPROPERTYHOLDINGS, BY RACE, GEORGIA, 1880-1910 Year 1880 1890 1900 1910 Assessed Value of Black Property per Capita (1910-14 $) 8.00 17.46 16.62 26.59 Econ 113 (UC Berkeley) Assessed Value of White Property per Capita (1910-14$) 285.40 455.19 386.23 413.78 Lecture 6 Ratio of White to Black Property Value per Capita 36 26 23 16 9/16/2010 33 / 37 Source: Higgs (1982). Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Persistence of black-white housing gap over 20th century Figure 1: Home Ownership Rates, 1900 - 1990 80 70 60 50 40 30 20 10 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 White Black Source: Collins and Margo (2001). Econ 113 (UC Berkeley) Lecture 6 9/16/2010 34 / 37 Note: The figure graphs home ownership rates for black and white male household heads, ages 20 to 64, Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Persistence of black-white earnings gap Source: Margo (1990). Econ 113 (UC Berkeley) Lecture 6 9/16/2010 35 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence D PROCEEDINGS Black-white earnings Egack-WMiite Relative Wage MAY century gap converged mid-20th2000 Back-Wilte Relative Epoyment: 0.8 0.6- 0.4 1940 1950 1960 1970 1980 1990 1. RELATIVE WEEKLY WAGES FIGURE BLACK-WHITE AND EMPLOYMENT RATIOS, 1940-1990 Notes: Author's tabulation from the U.S. Census PUMS Source: Chandra (2000). data. The sample includes all men aged 25-55 who did not Econ 113 (UC Berkeley) Lecture 6 9/16/2010 36 / 37 Civil War Cotton Market Sharecropping Regional Convergence Racial Convergence Conclusion 1. South per capita income declined by almost 40% from 1860-1880 Fell behind the rest of the U.S., which continued to grow 2. Decline due largely to loss of efficiency from gang system to sharecropping 3. South did not reach parity with the North until 1980 Most of convergence occurred from 1940-1970 Experienced structural economic changes and migration out of South 4. Black-white convergence was also slow until mid-20th century Econ 113 (UC Berkeley) Lecture 6 9/16/2010 37 / 37 ...
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