Economics 375

1
Economics 375

• American Economic History
• Slavery and the Civil War
• Lecture Notes
• Professor Kenneth Ng
• College of Business and Economics
• California State University, Northridge

2
Readings

• Paul Johnson, A History of the American
  People--Part 3 and 4 for background.
• Atack and Passell, A New View of American
  Economic History-Chapters 11-14.
• Robert Fogel, Without Consent or Contract.
• William Mc Neil, Plagues and Peoples, Chapter
  5-Transoceanic Exchanges.

3
Slavery-Introduction

• Explosion of research by Economic Historians into
  slavery in the post WWII period.
• Large amounts of resources devoted to collecting
  and analyzing the slave trade and the system of
  slavery.
• Understanding of slavery has been radically
  altered but because of the climate of political
  correctness, little of the results of this
  research has made it into the public schools.
• Much of the history taught in high schools today
  is wrong.
• The victors write the history.
• Abolitionist literature survived down to the
  present.

4
The Rise of the Atlantic Slave Trade.

• Slave trade explained by the movement of
  productive inputs from low to high marginal
  valued uses.
• In the US, there was plenty of land and few
  people. In Europe, there were more people and
  less land.
• The marginal product of labor was higher in the
  New World.
• Nature of the Slave Trade-
• Herbert Klein-The Middle Passage-On Reserve.
• The Slave Trade is an example of the alternative
  law of supply and demandwhere their is a demand,
  a supply will arise to satisfy it-reallocation of
  productive resources from low to high marginal
  valued uses.
• Decimation of Amerindian population by disease
  created a shortage of labor in the New World.
• Read Mc Neil, Plagues and Peoples.
• Some labor reallocated through voluntary
  relocation-immigration, indentures, etc. but only
  a limited number of people were induced to
  relocate through voluntary means.
• Atlantic slave trade occurred from 1502-1860.
• Portuguese established trading posts along the
  coast of the western Sahara.

5
The Height of the Slave Trade

• 1701-1810-Height of the slave trade.
• Slave Trade was a multi-cultural enterprise.
• Blacks captured slaves and transported them to
  Barricos on the coast to be sold to white
  traders.
• Malaria prevented whites from penetrating the
  African interior. Slave trade was as much a black
  as a white undertaking.
• Roots inaccurate.
• Example of Specialization According to
  Comparative Advantage. The common perception is
  that slavery was associated with cotton (Gone
  with the Wind). This is wrong.
• Cotton and tobacco were not the most important
  crops in the slave trade (as opposed to slave
  system).
• Sugar was the crop which drove the slave trade.
• 80 of slaves were imported before 1810-before
  cotton production really got going.

6
The Destination of Slaves

• Before 1550-90 of slaves went to Iberian
  peninsula and Iberian islands off the African
  coast. Grew sugar.
• After 1550-Center of slave trade shifted across
  Atlantic to Brazil. New World found as a suitable
  climate for sugar production.
• In 1600s British and French broke Spanish sugar
  monopoly by establishing sugar production in the
  West Indies.
• Military expedition against Jamaica.
• By 1770, Spain had been squeezed out of sugar
  trade.
• Thus the great majority of slaves were involved
  in the Sugar trade outside the US.
• In terms of the slave trade the US was a
  backwater.
• Only 6 of the blacks snatched from Africa were
  imported to the U.S.

7
The Nature and Character of U.S. Slave System vs.
the rest of the New World.

• U.S. slavery differed from slavery in other parts
  of the new world because U.S. slaves engaged in
  Cotton rather than Sugar production.
• The absence of sugar culture had a profound
  effect on the character of US slavery.

8
Differences
9
Differences Composition of the Population in
Slave Societies

• Percentage of slaves in general population much
  lower in U.S. compared to Caribbean.
• Economies of scale plus climate meant that sugar
  colonies were heavily black.
• Sugar plantations were some of the largest
  economic organizations of their times.
• Many plantations had 100s of slaves-little
  contact with whites and European culture.
• Nature of sugar production required heavy
  labor-cutting the cane and squeezing the sugar
  out in large presses.
• Little productive work for women-led to the
  importation primarily of men and a sex imbalance
  among the slave population.
• In many sugar colonies, whites comprised less
  than 20 of the population sometimes less than
  10 of the population.

10
Differences Disease Environment.

• In the Caribbean, the death rate was so high and
  the birthrate was so low, the slave populations
  were not self sustaining.
• The Caribbean experienced a 2-5 rate of natural
  decrease among the slave population .
• Read Mc Neil, Chapter 5.
• Explanation for difference is in the disease
  environment in the Caribbean and the isolation of
  African populations that were the source of most
  slaves.
• Typhus, malaria, tetanus, dysentery.
• Process of seasoning killed off 30 of the newly
  arrived slaves in the first year in the New
  World.
• Also, the sex ratio in the slave population
  explains the rate of natural decrease in the
  Caribbean.
• Less than 40 of the slaves brought from Africa
  were female.
• Experience of typical immigrant groups-first wave
  of immigrants male, followed by successive waves
  in which the proportion of women increases.
• Typically it takes several generations for
  immigrant population to achieve 50/50 sex
  balance.
• The Caribbean Slave population never achieved
  this balance.
• The negative net present value of children in
  sugar culture provided the slave owner in sugar
  societies no incentive to promote the birth of
  children.

11
Isolation of U.S. Slaves from African Culture
12
Differences Slave Culture in U.S. vs. Caribbean.

• Through the 19th century, the majority of slaves
  in the Caribbean were born in Africa.
• Native born blacks comprised the majority of US
  slaves as early as 1680.
• By 1860, all but 1 of American slaves were
  American born.
• Natural Increase was the main cause of the
  increase in the US slave population.
• Difference between US and Caribbean slave
  experiences.
• US population was self sustaining from the
  beginning.

13
Differences Slave Rebellions.

• Probability of slave rebellion in sugar colonies
  very high.
• Seasoning and the perils of the trip from Africa.
  
• High levels of physical effort demanded.
• No women.
• No exposure to white culture.
• Isolation of whites from outside help.
• Led to a very brutal system of justice.
• Successful rebellion in Haiti.
• Blacks in US were part of much smaller units and
  were in close personal contacts with white
  owners.
• The possibility of a successful slave rebellion
  had profound effects on the character of slavery
  in the Caribbean vs. the U.S.

14
Emancipation Outside the U.S.

• Slavery abolished in British Caribbean and South
  America mostly before 1850.
• Emancipation accomplished largely through
  non-violent methods which included payments to
  slave owners to compensate them for their
  financial investments in slaves.
• In 1860, America left as the last great slave
  system.
• Although the vast majority of blacks brought to
  the New World as slaves were sent to countries
  outside the U.S., the more favorable demographic
  conditions in the U.S. led to a higher survival
  and reproduction rate of U.S. blacks.
• Over time the U.S. slave population grew to be
  the largest in the world.
• The U.S. was a minor player in the slave trade,
  but by 1860 was the Great Slave Power in the
  world.
• Question would slavery have ended without Civil
  War?

15
Cotton and the Slave Population.

• Slavery in the U.S.- General Outlines
• Although slavery was prevalent in all states in
  the colonial period, by 1860 slavery was
  concentrated in the southern states and in cotton
  production.
• Moving South and West, the slave labor force
  under the direction of its white masters created
  one of the great success stories of American
  Economic History.
• Whitneys Cotton Gin (1793) enabled short staple
  cotton to be separated on a competitive
  commercial basis by mechanical means, enabling
  the domination of world markets by American
  cotton.
• From 1820 to 1860, cotton output rose by a factor
  of 11.5, the slave population by 2.5, and output
  per slave by a factor of 4.6.
• From 1790 to 1860 the slave population in the
  South grew slightly more rapidly than the white
  population---in the absence of significant slave
  imports.
• Ownership of slaves became more concentrated by
  the 1850s. Southern families owning slaves fell
  from 36 in 1830 to 25 in 1860.

16
The Great Tragedy of the Civil War.

• Why fight?
• Voluntary Emancipation and the failure of the
  U.S. Constitution.
• The usual method of conflict resolution in the
  U.S. is through non-violent means , e.g. the
  ballot box.
• Why was the Civil War so costly to fightboth in
  lives and material?
• Motivation.
• Balance of Forces.
• Technology and Tactics.
• Could Slavery have been ended more cheaply?

17
Explaining the Lethality of Civil War.

• 2 Factors led the Civil War to be very lethal.
• Evenly matched opponents-same culture, tactics,
  weapons, etc.
• Balance of forces-equally divide country, same
  culture, tactics, technology and will to
  fight-leads to long and bloody conflict.
• Tactics.
• Generals trained at the same military academies.
• Many of them knew each other personally.
• Wars where new tactics and technology are
  employed for the first time are usually short and
  not bloody.
• Iran/Iraq war employed new tactics developed
  during the cold warAirLandSea doctrine of U.S.
  armed forces.
• Early stages of WWII, Hitler employed new
  tactics-Blitzkrieg.

18
More Technology

• Improvements in Logistics
• Railroads and canal system allowed the
  concentration of large groups of armed men in the
  field for extended periods of time.
• The transportation system also allowed large
  groups of men to sustain a high level or armed
  conflict.
• Changes in the technology of warfare.
• Musket vs. percussion cap vs. machine gun and
  artillery--increased rate of fire of percussion
  muskets
• Minnie Ball and Percussion Cap increased rate of
  fire.

19
Minnie Ball
The Minnie Ball made it much easier to force the
bullet down the muzzle of a rifle increasing the
rate of fire.
20
Flintlock vs. Percussion Cap
The percussion cap reduced the number of tasks
required to load a rifle increasing the rate of
fire of a trained soldier.
21
Technology

• The Minnie Ball and Percussion cap increased the
  rate of fire a trained soldier could sustain.
• For the first time, a disciplined group of
  soldiers could withstand a frontal charge by
  infantry or cavalry.
• Calvary Attack and Imperial Guard attack at
  Waterloo (formation of a square) at Waterloo.
• Pickett's Charge at Gettysburg
• Battle of Rourkes Drift-First Metallic Cartridge
• Movie Zulu-Rourke's (THE SOUTH WALES BORDERERS
  AND MONMOUTHSHIRE) drift-4000 Zulus attacked 100
  British soldiers.
• Early battles of Civil War were great tragedies.
• Troop morale and irrational expectations during
  early stages of conflict.
• French mutinies during WWI trench warfare.

22
Technology and Tactics

• The Civil War was a case where the technology of
  warfare had advanced while the tactics employed
  by generals had not adjusted.
• The result was a very high level of lethality.

23
How Many People Died in Civil War?
24
If you were a draft age male what were your
chances of being killed or wounded?
25
If you were in the army, what were you chances of
getting killed each year?
26
What were your chances of having to serve?
27
The Enormous Human Cost of Freeing the Slaves

• Civil war was one of the most lethal wars.
• 1 free person killed for each slave freed.

28
Monetary Cost of Civil War

• Estimated direct cost of the Civil War was 6.6
  billion dollars.
• Direct cost of 206 for each American in 1861 or
  almost twice the amount consumed by the average
  American in 1860, i.e. 2 years wages.
• Had the same amount been invested at 6 it could
  have provided an annuity equal to 10 of average
  income.
• 6.6 billion was enough to buy the freedom of all
  the slaves at market prices, provide them with 40
  acres and a mule, and still leave 3.5 billion to
  pay for reparations to blacks for the lost pay
  under slavery.
• Spike Lee Production Company-40 Acres and a Mule.
  
• From a cost/benefit perspective, the Civil War
  was a monstrous stupid mistake.

29
Why Fight--Cost of Emancipation to White
Southerners in 1860.

• The U.S. constitutional system is good at
  compromise--division of powers, senate vs. house
  of republicans, electoral college. Etc.
• Constitution constructed to force differences of
  opinion into the political arena and it has
  largely been a success.
• The U.S. is largely free of outbreaks of
  violence.
• The constitution and politicians wrestled with
  the slavery question for decades prior to the
  Civil War.
• End of slave trade in 1810-expected to end system
  of slavery.
• 3/5ths Compromise-count each slave as 3/5ths of a
  person for determining representation.
• 1820-Missouri compromise (Maine Missouri)
• Compromise of 1850 (Land acquired in
  Mexican/American war)
• Kansas Nebraska Act (1854).
• Ultimately, the constitution failed. Slavery was
  too big a question.

30
The end of slavery the one big issue where the
U.S. constitution failed.

• Capital Value of Slaves in 1860 was 2.7 Billion.
• Invested at 2.5 this was enough to reduce the
  value of income to the average southerner by 23.
• Today with an average income of 18,000, 23 of
  18,000 is 4140.
• To produce this annual income each individual
  would have to have 165,600 in bank at 2.5.
• Clearly, the end of slavery would have a profound
  and significant effect on the average white
  southerners welfare.
• Rationality of the southern redneck-poor white
  people didnt directly benefit from slave
  ownership.
• Southerners were not going to agree to any system
  of voluntary emancipation that did not fully
  compensate them for the value of their slaves.
• Northerners would have to impose very large tax
  increases to pay for voluntary emancipation.

31
The Conundrum of the Civil War.Why did
Northerners fight CW?

• Main Beneficiary of Slavery White Northern
  consumers.
• Why the second half of Fogels book (The
  Ideological and Political Battle Against Slavery)
  is about the battle to end slavery.
• Slavery the low cost method of producing cotton.
• Gang system of labor.
• Hand rating system.
• Monitoring costs.
• Market in slaves competitive so that slave owners
  earned only a normal rate of return on slave
  ownership.
• Market in cotton textiles competitive so that
  price of cotton bid down to the minimum ATC of
  production.
• Consumers who bought cotton textiles enjoyed the
  benefits of slavery in terms of lower cotton
  prices.

32
The Indirect Costs of Ending Slavery.

• Besides the human and financial costs of fighting
  the Civil War, the end of slavery
• Imposed costs on slave owners who lost the money
  invested in slaves.
• Imposed costs on southern landowners who now had
  to use their land in its second most productive
  use.
• Imposed costs on northern consumers who had to
  pay a higher price for cotton cloth.
• Those who paid to end slavery had nothing to
  gain.
• The Civil War was fought on largely moral not
  economic grounds.

33
White guilt over slavery and the Great Moral
Crusade.

• Northerners subjected themselves to huge cost to
  end slavery which be benefited no one but blacks.
• Moral explanations of the end of slavery.
• Success of the abolitionist movement as one of
  the great adventure stories of all time.
• Fogel concludes that whites were not pursuing
  their narrowly defined self interest (money
  income) in ending slavery but instead were
  motivated mainly by moral factors.
• Why half of his book, Without Consent or
  Contract, is entitled The Ideological and
  Political Campaign Against Slavery.

34
Another Big Questions About the Civil War-Would
Slavery Have Ended Without a War?

• History of Civil War has been long fought over.
• Even today some of the issues are still being
  fought out.
• Example flying the confederate flag.
• Better example The idea that the CW was fought
  over saving the Union rather than ending slavery.
  
• Denial of credit to whites for having the moral
  conviction and bearing the human and financial
  price for ending slavery.

35
Historiography of Civil War (1)

• In the period prior to the Civil War,
  abolitionists mounted a public relations campaign
  against slavery.
• Similar to the anti-smoking campaign going on
  today.
• Abolitionists promulgated certain known
  falsehoods about the nature of the slave system.
• They argued that the end justifies the means.
• The victors write the history.
• The history of the Civil War written immediately
  following the war was simply the continued
  preaching the myths of abolitionists.
• Many of these myths have never really corrected.
• Post Civil War historians specializing in the the
  Civil War concentrated in southern universities.
• Size and inbred nature of history departments vs.
  competition in intellectual endeavors.
• The active researchers became concentrated in a
  small number of southern history departments.

36
Historiography of the Civil War (2)

• Ulrich B. Philips-began publishing around 1905.
• Argued that slave culture continued because of
  speculation, economies of scale, and conspicuous
  consumption.
• Therefore,because slavery was not economically
  viable, slavery would have ended on its own.
• Attempt to depict Southerners as victims.
• Charles Ramsdell- Slave owners were forced to
  overproduce cotton-irrationality
  argument-economies of scale.
• Natural Limits argument-Cotton production led to
  soil exhaustion so that slavery required a
  constant expansion to new lands.
• As new lands ran out, slavery would have ended.
• Incompatibility of slavery and urban society.
• Slave system could not be adapted to urban
  conditions.
• No systematic investigation of profitability of
  slavery.

37
Historiography of the Civil War (3)

• The rise of the welfare state, affirmative
  action, quotas etc.
• The legislative battles surround the beginning of
  the Johnson/Kennedy Great Society programs.
• Campaign to get public support for the modern
  welfare state.
• Black radicals and Pan-African Studies.
• Contemporary theories of black victimization.
• Fight over the minimization of the Civil War.
• Attempt to ignore the human and financial costs
  borne by whites in the Civil War.
• The historiography of the Civil War and Slavery
  is more a lesson in how non-scientists have
  attempted to distort history to harmonize with
  the politics of the day or the ideological bias
  of the writer than an honest attempt by scholars
  to discover the true nature of the slavery and
  the causes and consequences of the Civil War.
• Little attempt to do good science and actually
  measure the profitability of slavery and discover
  whether slavery would have ended without the
  Civil War.

38
Was slavery profitable?

• In the post World War II period, economists began
  applying economic theory and statistics to the
  central questions of U.S. history.
• Used different sources of data and different
  methodology than existing scholars.
• Quantitative vs. qualitative data.
• First study by Conrad and Meyer (1958)
• Graduate students in economics.
• Applied simple 200 level economics to
  profitability question-
• Found, not surprisingly, that slave owners
  treated slaves like factory owners treated
  expensive machinery.
• CM found that slave owners earned about 5-8
  return on slave ownership.
• C M set off debate that refined their
  estimates. At the end of the debate, it was found
  that the return on slaves was equivalent to the
  return on railroad bonds and other
  non-agricultural 8-10
• Evidence that slave owners were calculating
  businessmen interested only in profit-revolutionar
  y idea at the time.
• Profitability of slavery undermines the argument
  for conspicuous consumption.

39
Were Slave owners rational profit maximizing
businessmen?

• Argument over numbers, but additional evidence
  for rationality of slave owners are age/price
  profiles.
• Failure of conspicuous consumption arguments-why
  is 26 yr. old more conspicuous than 32 yr. old
  or less than 14 yr. old.
• Age price profiles.
• Collected data from slave markets.
• Similar to used car market today where published
  information is readily available on the price of
  cars in various conditions.
• Detailed information about prices and
  characteristics of slaves recorded and published.

40
Net Income by Sex and Age
Shows the net income a slave owner could expect
from a typical slave at different ages. Slaves
began to cover their cost of maintenance at an
early agelate adolescence. Prior to age 15,
women earned more than mentomboys and older
sisters. Profile reflects the earlier physical
maturation of women. Men and women in
professional sports. Ice skating, gymnastics and
tennis. For most of life females earned 20-40
less than men Typical in a non-industrial society
and reflects the biology of the human body.
Reflects the gender differences in societies
that rely on physical labor.
41
Accumulated Net Income/Age Profile
Shows the total lifetime income a slave owner
realized from a typical slave at various ages.
Until around age 12, the slave is consuming more
than the cost of maintenancethe line is downward
sloping. At age 12, the slave begins to produce
more than he consumes-the line begins to slope
upwards but remains below zero. By age 28, the
slave has worked off the investment the
slaveowner made when the slave was young-the line
is above zero. Incentive for slave owner to
maintain the slave as a productive asset
throughout the slaves lifethe lines stays
positively sloped. Slaves net income remained
positive even in old age Incentive for slave
owners to keep old slavesdecent treatment of old
slaves.
42
Age Price Profile
The price of a slave at a given age represents
the present value of the expected net income of
the slave over his remaining lifetime. At age 0,
the slave had a positive price. This means that
the slave owner had an incentive to encourage
live births. Peak price occurred in the late 20s
and early 30s. Only in the mid 70s does
ownership of a slave become unprofitable. Slave
owners retained a financial incentive to take
care of old people.
43
Would Slavery have ended without the Civil
WarThe Viability Question?
If slavery were becoming unprofitable, what would
happen to slave prices in the years leading up
to the Civil War? Evidence shows that slavery was
profitable, was getting more profitable, and was
expected to continue to be profitable after the
Civil War years.
44
What was slavery likeThe Slave Family?

• Slave Owners as profit maximizing businessmen.
• Not surprising result is that slave owners
  treated slaves like factory owners treated
  expensive machinery.
• Thinking of slave owners as businessmen motivated
  by the profit motives explains many of the
  aspects of the slave system.
• The Slave Family
• Legacy of Slavery arguments have been used to
  attempt to explain many aspects of current black
  family structure.
• The Great Society Programs and the welfare debate
  in the late 60's and early 70's.
• Greater prevalence of single parent families
  among black families explained by the structure
  of the slave family.
• Because at birth slave infants had a positive
  present value it was in the economic
  self-interest of the slave owner to promote live
  births.
• Did this primarily by promoting the traditional
  family structure among slaves.
• The abolitionist depiction of slave breeders was
  false.
• Slaves live primarily in a normal nuclear family.
  
• Between 1790 and 1860 both the free white and
  slave populations of the South grew at roughly
  the same rate.
• Similarity of Rates disposes of idea that slaves
  were bred at maximum rates.

45
What was slavery likeLiving Conditions?

• Fogel and Engerman argue that slaves lived
  remarkably well.
• Basic argument is that owners had a strong
  financial incentive to maintain the viability of
  the their financial investment.
• Debate over conditions of slavery has been
  tainted by abolitionist literature. Abolitionists
  tried to portray conditions of slavery to elicit
  favorable response from northerners to abolish
  slave trade. Abolitionist propaganda tainted
  historical view of 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 was
  well balanced 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.
• Housing and clothing.
• The typical slave was housed and clothed simply
  but not badly.
• 5 adults lived in an 18x20 foot cabin, w/1 or 2
  rooms, a plank floor, fireplace and shuttered
  windows
• Slave had more space per person that New Yorks
  free poor in the late 19th century.
• They each received 4 sets of cotton shirts and
  pants or dresses and 2 pairs of leather shoes
  plus coats and blankets as needed.

46
Slave Conditions (2)

• Medical Care, Life Expectancy, and Infant
  mortality
• Access to Medical Care was irrelevant to the
  well-being of antebellum Americans. environmental
  factors-water, diet, etc. explain differences in
  mortality and the record for slave was reasonably
  good.
• For slave women 6 out of 1000 pregnancies ended
  in death of mother-lower than for white southern
  women.
• 183 out of 1000 infants failed to reach 1 yr. old
  compared to 146 per 100 among white children
• Due to work during last trimester causing
  underweight children.
• Punishment
• Whipping, public humiliation, and loss of
  privileges were the primary means of punishment.
  Jail reduced labor productivity.
• Whipping used w/discretion.
• over a two year period, 45 of slaves were never
  whipped and 19 were whipped once.
• The average number of whippings per hand was .7
  per year.
• Gifts and non-appropriated income as reward.
• Rewards used as an incentive for hard work.
• Slaves received gifts or small plots of land to
  work as incentives for hard work.
• Occupation as Reward.
• Occupation used as a reward for service.
• Slaves could escape work gangs by hard work and
  docility for a decade or more.

47
Rate of Exploitation

• The paradox of forced labor is that even though
  blacks were enslaved and had a portion of their
  wages expropriated by slaveowners, their material
  standard of living was higher than that of free
  white farmers.
• Before Fogel and Engerman, the picture of life on
  the plantations was biased by abolitionists--depic
  ted slaves living in marginal physical state and
  the life of slaves as typical to concentration
  camp inmates.
• Optimal mix between positive and negative
  reinforcement-
• Not clear slave owners wanted to run plantation
  as a concentration camp-
• Might be possible to get greater levels of
  inducement out of slaves using a mix of positive
  and negative reinforcement.
• How much of the product of black labor was
  diverted by slave owners?
• Exploitation defined as the percentage of a
  slaves competitive wage is expropriated by slave
  owner.
• Doesnt include non material positive aspects of
  being free vs. a slave.
• Fogel and Engerman define the rate of
  exploitation as the difference between the
  present value at birth of the value of the
  slaves product and the value of goods and
  services provided by slave owner.
• Until age 9 the annual value of a slaves output
  less than maintenance.
• From 9 on, the yearly value of slaves output
  greater than maintenance but it takes 18 years
  for the loss to age 9 to be recouped.
• Rate of Exploitation is 12-less than the modern
  income tax rate

48
The Paradox of Forced Labor

• Slaves actually experienced a larger monetary
  standard of living than free farmers.
• Cotton plantations were extraordinarily
  productive.
• The average cotton farm produced 29 more output
  than the average free farm in the North with the
  same inputs.
• Slave owners expropriated 12 of a slave's
  income, but this left more goods than a typical
  free farmer in the North consumed.
• In essence, slaves and owners split extra output
  that derived from gang system of labor on cotton
  plantations.
• The Paradox of Forced labor is that in a
  capitalist system, in which personal liberty,
  strong private property rights, and the
  individuals ability to deploy his productive
  inputs, e.g. labor, are bedrock principles, slave
  labor or coercion was used to produce a good
  (cotton) in a highly efficient manner.

49
What happened to blacks after Civil War?

• Good example of limits of historical research.
• Nutrition literature unusual in the amount of
  inferences that the data allow.
• Some historical issues may never be
  answered-example effect of segregated schools
  literature.
• Since there was no standardized testing, no way
  to correlate school expenditures and educational
  achievement.
• For assessing the progress of blacks after the
  CW, the problem is that the agricultural census
  did not record the race of the farmer.
• Therefore, the only way to estimate income by
  race is to cross reference the population and
  agricultural census-a labor intensive process.
• Early estimates of black income after
  emancipation.
• Roger Ransom and Richard Sutch-One Kind of
  Freedom
• 1960's hippies at Berkeley.
• Got a NSF grant and cross referenced the 1880
  population and agricultural censuses and used the
  results to estimate black income before and after
  emancipation.

50
Computing the Value of Freedom

• Data problems.
• While it seems an obvious question, historians
  had no good answer until economic historians
  arrived on the scene and even then it required an
  involved data gathering effort.
• Estimation of black income is complicated by the
  nature of the surviving data.
• Difference between published census volumes and
  the manuscript census.
• Each person and farm fills out return.
• Census takers tabulate returns and print summary
  tables.
• Information available depends upon what
  tabulators decided to add up.
• Population census contains no information about
  income because no one really cared about making
  Black vs. White comparisons.
• Ransom and Sutch matched linked population return
  and agriculture returnRansom and Sutch Dataset.
• Additional problems can be shown using
  Indifference Curve Analysis.

51
Measuring the Benefits to Freedom-An Indifference
Curve Analysis
Using the gang system, the slave owner forced
blacks to work at very levels of effort (point C)
and then expropriated a portion of the slaves
output (moving the slave from point C to B). At
point C, the slave is consuming a non-optimal
bundle of income and leisure. He would rather be
at Awith less income and more leisure. Income
at point B can be estimated using plantation and
agricultural census records.
Slavery
C
After Expropriation
A
B
I3
I2
I1
Leisure
0
52
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.
After Expropriation
B
Freedom
D
I3
I2
I1
Leisure
0
53
Computing the Value of Freedom (2)

• Can estimate income by taking value of output and
  subtracting costs of production and then dividing
  by the number of people on farm.
• 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
  didnt 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.
• Main assumption made by Ransom and Sutch is
  measuring the value of freedom on the average
  wage rather than the marginal wage.
• Issue of which is more accurate, a direct measure
  of what people could earn if they worked more or
  an imputed measure in which various assumptions
  had to be made.

54
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 todays dollars.
• Argument that blacks didnt benefit from freedom
  is wrong i.e. Civil War wasnt a waste of time.
  Emancipation did significantly increase black
  welfare.

55
What Happened to Blacks over Time?

• What was black standard of living compared to
  whites?
• Ransom and Sutch only compute black income in the
  South.
• Ransom and Sutch conveniently dont measure white
  income in the South or compare it income in the
  rest of the country.
• Can use the same methodology to measure white
  income in 1880.
• After 1880 there is a problem.
• Problem is that there is no good income data by
  race outside of southern agriculture.
• Economics historians have estimated regional GNP
  numbers but not broken down by race.
• Ransom and Sutch only linked data within the
  South so there is no database which identifies
  race of person.
• First reliable income data based on race begin in
  1947.
• Problem with 1900 censusesno manuscripts only
  the published volumes of census.
• Ng and Virts-Compute income for 1900.
• The only year for which data is available in the
  published volumes of census.

56
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.

57
Methodology (2)

• Equation 5-southern income from southern farm
  income.
• Equation 7-infers white southern income from
  black income-know personal income in the South
  and black income.
• Equation 8-infers national income from southern
  income-assumes that black regional income is
  proportional to white and black income.
• Equation 9-infers white national income from
  black income and total national income.
• Adjust the whole mess for the age distribution of
  the population and you get the following table.

58
Immediately following emancipation, blacks were
concentrated in the rural South. In the area in
which they lived, the black worker earned 89 of
the income that a white worker earned. Differences
in labor quality probable explained the
differential. Nationally, blacks income was 34
of white income. The difference in black white
income was due to the concentration of blacks in
the rural south. Effect of urban/rural. Regional
differences in per capita income. Historical
accident, not discrimination, explained lower
black income immediately following the Civil
War. Theories of black victimization?
59
The Cutting Edge.

• In unpublished research, Ng and Virts have
  estimated black and white income for 1900.
• Use the published volumes of the 1900 census.
• Historical accident that enough information was
  tabulated for the published volumes of the 1900
  census.
• The required information is not available for the
  1910, 1920, or 1930 censuses.
• 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.
• What effect did these historical developments
  have on black welfare?

60
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. The
adverse historical events in the South did have a
negative effect on blacks.
61
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
  todays 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.

62
Table 1 Mean Male Income by Race 1940-1980 (1984
dollars)

• By 1940, black income had increased from .37 to
  .43 of white income.
• Since 1940 the income of black men has improved
  absolutely and also relative to whites (2.2 vs.
  3.5 per year).
• The post World War II period was one of advance
  by blacks.

63
Table 2 Black Male Wages as a Percent of White
Male Wages, 1940-1980

• The table shows the changes in relative wages by
  work experience.
• Reading the table A person in 1940 with 5 yrs.
  Experience earned 46.7 of a white person with
  the same experience.
• What happened to this person as he continued to
  work?
• You can follow an individuals life by moving
  diagonally along the table.

64
Table 2 Black Male Wages as a Percent of White
Male Wages, 1940-1980

• It is commonly posited that only younger blacks
  benefited from the improvement in black incomes
  that occurred in the post World War II era.
• What do the numbers in the chart suggest?
• As black workers progress in their careers, their
  relative wages increased.
• Young as well as older blacks benefited from the
  general improvement in black relative wages.

65
Table 2 Black Male Wages as a Percent of White
Male Wages, 1940-1980

• From 1940 to 1980, black wages increased 52
  faster than whites.
• Largest improvement occurred during the 1940's,
  slowed during the 1950's and increase during the
  1960's and 1970's.
• Common story of black wage stagnation is not
  correct.
• Evidence that Civil Rights Movement and increased
  Black Voter Participation was not responsible for
  increased black income because improvement
  occurred before Civil Rights Movement.

66
Table 3 Extent of Overlap Between Black and
White Income Distributions
Note The way to read the chart is as follows. In
1980, only 10 of black men had an income that
exceed the income of a white man whose income was
in the top 25 of the income distribution. In
1980, 29 of black men had an income that
exceeded the median income of white men.
67
Table 3 Extent of Overlap Between Black and
White Income Distributions
In 1940, the U.S. was truly a nation racially
divided. Black and white men were truly divided
into two separate and unequal societies and the
upper segments of society were an exclusive white
male club. Because people associate primarily
with those in the same socio-economic groups,
white elites had little contact with blacks. Most
of the black/white interaction occurred at the
lower income levels.
68
Table 3 Extent of Overlap Between Black and
White Income Distributions
70 of white men earned more than the top 25 of
blacks in 1940. In 1940, only 1 of black men had
an income greater than the Top Quarter of white
men. In 1940, only 1 of black men had an income
greater than the Top Quarter of white men. By
1980, the income distributions had converged
greatly. Black penetration into the economic
elite and glass ceiling arguments. Black Middle
Class-29 of black men earned more than the
median white.
69
Table 4 Men in the Middle Class

• Table shows the percentage of blacks and whites
  above, below and within the middle class.
• Table 4 shows
• the persistence of black poverty,
• growth of the Black middle class
• the recent emergence of a non-negligible black
  upper class.

70
Table 4 Men in the Middle Class

• From 1940 to 1980, the bulk of Blacks have moved
  from the lower to the middle class.
• For the first time in history, a sizable number
  of black men are better off than white middle
  class.

71
Table 5 Percentage Increase in Black Annual
Income Compared with Whites at Selected
Percentiles

• Increase in income was fairly broad based with
  roughly even changes across experience and income
  levels except for those in the very bottom of the
  income distribution.
• Do those in the bottom of the income distribution
  have some type of developmental or behavioral
  problem which limits income?

72
Table 6 Percentage Growth in Black-White Male
Ratios of Weekly Wages
Blacks experienced the most convergence in wages
between 1940 and 1950
73
Table 7 Percentage Growth in Black-White Weekly
Wage Ratios by Education
Blacks with more education experienced a greater
improvement on their wages relative to whites.
74
Data Sources
75
Value of Freedom
76
How Did Blacks Fare Compared to Whites-Late 19th
Century
77
How Did Blacks Fare Compared to Whites-Early 20th
Century
78
The Improvement in Black Relative
Incomes-1940-1980.

• What was the role the Civil Rights Movement,
  election reform, affirmative action and
  desegregation?
• Was the causality
• Government legislation caused the improvement in
  black welfare.
• Improvement in black welfare caused the
  government legislation.
• Factors other than government action caused the
  improvement in black welfare.
• What was the nature of the improvement in black
  incomes?
• Was the improvement broad based or was it limited
  to specific segments of the black population?
• Age, education, and experience.
• What can income distribution data reveal about
  the nature of race relations in the U.S?

79
Civil Rights, Government Action, and Black
Welfare.

• Timing argument similar to the used by McKeon in
  the nutrition debate.
• School desegregation, voting rights reform,
  affirmative action, and civil rights legislation
  occurred after much of the improvement in
  relative black welfare.
• Therefore, these could not be the sole or primary
  cause of black relative improvement.
• Other factors must be identified.

80
The Nature of the Improvement in Black Relative
Incomes.

• The increase in incomes affected
• Young and old blacks.
• Experienced and inexperienced blacks.
• Educated and uneducated blacks.
• Rich and poor blacks
• And led to the rise of a large black middle class
  and a significant black upper class for the first
  time.

81
Income Distributions and the Nature of Race
Relations-1940-1980
In 1940, there was little overlap between the
black and white income distributions. The
majority of blacks were concentrated at what
would be the lower end of the white income
distribution. Since people primarily associate
with those from the same socio-economic class
there was little contact between blacks and
whites in 1940. This effect was especially
pronounced at the higher income levels.
82
Income Distributions and the Nature of Race
Relations-1940-1980
By 1960, 49 of the improvement in black relative
income had already occurred (Table 1). For the
first time, middle, upper middle, and upper class
whites had significant contact with
blacks. Despite the improvement, there was still
little contact among upper class whites and
blacks.
83
Income Distributions and the Nature of Race
Relations-1940-1980
By 1980, there had developed a significant black
middle and upper class. For the first time,
upper class whites had significant contact with
upper class blacks.
84
Slavery and the Civil War- A Study Guide.

• Slave Trade
• Mortality and the slaver as a profit maximizing
  businessman.
• Multi-Culturalism.
• Comparing and contrasting U.S. slavery vs.
  slavery in the rest of the new world.
• Cotton vs. Sugar.
• Slave Rebellions and the nature of the slave
  system.
• Epidemiological differences.
• Natural increase vs. imports.
• Effect on black culture.
• The nature of the slave system and black culture.
• How were slaves treated and what was it like to
  be a slave-economic factors?
• Diet, housing, shelter, occupational advance,
  etc.
• Slave labor and the efficiency of producing
  cotton.
• Material condition of slaves vs. free farmers.
• The paradox of forced labor.
• Age/price profileswhat can we learn?
• Slave owners as profit maximizing businessmen.
• Ramsdel and Phillips.
• The rise of the U.S. as The Great Slave Power.

85
Slavery and the Civil War- A Study Guide (2)

• Emancipation.
• Emancipation schemes outside the U.S.
• Why the U.S. was different?
• Civil War
• Politics---why no political solution?
• Constitutional limits
• Who benefited from the end of slavery and The
  Great Moral Crusade.
• Abolitionists, morality, and narrowly defined
  self-interest.
• Viability question-would slavery have ended
  without the Civil War?
• Evidence?
• Cost-human and financial.
• Why so lethal?
• Technology, tactics, geography and culture.
• Expectations and the rationality of fighting.
• Was the Civil War an efficient method of ending
  slavery.
• The ever changing history of the Civil War.
• Abolitionists, southern historians, blacks
  studies departments, liberals, and economic
  historians.

86
Slavery and the Civil War- A Study Guide (3)

• Freedom and Emancipation.
• The Value of Freedom.
• Did emancipation mean much to blacks?
• What happened to blacks in the late 19th century.
• Did changes in the political and legal
  environment materially effect blacks?
• What happened to blacks in the 20th century.