Capital Destruction and Economic Growth: The Effects of Sherman's March, 1850-1920
Using General William Sherman’s 1864–65 military march through Georgia, South Carolina, and North Carolina during the American Civil War, this paper studies the effect of capital destruction on medium and long-run local economic activity, and the role of financial markets in the recovery process. We match an 1865 US War Department map of Sherman’s march to county-level demographic, agricultural, and manufacturing data from the 1850-1920 US Censuses. We show that the capital destruction induced by the March led to a large contraction in agricultural investment, farming asset prices, and manufacturing activity. Elements of the decline in agriculture persisted through 1920. Using information on local banks and access to credit, we argue that the underdevelopment of financial markets played a role in weakening the recovery.
We thank Francesco D’acunto, Robert Ekelund, Carola Frydman, Claudia Goldin, Andrew Hall, Richard Hornbeck, Matt Jaremski, Peter Koudijs, Robert Margo, Andrea Matranga, David Matsa, Shom Mazumder, Chris Muller, Nancy Qian, Hui Ren Tan, Gavin Wright, and Nicolas Ziebarth for comments and suggestions, and seminar participants at the NBER Development of the American Economy, Harvard, Princeton, Stanford, Case Western, UC Davis, Auburn, and Yale, and conference participants at ITAM and Minnesota Finance. For financial support, we thank the Harvard Business School Historical Collections at Baker Library, the Lab for Economic and Policy Applications at Harvard University, and Kellogg School of Management. Andrew Kim and Roey Dushi provided very good research assistance. All errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- As late as 1920, agricultural investment in Southern counties in the 10-mile-wide path of devastation lagged behind investment in...