Want to get rich? You need to know the right people
- The American Civil War leveled the Southern economy and was especially painful for people previously at the top.
- Within a few decades, the descendants of the richest families had recovered their wealth.
- New research suggests this was due to connections and social networks.
After the American Civil War, the vast fortunes of the slaveholding class were wiped out. It was one of the largest cases of wealth compression in history. Many Southerners were disenfranchised as Reconstruction governments locked former Confederates and their supporters out of power. But it did not last long. Within a few decades, the sons of the old planter class were again wealthy as their ancestors.
How did they recover so quickly?
An upcoming paper in American Economic Review explores the factors that fueled the recovery, finding that social networks were key to the economic resurrection of the descendants of Southerners slave owners.
Bouncing back from the Civil War
The South was devastated in the wake of the war. More than 250,000 Confederate soldiers had died while thousands more were left wounded for life. Land values plummeted as the global cotton market abandoned the South and turned to places like India. Sherman’s March to the Sea, one of the earliest instances of total war, laid large parts of Georgia to waste. After reaching the sea, his army turned north to do the same to the Carolinas. Conditions were so dire that many Southerners resorted to eating peanuts, then considered cheap animal feed, to avoid starvation.
The destruction was both physical and economic. The Emancipation Proclamation and the 13th Amendment to the Constitution formally abolished slavery, wiping out all of the wealth that the slaves had constituted, which was roughly half of the wealth of the antebellum South. The Southern economy shrank dramatically.
These laws were, of course, wonderful symbols of progress that had disastrous effects for the perpetrators of slavery. The legal changes not only bankrupted slaveholders, but also destroyed credit markets in the South — many of which relied on slaves for collateral — and left the cash-crop economy in tatters.
Southerners at the top of plantation society got hit the hardest after the war, with those previously in the 90th percentile losing 74 percent of their wealth. Households that owned slaves before the war came out much worse than those that didn’t in every income bracket. But despite these losses, former slave owners and their descendants had largely recovered by 1900, while the grandchildren of the antebellum elite had recovered entirely by 1940.
It’s not what you know, but who you know
In the recent study, researchers used census data and historical records to illuminate the factors that made this recovery possible. The results suggest that a key factor was social connections, like marriages and relationships with other elites.
“[The] transmission of entrepreneurship and skills appear less central,” the researchers wrote.
The historians they consulted all agreed that the planter class “used social and marital connections to set up their children in the industrial or mercantile sectors, or as purveyors of credit in the slowly recovering Southern financial system.” One source cited in the study noted that 60 percent of the owners of textile mills in North Carolina established after the war were related to planter families. Their ability to enter into these business arrangements was made possible by the connections they made with other prominent families.
Census records also show that the descendants of slaveholders were more likely to marry other descendants of slaveholding families. Southerners connected to the largest slaveholders — those representing the wealthiest 1 percent before the war — recovered better than those without similar connections. Despite the large loss of income, these families had enough post-war wealth to establish their children in lucrative careers.
A combination of qualitative and quantitative data suggest that other factors that might have fueled the recovery were not nearly as important as social connections. Some of those factors include: entrepreneurial experience, the sharecropping system, and an alleged trend towards smaller families among the descendants of the former large plantation owners.
It might seem as if the sharecropping system — in which tenant farmers lease land from an estate owner and pay rent (at least partly) in the form of a share of the harvest — would have enabled large landowners to create a facsimile of slavery. But the data suggest that while sharecropping was beneficial to landowners, it did not restore the wealth they had during slavery.
Did the South really rise again?
Despite the recovery of the descendants of plantation owners, the South remained economically depressed relative to the North well into the 20th century. Even by the 1940s, when the grandchildren of the planter class had fully recovered, the average income in the South was lower than all other parts of the country.
Why? One key reason is that, while the Southern agricultural economy declined after the war, the Northern Industrial economy began to ramp up, and it took decades for this gap to close. The authors also cited previous research that suggests “wealth concentration in the hands of a small but powerful elite contributes to underdevelopment.”
The researchers concluded by noting that the economic recovery of slaveholders’ descendants was similar to the recoveries of well-off families after other major events. Overall, the findings provide evidence that social networks and institutions are robust in the wake of economic turmoil — much to the benefit of those who designed them.