Wealth Shocks and Wealth Creation in the South

Rhett Butler, dissipated southern aristocrat who (in fiction) made a fortune after the Civil War.

The abolition of U.S. slavery after the Civil War, along with the accompanying decline in land value, triggered one of the greatest episodes of “wealth compression” in world history. Slaves accounted for roughly half the accumulated wealth of Southern whites in ante-Bellum society. Reflecting a loss in productivity after the war, the value of land, which accounted for much of the non-slave wealth, fell by 60% in the Deep South and by 15% in the rest of the South. Overall, southern whites in the top 5% percentile lost 75% of their wealth, according to  according to research published by the National Bureau of Economic Research.

Remarkably, however, the sons of slaveholders largely recovered their relative standing by shifting to new occupations, concludes the paper, “The Intergenerational Effects of a Large Wealth Shock: White Southerners after the Civil War,” by Philipp Ager, Leah Platt Boustand, and Katherine Eriksson.

Despite the massive loss of material resources, the ability of slaveholders’ sons to find new sources of wealth suggests “a remarkable persistence” of wealth that cries out for explanation. The authors’ research, based upon newly digitized, complete-count Census samples linked to 1860 slave schedules, did not enable them to identify the attributes that allowed families to reconstitute their wealth. However, drawing upon the research of others, they speculate that the sons of slave-holders bounced back thanks to their access to elite social and marital networks.

The study has major implications for the modern-day debate about income inequality. Traditional remedies touted by social levelers today would use the tax system to redistribute income and wealth, even the most extreme of which would fall short of the wealth redistribution caused by emancipation in 1865. But if “privilege” is transmitted by things other than parental wealth, such proposals are unlikely to accomplish their goals. As long as the U.S. is an economically dynamic society in which new sources of wealth supplant old sources with each new generation, an enhanced ability to shift occupations into new sources of wealth is the key to resilience.

The study also informs the debate over reparations. A central argument of reparations advocates is that wealth extracted from slaves provided the economic basis for white privilege long after slavery ended. Aside from the fact that only 21% of Southern whites owned any slaves at all, and only 0.5% owned enough slaves to work a plantation, emancipation annihilated most of that wealth. The sons of slaveholders earned new wealth by moving into new businesses and occupations made possible by the spread of the Industrial Revolution to the South. Wealth in the “New” South arose not from landowners who reconstituted the old system of slavery in the guise of sharecropping, but was created by entrepreneurs who invented new industries such as cigarettes, textiles, apparel, and furniture.

Before the Civil War, write the authors, “The US South was a dramatically unequal society.” In 1860, a household at the 90th percentile of the white southern wealth distribution owned 14 times more than a household at the median. The impact of the Civil War and its aftermath was devastating. Wealth held by white southerners fell by 38% at the median and by 75% at the 95th percentile between 1860 and 1870. By the latter year, the disparity in white wealth distribution shrank to a 10-to-one ratio.

A simple model of intergenerational wealth transmission, the authors write, would suggest that a loss of financial resources would dampen investment in children — especially in an economy like the postbellum South with poorly functioning credit markets. But that’s not what happened. The sons of slaveholders shifted into white collar work and attracted spouses from households that had been wealthier before the Civil War. (It’s not clear which families these might be; presumably families that held wealth in a form other than slaves.) “The availability of capital or social ties from fathers-in-law may have allowed these sons to recover faster,” speculate Ager et al.

The findings undermine the classic mid-century view that the Civil War caused a major rupture to the southern elite, as espoused by the famous historian C. Vann Woodward. “No ruling class of our history ever found itself so completely stripped of its economic foundations as did that of the South in this period … [including] the leading financial, commercial, and industrial families of the region,” he wrote. A classic study of 254 southern industrialists in the late 19th century found that 80% of the newly wealthy in the South came from non slave-owning parentage. A more recent study found more turnover at the top of the wealth-distribution curve in the South than in the North during the war decade.

However, other studies have found that slaveholding families recovered quickly, often by joining the industrial and merchant elite. One study of 200 wealthy planters in western Alabama concluded “what occurred …. was not the ‘downfall’ or ‘destruction’ of the old planter class, but rather its persistence and metamorphosis” into planter-merchants who subdivided their land and extended credit to tenant farmers.”

None of the academic studies cited in “Intergenerational Effects” tell us anything specific about Virginia’s planter class. Given the fact that the process of adapting to the post-bellum world was unlikely to have been uniform, it is dangerous to conclude that what happened in Georgia or Alabama necessarily happened here in the Old Dominion. However, their hypothesis of sons using social and marital connections to reconstitute family fortunes is certainly worth exploring.

In my other “job” outside of Bacon’s Rebellion, I am compiling a history of A.T. Massey and his descendants, who founded and then built the A.T. Massey Coal Company into one of the largest coal producers in the United States. One thread of the story begins with Evan Williams, son of a landless farmer in Wales, who rose through the ranks in the agricultural estate management business, found a mentor, and followed that mentor to West Virginia during the 1880s coal rush. Williams eventually cobbled together the means to start his own coal mining company, ultimately dying in a methane explosion. The other thread starts in Patrick County, where Civil War veteran Taylor Massey became a small-time tobacco farmer. His three sons, including A.T., moved to Fayette County, W.Va. One brother became superintendent of a large mining company, another founded a hackney business, and A.T. ran company stores.  Eventually, A.T. would marry Evan Williams’ daughter, move to Richmond, Va., and found a coal brokerage business.

The late 1880s saw a massive reordering of Virginia’s old agriculture-dominated economy. Taylor Massey was hardly a member of Virginia’s old plantation elite. He owned his own land, but I have found no evidence that his family had owned slaves. His three sons were ambitious and willing to seek their fortune elsewhere. There was a migrant pipeline leading from Patrick County to the southern West Virginia coalfields, and the three sons followed that pipeline to Fayette County, which at that time was a land of opportunity. Although none of them became truly rich, they all became well off, and each could be described as a self-made man. I came across no evidence that they owed their upward mobility to family or social connections of any kind, other than the assistance they rendered each other. But that’s just one family, and one family is anecdotal, so I am hesitant to draw any sweeping conclusions. 

But I will say this: It took two more generations and nearly a century before some of A.T.’s descendants could be described as truly wealthy. For most wealthy American families, the process of building great wealth is a multi-generational effort. And, in a phenomenon that few scholars seem interested in exploring, the process of dissipating that wealth is also a multi-generational effort.

The work of Ager et al pushes the discussion of wealth creation and transmission to a new, more sophisticated level. But their thoughts about how wealth perpetuated itself in the late 19th-century southern elite can best be regarded as tentative and unlikely to settle anything. Debates over wealth inequality and reparations will roll on, oblivious.

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6 responses to “Wealth Shocks and Wealth Creation in the South

  1. Dear Jim,

    The tendency of this “discussion” is toward communism. The government will be called in to approve or disapprove marriages in a way similar to corporate mergers. Only there will be an “intersectional” aspect to it. Hey, we might even wind up with Mooney / “Unification Church” mass weddings with a “mix and match” elite calling the shots.

    Sincerely,

    Andrew

  2. Not a bad post by Jim.

    Hint to all our other friends, save Andrew. The Va. Tidewater Plantation class was finished for all practical purposes by the year 1812, but for most of them the bad ending came before the the American Revolution, in many but not all of the American South, the Carolina’s and deep south thanks to rice, for example. In general terms, they otherwise ran out of blood (genes) and easy living, so suffered the curse of all failing cultures, what we from suffer today. Ask John Adams. He was an expert on the subject. Your referenced paper likely is just nonsense. I will not waste my personal time on it.

  3. Dear Jim,

    Thomas Nelson Page wrote a novel about a young Southern man whose family lost their plantation due to their inability to pay the taxes on it during Reconstruction. The book is named after the protagonist, _Gordon Keith_, who encounters snobbery when he goes North hoping to make his fortune: For being a Southerner, and for having no wealth, not even land. His first attempt at marriage to a wealthy Northern girl is nixed by the girl’s Mother, who disdains his “deficiencies” in these departments, preferring her daughter to marry a wealthy, much older, Northern man. Gordon finally marries a girl from a “respectable” family that, while comfortable, is not rich. The majority of the novel is set in New York, including its business world. Here it is on Google Books: https://books.google.com/books?id=MUE1AAAAMAAJ&printsec=frontcover&dq=thomas+nelson+page+gordon+keith&hl=en&sa=X&ved=0ahUKEwiQyZiU-MLhAhWNq1kKHYM5Ar8Q6AEIKDAA#v=onepage&q=thomas%20nelson%20page%20gordon%20keith&f=false

    Sincerely,

    Andrew

  4. Ah, the Page family of Virginia: the myth of the happy Pre-War plantation. In fact, here’s a sample of what they had already lost long before Reconstruction — it must have been a good life:

  5. Should you want to read one of the finest books on war, and what it does to a nation, ever written, read Italy and the World War (1920), a memoir by Thomas Nelson Page on his service as US ambassador to Italy between 1913 and 1919. It’s about two wars, really.

  6. Thanks for the TNP Italy book recommendation, Reed.

    Sincerely,

    Andrew

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