The *greater* stagnation

Peter Lindert and Jeffrey Williamson write:

The new estimates imply that America’s real income per capita dropped by about 22% over the quarter century 1774-1800, a decline almost as steep as during the Great Depression between 1929 and 1933, and certainly longer. If the 1790s recorded brisk growth rates (Sylla 2011: pp. 81-3), it follows that the Revolutionary War period could have been America’s greatest income slump ever. That fall may have been 28% or even higher in per-capita terms.

Factors behind this decline include the Revolutionary War, the lagging South, and a negative trade effect.  The article is interesting throughout, for instance:

In 1774 the colonial South had about twice the per-capita income of New England, even when one rightly counts slaves as in the population. The absolute economic decline of the South Atlantic over the last quarter of the 18th century and its relative decline over the subsequent four decades stand out as an example of what has come to be called reversal of fortune (Acemoglu et al. 2002). By 1840 the South Atlantic was well behind the Northeast, having been well ahead in 1774, and its population share of the original thirteen colonies had fallen too. Furthermore, we can find no evidence that the colonial South had any large army of poor whites in 1774; indeed, Southern free labour had some of the highest wages anywhere in the colonies. Thus, it appears that the ubiquity of poor whites in the South was strictly a nineteenth-century phenomenon, associated, presumably, with post-1774 decades of very poor growth. Why the reversal of fortune for the South? We are still not sure whether it was bad luck in its export commodity markets, institutional failure, or exceptionally severe wartime damage.


I know nothing of american economic history (hey, I'm Brazilian), but it remebered the recent discuttion at Gelman's blog about effects too large to be reliable.
And what about the uncertainty of the estimates. How large are the standard errrors? What's the confidence interval?

Perhaps the South's "reversal of fortune" was due to the steady increase in the imbalance of income distribution as the plantation owners got richer and the wages of "free labor" was steadily diminished by the increasing skills of slave labor. Eroding demand caused by the lower incomes would continue to diminish the local economy while the dividends from slave labor productivity increases would be increasingly spent on imports.

This is exactly what I was thinking.

It's technology. George Washington predicted a slave economy could not sustain itself and he was right until the invention of the cotton gin.

Ted Craig has it exactly right, and this is what John Steele Gordon wrote in "An Empire of Wealth" chapter 5. The South also neglected to capitalize by developing a manufacturing base (the mills were in the North) and as a result, fights over the Tariff were one key issue that led to the Civil War.

The Southern "reversal of fortune" between the Revolution and the cotton gin was exacerbated by the decline of coastal plantations. Rice and indigo, not cotton, were the original sources of Southern wealth... and these were farmed in areas where the earth's crust is rapidly subsiding. Most of the low-lying Colonial farmland along the Georgia and Carolina coasts is now submerged or salt marsh.

The cotton gin allowed the vast expansion of upland plantations, and the rest is history.

I had read in an economic history of the US that the south was relatively wealthy (ignoring distribution effects) prior to the Civil War; the real hit was a result of the Civil War and the British substitution of cotton from India for cotton from the US.

Among many reasons:
1)The Eirie Canal was begun in 1815 and finished circa 1825.  This project changed/accelerated the flow of goods and settlement patterns directing traffic into the midwest via the Hudson River and the Port of New York.  By 1830 the cities of  Baltimore, Philidelphia and New York had begun rail systems competing with the Canal for trade with the Ohio Valley.  It is difficult to over estimate the effect of the Erie Canal on the development of the midwest, ie, rise of Chicago, competitive impetus to the Pennsylvania RR, Baltimore and Ohio RR, the Erie RR and New York Central RR, enabling cheapmfreight for the technological benefit of the McCormic reaper and its boost to the prarie farm industry, etc.  

2) European, particularily German immigration, was put off by the South's slave culture.

3) Northern biases in the structure of tariffs on foreign goods.

4) Easily settled land "below the falls line" was being exhausted by the intensive tobacco and cotton cultivation.

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