Plan B Forum

The Persistence of de Facto Power: Elites and
Economic Development in the US South,
1840-1960
Philipp Ager
∗
Abstract
Wealthy elites may end up retarding economic development for their own interests.
This paper examines how the historical planter elite of the Southern US affected eco-
nomic development at the county level between 1840 and 1960. To capture the planter
elite’s potential to exercise de facto power, I construct a new dataset on the personal
wealth of the richest Southern planters before the American Civil War. I find that
counties with a relatively wealthier planter elite before the Civil War performed signif-
icantly worse in the post-war decades and even after World War II. I argue that this
is the likely consequence of the planter elite’s lack of support for mass schooling. My
results suggest that when during Reconstruction the US government abolished slavery
and enfranchised the freedmen, the planter elite used their de facto power to maintain
their influence over the political system and preserve a plantation economy based on
low-skilled labor. In fact, I find that the planter elite was better able to sustain land
prices and the production of plantation crops during Reconstruction in counties where
they had more de facto power.
Keywords
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1 Introduction
Wealth inequality may slow down economic growth (e.g. Galor and Zeira, 1993; Alesina and
Rodrik, 1994; Deininger and Squire, 1998; Aghion et al., 1999). The historical plantation
economies in the New World often serve as an extreme example. Although relatively rich
in the past, these economies have fallen behind since. One explanation is that the great
concentration of wealth in the hands of a small elite promoted the establishment of oppres-
sive institutions which were harmful for modern economic growth (Engerman and Sokoloff,
1997, 2002; Acemoglu et al., 2005; Acemoglu, 2008). Recent research has started to analyze
whether historical wealth inequality might have been affecting economic development within
the United States (Nunn, 2008; Galor et al., 2009; Ramcharan, 2010). I contribute to this
literature by using county-level variation within the US South to examine how the relative
wealth of the historical planter elite affected local economic development after the American
Civil War and during the 20th century.
1
Before the American Civil War, a large fraction of Southern wealth belonged to a small
number of large plantation owners (Wright, 1970, 1978; Soltow, 1971, 1975). Historians have
documented that their great wealth helped the planter elite to retain de facto power over
economic institutions and politics after the Civil War, despite legal and political challenges
like the abolition of slavery and black enfranchisement for example (Wiener, 1976, 1978;
Wright, 1986; Alston and Ferrie, 1999; Ransom and Sutch, 2001). I construct a new dataset
on the personal wealth of the richest Southern planters before the Civil War (in 1860) to
evaluate the long-run effects of the planter elite’s de facto power on local economic develop-
ment. A key feature of my analysis is a measure of the planter elite’s relative wealth at the
county level – which I regard as a proxy of their de facto power – based on these personal
wealth data.
2
My empirical analysis points to a significant negative association between the pre-Civil
War wealth of the planter elite and levels of labor productivity across Southern counties
in the post-war decades and even after World War II. Since my focus is on evaluating the
long-run effects of the planter elite’s pre-Civil War wealth on local economic development
rather than the economic consequences of slavery per se, my empirical specifications al-
ways control for the extent to which local economies relied on slave labor before the Civil
War.
3
The negative association between the relative wealth of the pre-Civil War planter
elite and long-run labor productivity proves to be robust to a wide range of controls for
geography and specialization in (certain types of) agriculture. My estimates imply that a

two-standard-deviation increase in the relative wealth of the planter elite translates into
productivity levels that are about 7 percent lower at the turn of the 19th century and 23
percent lower in 1950 ... "