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How the South was Lost

Vivek Nemana is an economics graduate student in New York University and a student worker at DRI.

UPDATE: Art Carden makes an important emphasis regarding this post and contibutes an ungated link to his paper. See comments/bottom of post.

Last week marked 150 years since the beginning of the Civil War. Victory for the North meant more than the preservation of the Union. It meant that slavery could no longer continue as a viable factor of economic productivity. It meant the end of the terrible institution that deemed human beings were property, and heralded an important step in the long American struggle for universal human rights.

New York Times headline declaring Union victory on April 10, 1865

But it also reinforced the cleavage between an industrial, prosperous North, and a rural, underdeveloped South, a distinction that persists in some ways even today.’ The Union won in large part because of its industrial advantage, and its victory installed in the South what should have been better conditions for economic growth – liberal, more universal property rights and the abolition of slavery.

So what happened? A 2009 paper by Art Carden{{1}} argues that it was the very insertion of these new freedoms and property rights into a society designed for slavery that led to the divergent development of North and South.

Before the War, Southern social networks were based on hegemonic bonds relying on power imbalances and the threat of violence. The South was heavily invested in racial subjugation – slavery directly accounted for over a quarter of the GDP. The region spent an enormous amount of resources to justify slavery, hiring silver-tongued apologists like John C. Calhoun to spin slavery as humane. In this light, slavery was an economic institution that was designed for racially hegemonic society.

The silver tongue at work: "Never before has the black race of Central Africa, from the dawn of history to the present day, attained a condition so civilized and so improved, not only physically, but morally and intellectually."

While the Civil War radically restructured Southern laws to promote racial equality and property rights, the hegemonic bonds were resistant to change. This generated a major friction, Carden writes, that manifested through the racist Jim Crow laws and, most gruesomely, lynchings that openly defied the new freedoms for blacks.

The backlash against black self-determination, the politically-enforced segregation, and the conviction that one race was inferior were societal phenomena that hurt economic growth. For example, segregation and racist violence meant that markets were smaller and the division of labor shallower than it could have been. Mutual fear and distrust made contracting and doing business across racial boundaries more expensive. As a result, Carden writes, “Southern entrepreneurs, innovators, and laborers relied more heavily on kinship networks and informal arrangements than on formal markets.”

And these factors were self-reinforcing, Carden argues, breeding a cycle of mistrust, ignorance and poverty.

Gary Becker once wrote that people lose out on the potential gains from trade if one group is able to indulge in “tastes for discrimination” against another. As the legacy of slavery wound its way into postbellum Southern society and politics, it hindered the way freedom and property rights should have boosted the economy, denying the South the full bounty of American development.

[[1]]Here’s the ungated version.[[1]]


Photo credit: New York Times and Wikispaces


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  1. Art Carden wrote:

    Thanks for the mention as part of a momentous anniversary. In order to counter people who might say “you’re saying the end of slavery was bad,” it’s important to point out that it was the structure of institutions and social capital that had built up around slavery that constrained the South’s ability to make a peaceful and prosperous transition. The general implication is that even when we get unambiguous changes from an Evil system (like slavery) to a Good system (like freedom), societies with a new Good system will be constrained by norms and social capital that have accumulated around the Evil system.

    Here’s the published version of the paper you mention, and here’s an ungated earlier version. I discuss this in greater detail in a survey of Southern economic history that will appear in the Oxford Handbook of Southern Politics. The ideas also provide part of the basis for my paper with Christopher J. Coyne in which we explore the transition from limited-access to open-access orders in the context of the May 1866 Memphis race riot (a riot which, along with a similar riot in New Orleans in July of 1866, ushered in radical Reconstruction). Feel free to email me for the latest version, which isn’t online yet.

    Southern transition is a pretty complicated issue. Someday, I want to write a paper in which I ask whether cotton was to the antebellum South as oil and diamonds are to some countries today: an exportable commodity that provides high incomes for elites but that masks the underlying pathological institutions. But that’s a paper that remains on the agenda for now. Any suggested readings would be most welcome.

    Posted April 25, 2011 at 8:45 am | Permalink
  2. Vivek Nemana wrote:

    Thank you for your comments, Art. I hope I was clear in emphasizing that it was the structure of Southern institutions as a hangover from the pre-War days, and certainly not the abolishment of slavery, that impeded growth. I would not want to distort your fantastic analysis.

    And I’m very sorry, I thought I had linked to your post already! I’ll fix it right away.


    Posted April 25, 2011 at 9:36 am | Permalink
  3. Art Carden wrote:

    @Vivek: Thanks again for your kind words and the link, and I’m glad you like the paper so much. Keep up the great work. My experience with blogging and public commentary, particularly with regard to controversial issues, is that someone will find and emphasize the least-charitable reading, so I wanted to go ahead and put this on record.

    I wanted to add two additional links that have influenced my thinking on these issues since I wrote the paper you discuss here. Both are by Elizabeth Fox-Genovese and Eugene Genovese: The Mind of the Master Class and Slavery in White and Black discuss the development of the doctrine of “slavery in the abstract.” Proponents of this doctrine argued that chattel slavery was the proper solution to the (alleged) fundamental tensions between capital and labor. Indeed, some of the defenders of the Peculiar Institution held that it was central to the preservation of the republic and the prevention of tyranny.

    And while we’re on the subject of the War, here’s a neat paper I’m reading right now: Zachary Liscow examines Northerners’ motivations for fighting the war. Here’s the abstract:

    Why fight secession? This paper is a case study on this question, asking why the North chose to fight the South in the American Civil War. It tests a theoretical prediction that economic motivations were important, using county-level presidential election data. If economic interests like manufacturing wished to keep the Union together, they should have
    generated votes to do so. That prediction is borne out by the data, and explanations other than Northern economic concerns about Southern secession appear unable to explain the results, suggesting that economic motivations were important to support for fighting the South.

    Posted April 25, 2011 at 11:00 am | Permalink
  4. John wrote:

    This post should be required reading for all of the democracy proselytisers naively working to push open society concepts onto oppressed peoples in INGO Land. Workable social change comes from internal revolution, not imperialist domination. The INGO led democracy utopia isn’t going to work–never has.

    Posted April 25, 2011 at 11:18 am | Permalink
  5. Seth Brooks wrote:

    The end of slavery was one of the best moments in U.S. history. It marked the end of an ignorant train of thought that people were not people, just mere property based on the fact that their skin was of a different color. However, I do feel that a lot of the Old Southern ideals were covered behind this point. While the South was still in its agricultural state of economy, the North was flourishing with industry. The other big factor leading to the Civil War was the factr the Union also tried to impose taxes on these Southern states that the people did not want. I think we can remeber another instance like this happening in history (The Boston Tea Party) and this also was a HUGE part of the South’s seccession. Look at how the North started income tax while the South was the Confederacy and the North forced it upon Southern people after the war. While I will admit slavery was the biggest reasoning for the war, I think other things get skewed behind that fact. I also believe that this is not the only reason the South has been “under developed” in terms. While the Industry boom lasted a while and brought great prosperity, look at the Rust Towns we have today because as a country we sent our manufacturing overseas.

    Posted April 25, 2011 at 11:52 am | Permalink
  6. Cornelius wrote:

    Although chattel slavery has been defeated in the South, we are still faced with the problem of wage slavery, a problem Abraham Lincoln and the Republican Party vowed to end.

    Posted April 25, 2011 at 3:33 pm | Permalink
  7. michael wrote:

    This paper is packed with brilliant insights–thanks! In light of your argument, it’s also worth noting that the famed journalist and criminologist Ida B. Wells understood lynching as an anxious response to the rapid influx of scores of newly emancipated African Americans into US labor markets…this only serves to strengthen the points you raise.

    Posted April 25, 2011 at 3:34 pm | Permalink
  8. michael wrote:

    @Cornelius: Apropos the transition from chattel slavery to wage slavery, dig this forthcoming book on Abraham Lincoln’s 19th century correspondence with Karl Marx about how to build a worker’s movement in the US:

    Posted April 25, 2011 at 3:36 pm | Permalink
  9. Vivek Nemana wrote:

    Thanks Michael,

    That book looks fascinating. I had no idea they were in correspondence. Historically American (global?) racism and racial violence have had a lot to do with a perceived loss in economic opportunities. It was also the case with immigration, where the most intolerance towards a particular group of immigrants came from the wave that directly preceded them.

    Posted April 26, 2011 at 2:52 pm | Permalink
  10. Cameron Colbert wrote:

    The effects of the past violent history in the South are still apparent in modern times. Changing the laws of an area will not cause two opposing groups to trust one another. I believe that this distrust is one of the main reasons for the slower growth of the South, when compared to the North. The business relationships that were developed before the Civil War have held strong in certain areas. I think we can be completely certain that, whenever all members of a market do not work together seamlessly, that market does not prosper as it should. This has been a hindrance of the South since the day the war started.

    Posted April 26, 2011 at 8:17 pm | Permalink
  11. l wrote:

    It was the reliance on slavery to help produce agricultural goods for so long that would hinder the South’s economic output when it was ended. This is not surprising at all. Neither is the discrimination that followed and still exists today. I do think that the differences between the economic output of the North and South is a bit exaggerated. Another major factor in the gap between the two regions is Sherman’s destruction of Atlanta. Since Atlanta is now as economically relevant as any other US city, it is interesting to ponder what it could have been had it remained intact throughout the war.

    Posted April 27, 2011 at 10:42 am | Permalink
  12. B-Rob wrote:

    After reading Isabella Wilkerson’s “The Warmth of Other Suns,” one thing that jumps to mind as continuing the under-development of the South from 1865 through 1964 was the Blacks’ lack of ability to enforce contracts. Whether for the purchase of land or the sale of goods, there was no independent, unbiased judicial system and criminal justice system in place to protect Black contract and property rights. This, too, not only segments markets (so Blacks can only trust Blacks and never Whites) but would also tend to undercut innovation (would a Black man trust a White man to invest in a patentable product?) and inhibit the flow of capital (both to Blacks from Whites and from Blacks to Whites). Not to mention the duplicate infrastructure required to run a business during Jim Crow — two men’s restrooms instead of one, two water fountains instead of one, and the resulting decrease in Black patronage where they choose to patronize their own businesses instead of being subjected to Jim Crow inferior facilities. Lastly, Jim Crow restricted your labor pool, too. The added layer of costs to operate and inferior labor sources surely inhibited Southern economic development and made the South’s companies less competitive against Northern businesses.

    Posted May 3, 2011 at 9:32 am | Permalink
  13. Vivek Nemana wrote:


    You’re absolutely right. As New Institutional Economics would tell us, inadequate property rights (via contract enforcement) and higher transaction costs (via mandatory segregation) certainly hurt Southern growth. Racist separation is not only unequal — it’s also uneconomical. Seems to me like people used their white privilege to shoot themselves in the foot.

    Posted May 3, 2011 at 12:37 pm | Permalink
  14. Ariah wrote:

    The South was lost? Have you BEEN there? I would think the numerous Waffle Houses would convince you it wasn’t the North that won (and the NYC area is JUST NOW getting Sonic Drive-Ins). The food is only one example of the overall superiority of quality of life in the South vs. the North. You may think this is silly, but there are reasons why people are leaving Yankee-land and moving southward.

    Posted May 4, 2011 at 3:14 pm | Permalink
  15. Vivek Nemana wrote:

    Thanks for writing, Ariah. You’re right, neither Art Carden nor I gave enough consideration to Sonics, Waffle Houses and Jack-in-the-Boxes and other fast food chains when discussing, you know, post-Civil War racism and hegemonic bonds and stuff.

    Oh hey have you seen this yet?

    Posted May 4, 2011 at 3:26 pm | Permalink

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