Download - Northern Agriculture After the Civil War
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Northern Agriculture After the Civil War
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• Some what misleading title because there is much that the North and South have in common
• Substantial Increases in Productivity
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Labor ProductivityMan hours needed
Wheat
100 Bu
Corn
100 Bu
Cotton
1 bale
1800 373 344 601
1840 233 276 439
1880 152 180 304
1900 108 147 283
1910 106 135 276
1930-40 70 123 252
1960 12 11 49
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Where do increases in productivity come from?
• Refer back to lecture on Northern Agriculture before Civil War– New Land
• Reduction in transportation costs increases size of market
• Railroads
– Mechanization– New varieties of plants
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Total Factor Productivity
• Total Factor Productivity• Q=LaKbTc
• TFP=Q/LaKbTc
• Between 1889 and 1899, TFP increase by .7% per year compared to 1.7% for manufacturing
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Increased costs of farming
• Increase in farm size
• Increase in capital necessary to start up– Cost of machinery was falling
• Increase in cost of land
• Sources of Agrarian Discontent (Populist Movement)
• Were these concerns justified?
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Increase in Tenancy
• Increase in the percentage of farms operated by tenants– From 1880 to 1920 the percentage of tenant farms
increased from• 19% to 28% in North• 36% to 50% in South
• Increase in average farm size in North– From 115 acres to 156 for all farms from 1880-1920
• Concern that “land monopoly” was threatening agricultural ladder
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Was the Agricultural Ladder in trouble?
• No easy answer even looking a aggregate data
• Increase in farm size in North was larger for tenant farms than owner operated farms
• From 1900 to 1920 average farm size increased from – 125 acres to 169 acres for tenants– 136 acres to 152 acres for owners
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What is farmer’s goal?
• farm ownership – Minimize transaction costs
• income maximization– Tenancy is also a way of increasing farm size
and to accumulate capital and land
Allows farmer to resources on farm equipment and other capital
– Is it better to rent a bigger farm or buy a smaller one?
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Increase in Tenancy
• Tenancy is step on Agricultural ladder but it is also a way of altering farm size.– In the South, owners of large amounts of land
rent out parts to sharecroppers and other tenants but still manage the land as one unit
– In North some farmers rent land in addition to land owned to make larger farms
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Mortgage Market
• As land becomes more expensive, increased use of mortgages
• Did banks have monopoly power?– Entry is easy– Low forclosure rate
• Prices were falling but this should only be a problem if it was unanticipated
• Interest rates were falling during this period
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Railroads
• Farmers saw themselves victims of railroad monopoly
• Railroad rates were falling faster than farm prices
• Railroads were a natural monopoly– High fixed costs– In some cases competition between lines and
with water transport. In some cases not.
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Natural Monopoly
ac
Dmc
mrq1
p1
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Problems with unregulated Natural Monopoly
• Higher price than competitive industry on lines where no competition
• If there are two railroads will compete and price could be driven down to MC which would eliminate deadweight loss but cause negative profits.
• Prices tended to be high on short hauls with no competition but lower on land hauls.
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Marginal Cost price
ac
Dmc
mrq1
p1
q2
p2
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Demand for regulation
• Farmers want equal rates but with the low rates
• Railroads want equal rates but with high rates (Enforcement of cartel)
• Increase in demand for regulation leads to Interstate Commerce Commission (ICC)
• Some evidence that for part of the period it benefited railroads
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Railroads
• Farmers saw themselves victims of railroad monopoly
• Railroad rates were falling faster than farm prices
• Why did Populism flourish?
• Consider this graph taken from your text which shows Crop price/railroad rates
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Price Variability
• Preceding graph shows that crop price is variable (lots of ups and down)
• Farmers are selling in European market which demand is variable
• Populism can be explained as a special interest group – Agricultural price supports are part of its
legacy
• William Jennings Bryant famous candidate
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Populism, a success?
• Never got more than 10% of popular vote• William Jennings Bryant was their most famous
presidential candidate (Cross of Gold)– He actually ran on a democratic party ticket and was
endorsed by the populist party
• Were successful in increasing amount of regulation of RR and other utilities and setting the ground work for agricultural price supports.
•
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Railroads
• How important were Railroads to increasing US economic growth?– Rostow claimed RR were the cause of takeoff
of US economic growth– Lots of company
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Problems
• Problem- No evidence of acceleration in rate of economic growth when we look at GNP or GNP per capita
• Reduction in transportation costs before railroads with canals and turnpikes
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Role of Railroad
• Most of the expansion takes place after 1850.
• Railroads created external benefits just as canals and turnpikes did
• Was construction ahead of demand?– Were returns to investors< returns in the next
best investment
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• Fishlow’s analysis show railroads in midwest profitable from beginning
• Fogel shows much larger social rate of return than private rate of return for Union Pacific– Justifies government subsidies such as land
grants– Controversy about whether land grants were
necessary
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Social Savings of Railroads
• This is not social rate of return vs private rate of return
• Social savings is related to the opportunity cost– Difference between transporting goods on railroads
and transporting goods on canals adjusting for speed, quality, time water ways are frozen etc
– If we just take (Pw-Prr)q of freight shipped it is about $150 to 175 million in 1859 or about 4% of GNP. Would have grown to about 15% of GNP by end of century (Fishlow)
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Fogel’s revision• Compare cost of transportation with
railroads in 1899 to cost of transportation without railroads in 1899.– Land under cultivation would change
• Land more 40 miles from water source would not be cultivate (24% of farmland would not be cultivate)
• Should use the rental value of the land as the social savings, not the difference in cost of hauling the goods
– More canals would be built
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• Not all goods are agricultural commodities where speed is essential, need to adjust for this
• Estimate of Social Savings for 1890 is about 7.3 percent of GNP, much less than Fishlows
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Points of controversy
• Fogel does not consider passenger’s time savings
• Costs vs prices. Both use price and not resource costs. If markets are competitive, rates should adjust so that they are equal.
• Could additional waterways be built and could existing waterways handle more traffic?
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Linkages
• Backward linkages– Railroads are not large part of demand for
iron
• Forward linkages– Benefits of linking country– Important is not the same as indispensible