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Library of Congress Cataloging-in-Publication Data

Names: Berk, Jonathan B., 1962- author. | DeMarzo, Peter M., author. |
Harford, Jarrad V. T., author.
Title: Fundamentals of corporate finance / Jonathan Berk, Peter DeMarzo,
Jarrad Harford.
Description: 4th edition. | New York, NY : Prentice Hall, [2016]
Identifiers: LCCN 2016053928 | ISBN 9780134475561
Subjects: LCSH: Corporations--Finance.
Classification: LCC HG4026 .B464 2016 | DDC 658.15--dc23
1 17
LC record available at https://lccn.loc.gov/2016053928

 ISBN 10:      0-13-447556-9
 ISBN 13: 978-0-13-447556-1
 Brief Contents

PART 1 Introduction  1
CHAPTER 1 Corporate Finance and the Financial Manager   3
CHAPTER 2 Introduction to Financial Statement Analysis   27

PART 2 Interest Rates and Valuing Cash Flows   71

CHAPTER 3 Time Value of Money: An Introduction   73
CHAPTER 4 Time Value of Money: Valuing Cash Flow Streams   93
CHAPTER 5 Interest Rates  131
CHAPTER 6 Bonds  159
CHAPTER 7 Stock Valuation  197

PART 3 Valuation and the Firm   225

CHAPTER 8 Investment Decision Rules   227
CHAPTER 9 Fundamentals of Capital Budgeting   265
CHAPTER 10 Stock Valuation: A Second Look   303

PART 4 Risk and Return   335

CHAPTER 11 Risk and Return in Capital Markets   337
CHAPTER 12 Systematic Risk and the Equity Risk Premium   369
CHAPTER 13 The Cost of Capital   405

PART 5 Long-Term Financing  433

CHAPTER 14 Raising Equity Capital   435
CHAPTER 15 Debt Financing  467

PART 6 Capital Structure and Payout Policy   495

CHAPTER 16 Capital Structure  497
CHAPTER 17 Payout Policy  537

PART 7 Financial Planning and Forecasting   571

CHAPTER 18 Financial Modeling and Pro Forma Analysis   573
CHAPTER 19 Working Capital Management   603
CHAPTER 20 Short-Term Financial Planning   629

PART 8 Special Topics  659

CHAPTER 21 Option Applications and Corporate Finance   661
CHAPTER 22 Mergers and Acquisitions   687
CHAPTER 23 International Corporate Finance   717 v
 This page intentionally left blank

A01_GORD2302_01_SE_FM.indd 4 28/05/15 7:33 pm

 Detailed Contents

PART 1 Introduction  1 Types of Financial Institutions   21

Role of Financial Institutions   21
CHAPTER 1 Corporate Finance and the Summary 22 ● Problems 24
Financial Manager  3

1.1 Why Study Finance?   4 CHAPTER 2 Introduction to Financial

1.2 The Four Types of Firms   4 Statement Analysis  27
Sole Proprietorships  5
Partnerships  6 2.1 Firms’ Disclosure of Financial Information   28
Limited Liability Companies   6 Preparation of Financial Statements   28
Corporations  6 l International Financial Reporting

Tax Implications for Corporate Entities   8 Standards  28

l Interview With Ruth Porat  29
l Corporate Taxation Around the World   8
Types of Financial Statements   30
1.3 The Financial Manager   10
Making Investment Decisions   10 2.2 The Balance Sheet   30
l G
 lobal Financial Crisis The Assets  31
­Dodd-Frank Act  10 Liabilities  32
Making Financing Decisions   11 Stockholders’ Equity  32
Managing Short-Term Cash Needs   11 Market Value Versus Book Value   33
The Goal of the Financial Manager   11 Market-to-Book Ratio  34
l S
 hareholder Value Versus Stakeholder Enterprise Value  34
Value  12 2.3 The Income Statement   36
1.4 The Financial Manager’s Place in the Earnings Calculations  36
Corporation  12 EBITDA  37
The Corporate Management Team   12 2.4 The Statement of Cash Flows   38
Ethics and Incentives in Corporations   13 Operating Activity  38
l G lobal Financial Crisis The Investment Activity  41
­Dodd-Frank Act on Corporate Compensation Financing Activity  41
and Governance  14 2.5 Other Financial Statement Information   41
l Citizens United v. Federal Election Statement of Stockholders’ Equity   42
Commission  14 Management Discussion and Analysis   42
1.5 The Stock Market   15 Notes to the Financial Statements   42
The Largest Stock Markets   15 2.6 Financial Statement Analysis   42
Primary Versus Secondary Markets   16 Profitability Ratios  43
Traditional Trading Venues   16 Liquidity Ratios  44
l Interview With Frank Hatheway  17
Asset Efficiency  44
New Competition and Market Changes   18 Working Capital Ratios   44
Dark Pools  19 Interest Coverage Ratios   46
Listing Standards  19 Leverage Ratios  46
Other Financial Markets   19 Valuation Ratios  48
l NY
 SE, BATS, DJIA, S&P 500: Awash in l C ommon Mistake Mismatched
Acronyms  20 Ratios  48
1.6 Financial Institutions  20 Operating Returns  49
The Financial Cycle   20 The DuPont Identity   50

vii
viii Detailed Contents

2.7 Financial Reporting in Practice   54 l Historical Examples of Perpetuities   100

Enron  54 l C
 ommon Mistake Discounting One Too
The Sarbanes-Oxley Act   54 Many Times  101
Dodd-Frank Act  55 4.3 Annuities  101
l G lobal Financial Crisis Bernard Present Value of an Annuity   101
Madoff’s Ponzi Scheme   56 Future Value of an Annuity   104
The Financial Statements: A Useful Starting
4.4 Growing Cash Flows   105
Point  56
Growing Perpetuity  106
Summary 57 ● Critical Growing Annuity  108
Thinking 59 ● Problems 60 ● Data 4.5 Solving for Variables Other Than Present Value
Case 68 or Future Value   109
Solving for the Cash Flows   109
PART 2 Interest Rates and Rate of Return   112
Valuing Cash Flows   71 Solving for the Number of Periods   115
4.6 Non-Annual Cash Flows   116
CHAPTER 3 Time Value of Money: The Big Picture   117
An Introduction  73
Summary 118 ● Critical
3.1 Cost-Benefit Analysis  74 Thinking 119 ● Problems 119 ● Data
Role of the Financial Manager   74 Case 125
Quantifying Costs and Benefits   74 Chapter 4 Appendix Using a Financial
3.2 Market Prices and the Valuation Principle   76 Calculator  127
The Valuation Principle   76
Why There Can Be Only One Competitive Price for CHAPTER 5 Interest Rates  131
a Good  77
l Your Personal Financial Decisions   78 5.1 Interest Rate Quotes and Adjustments   132
3.3 The Time Value of Money and Interest Rates   78 The Effective Annual Rate   132
The Time Value of Money   78 Adjusting the Discount Rate to Different Time
The Interest Rate: Converting Cash Across Periods  133
Time  79 Annual Percentage Rates   134
l C
 ommon Mistake Using the EAR in
Timelines  82
the Annuity Formula   135
3.4 Valuing Cash Flows at Different Points in Time   83
5.2 Application: Discount Rates and Loans   137
Rule 1: Comparing and Combining Values   83
l C ommon Mistake Summing Cash Flows
Computing Loan Payments   137
l G
 lobal Financial Crisis Teaser Rates
Across Time  83
and Subprime Loans   139
Rule 2: Compounding   84
l Rule of 72   85
Computing the Outstanding Loan Balance   139
Rule 3: Discounting   86 5.3 The Determinants of Interest Rates   140
l Using a Financial Calculator   88 Inflation and Real Versus Nominal Rates   141
Investment and Interest Rate Policy   142
Summary 88 ● Critical l How Is Inflation Actually Calculated?   143
Thinking 89 ● Problems 90 The Yield Curve and Discount Rates   144
l Interview With Kevin M. Warsh  146
CHAPTER 4 Time Value of Money: Valuing l COMMON
 MISTAKE  Using the Annuity
Cash Flow Streams   93 Formula When Discount Rates Vary   147
The Yield Curve and the Economy   147
4.1 Valuing a Stream of Cash Flows   94
Applying the Rules of Valuing Cash Flows to a 5.4 The Opportunity Cost of Capital   150
l Interest Rates, Discount Rates, and the
Cash Flow Stream   94
l U
 sing a Financial Calculator: Solving for Cost of Capital   151
l C ommon Mistake States Dig a $3 Trillion
Present and Future Values of Cash Flow
Streams  97 Hole by Discounting at the Wrong Rate   152

4.2 Perpetuities  98 Summary 152 ● Critical

Perpetuities  98 Thinking 154 ● Problems 154
 Detailed Contents ix

7.4 Estimating Dividends in the Dividend-Discount

CHAPTER 6 Bonds  159
Model  206
6.1 Bond Terminology  160 Constant Dividend Growth   206
Dividends Versus Investment and Growth   207
6.2 Zero-Coupon Bonds  161
Changing Growth Rates   209
Zero-Coupon Bond Cash Flows   162
l C ommon Mistake Forgetting to “Grow”
Yield to Maturity of a Zero-Coupon Bond   162
This Year’s Dividend   210
l G lobal Financial Crisis Negative Bond
Value Drivers and the Dividend-Discount
Yields  163
Model  212
Risk-Free Interest Rates   164
7.5 Limitations of the Dividend-Discount
6.3 Coupon Bonds  165
Model  212
Coupon Bond Cash Flows   165
Uncertain Dividend Forecasts   212
l The U.S. Treasury Market   166
Non-Dividend-Paying Stocks  213
Yield to Maturity of a Coupon Bond   167
l Finding Bond Prices on the Web   169 7.6 Share Repurchases and the Total Payout
Coupon Bond Price Quotes   170 Model  214
6.4 Why Bond Prices Change   170 7.7 Putting It All Together   215
Interest Rate Changes and Bond Prices   170 Summary 216 ● Critical
Time and Bond Prices   173 Thinking 218 ● Problems 218
Interest Rate Risk and Bond Prices   174
l C lean and Dirty Prices for Coupon Bonds   177
PART 2 Integrative Case  222
Bond Prices in Practice   177
6.5 Corporate Bonds  178
Credit Risk  179 PART 3 Valuation and
l A
 re Treasuries Really Default-Free
the Firm  225
Securities?  179
l Interview With Lisa Black  180 CHAPTER 8 Investment
Corporate Bond Yields   180 Decision Rules  227
Bond Ratings  181
Corporate Yield Curves   181 8.1 The NPV Decision Rule   228
l The Credit Crisis and Bond Yields   183 Net Present Value   228
The NPV Decision Rule   229
Summary 185 ● Critical
Thinking 186 ● Problems 187 ● Data 8.2 Using the NPV Rule   230
Case 191 Organizing the Cash Flows and Computing
the NPV  230
Chapter 6 APPENDIX A  Solving for the The NPV Profile   231
Yield to Maturity of a Bond Using a Financial Measuring Sensitivity with IRR   232
Calculator  192 Alternative Rules Versus the NPV Rule   232
Chapter 6 APPENDIX B  The Yield Curve and 8.3 Alternative Decision Rules   232
the Law of One Price   193 l U sing Excel Computing NPV and IRR   233
The Payback Rule   234
CHAPTER 7 Stock Valuation  197 The Internal Rate of Return Rule   235
l C ommon Mistake IRR Versus the IRR
7.1 Stock Basics  198 Rule  239
Stock Market Reporting: Stock Quotes   198 Modified Internal Rate of Return   239
Common Stock  199 l W hy Do Rules Other Than the NPV Rule
Preferred Stock  200 Persist?  240
7.2 The Mechanics of Stock Trades   201 8.4 Choosing Between Projects   242
7.3 The Dividend-Discount Model   202 Differences in Scale   243
l Interview With Dick Grannis  246
A One-Year Investor   202
Dividend Yields, Capital Gains, and Total Timing of the Cash Flows   247
Returns  203 8.5 Evaluating Projects with Different Lives   248
A Multiyear Investor   204 Important Considerations When Using the
Dividend-Discount Model Equation   205 ­Equivalent Annual Annuity   250
x Detailed Contents

8.6 Choosing Among Projects When Resources CHAPTER 10 Stock Valuation: A Second
Are Limited  251
Look  303
Evaluating Projects with Different Resource
Requirements  251 10.1 The Discounted Free Cash Flow Model   304
8.7 Putting It All Together   254 Valuing the Enterprise   304
Implementing the Model   305
Summary 255 ● Critical Connection to Capital Budgeting   306
Thinking 256 ● Problems 257 ● Data
Case 263 10.2 Valuation Based on Comparable Firms   308
Valuation Multiples  308
Limitations of Multiples   313
CHAPTER 9 Fundamentals of Capital Comparison with Discounted Cash Flow
Budgeting  265 Methods  314
9.1 The Capital Budgeting Process   266 10.3 Stock Valuation Techniques: A Final Word   314
l Interview With Douglas Kehring  315
9.2 Forecasting Incremental Earnings   267
Operating Expenses Versus Capital 10.4 Information, Competition, and Stock
Expenditures  267 Prices  316
Incremental Revenue and Cost Estimates   268 Information in Stock Prices   316
Taxes  269 Competition and Efficient Markets   318
Incremental Earnings Forecast   269 l Forms of Market Efficiency   318
Lessons for Investors and Corporate
9.3 Determining Incremental Free Cash Flow   271
Managers  320
Converting from Earnings to Free Cash Flow   272
l N obel Prize The 2013 Prize: An
Calculating Free Cash Flow Directly   275
Enigma?  321
Calculating the NPV   276
The Efficient Markets Hypothesis Versus No
l U
 sing Excel Capital B ­ udgeting Using
Arbitrage  321
a ­Spreadsheet Program   277
10.5 Individual Biases and Trading   322
9.4 Other Effects on Incremental Free Cash
Excessive Trading and Overconfidence   322
Flows  278
Hanging On to Losers and the Disposition
Opportunity Costs  278
Effect  322
l C ommon Mistake The Opportunity Cost
Investor Attention, Mood, and Experience   324
of an Idle Asset   278
Project Externalities  278 Summary 325 ● Critical
Sunk Costs  279 Thinking 326 ● Problems 326 ● Data
l C ommon Mistake The Sunk Cost Case 331
Fallacy  279
PART 3 Integrative Case  333
Adjusting Free Cash Flow   280
Replacement Decisions  282
9.5 Analyzing the Project   283 PART 4 Risk and Return   335
Sensitivity Analysis  283
Break-Even Analysis  284 CHAPTER 11 Risk and Return in Capital
l Interview With David Holland  286 Markets  337
Scenario Analysis  287
l U sing Excel Project Analysis 11.1 A First Look at Risk and Return   338
Using Excel  288 11.2 Historical Risks and Returns of Stocks   340
9.6 Real Options in Capital Budgeting   289 Computing Historical Returns   341
Option to Delay   290 Average Annual Returns   343
Option to Expand   290 l A  rithmetic Average Returns Versus
Option to Abandon   290 ­Compound Annual Returns   345
The Variance and Volatility of Returns   346
Summary 291 ● Critical
l C  ommon Mistake Mistakes When
Thinking 292 ● Problems 293 ● Data
Computing Standard Deviation   348
Case 300
l U  sing Excel Computing the Standard
Chapter 9 Appendix MACRS ­Deviation of Historical Returns   348
Depreciation  301 The Normal Distribution   349
 Detailed Contents xi

11.3 The Historical Tradeoff Between Risk l N

 obel Prize William Sharpe  391
and Return  351 The Security Market Line   391
The Returns of Large Portfolios   351 The CAPM and Portfolios   393
The Returns of Individual Stocks   351 Summary of the Capital Asset Pricing
11.4 Common Versus Independent Risk   353 Model  394
Theft Versus Earthquake Insurance: An The Big Picture   394
Example  353 Summary 395 ● Critical
Types of Risk   353 Thinking 396 ● Problems 396
11.5 Diversification in Stock Portfolios   355
Chapter 12 APPENDIX  Alternative Models
Unsystematic Versus Systematic Risk   355
of Systematic Risk   401
l G lobal Financial Crisis Diversification
Benefits During Market Crashes   356
Diversifiable Risk and the Risk Premium   358
The Importance of Systematic Risk   358 CHAPTER 13 The Cost of Capital   405
l C ommon Mistake A Fallacy of Long-Run
13.1 A First Look at the Weighted Average Cost of
Diversification  359
Capital  406
Summary 360 ● Critical The Firm’s Capital Structure   406
Thinking 361 ● Problems 362 ● Data Opportunity Cost and the Overall Cost
Case 365 of Capital  406
Weighted Averages and the Overall Cost
of Capital  407
CHAPTER 12 Systematic Risk and the Equity Weighted Average Cost of Capital
Risk Premium  369 Calculations  408
12.1 The Expected Return of a Portfolio   370 13.2 The Firm’s Costs of Debt and Equity
Portfolio Weights  370 Capital  409
Portfolio Returns    370 Cost of Debt Capital   409
Expected Portfolio Return   372 l C
 ommon Mistake Using the Coupon Rate
as the Cost of Debt   410
12.2 The Volatility of a Portfolio   373
Cost of Preferred Stock Capital   411
Diversifying Risks  373
Cost of Common Stock Capital   412
Measuring Stocks’ Co-Movement:
Correlation  375 13.3 A Second Look at the Weighted Average Cost
l U sing Excel Calculating the Correlation of Capital  414
Between Two Sets of Returns   377 WACC Equation  414
Computing a Portfolio’s Variance and Standard Weighted Average Cost of Capital in
Deviation  377 Practice  415
The Volatility of a Large Portfolio   379 Methods in Practice   416
l N obel Prize Harry Markowitz  380 13.4 Using the WACC to Value a Project   417
12.3 Measuring Systematic Risk   381 Key Assumptions  418
Role of the Market Portfolio   381 WACC Method Application: Extending the Life
Stock Market Indexes as the Market Portfolio   382 of a GE Facility   419
Market Risk and Beta   382 Summary of the WACC Method   420
l Index Funds  383 13.5 Project-Based Costs of Capital   420
l C ommon Mistake Mixing Standard l C ommon Mistake Using a Single Cost
Deviation and Beta   385 of Capital in Multi-Divisional Firms   420
Estimating Beta from Historical Returns   386 Cost of Capital for a New Acquisition   421
l U sing Excel Calculating a Stock’s Divisional Costs of Capital   421
Beta  388 l Interview With Shelagh Glaser  422

12.4 Putting It All Together: The Capital Asset Pricing 13.6 When Raising External Capital Is Costly   423
Model  389
Summary 424 ● Critical
The CAPM Equation Relating Risk to Expected
Thinking 426 ● Problems 426 ● Data
Return  389
Case 429
l W
 hy Not Estimate Expected Returns
Directly?  390 PART 4 Integrative Case  431
xii Detailed Contents

PART 5 Long-Term 15.3 Bond Covenants  478

Types of Covenants   478
Financing  433 Advantages of Covenants   478
Application: Hertz’s Covenants   479
CHAPTER 14 Raising Equity Capital   435
15.4 Repayment Provisions  479
14.1 Equity Financing for Private Companies   436 Call Provisions  479
Sources of Funding   436 l N ew York City Calls Its Municipal Bonds   481
l Interview With Kevin Laws  437 Sinking Funds  482
l C rowdfunding: The Wave of Convertible Provisions  482
the Future?  439
Summary 485 ● Critical
Securities and Valuation   439
Thinking 487 ● Problems 487 ● Data
Exiting an Investment in a Private Company   441
Case 489
14.2 Taking Your Firm Public: The Initial Public
Offering  442 Chapter 15 Appendix Using a Financial
Advantages and Disadvantages of Going ­Calculator to Calculate Yield to Call   490
Public  442
Primary and Secondary IPO Offerings   442 PART 5 Integrative Case  491
Other IPO Types   448
l Google’s IPO  451

14.3 IPO Puzzles  451 PART 6 Capital Structure and

Underpriced IPOs  451 Payout Policy  495
“Hot” and “Cold” IPO Markets   453
l G lobal Financial Crisis 2008–2009: CHAPTER 16 Capital Structure  497
A Very Cold IPO Market   454
High Cost of Issuing an IPO   454 16.1 Capital Structure Choices   498
Poor Post-IPO Long-Run Stock Capital Structure Choices Across Industries   498
Performance  455 Capital Structure Choices Within Industries   498
14.4 Raising Additional Capital: The Seasoned 16.2 Capital Structure in Perfect Capital
Equity Offering  456 Markets  500
SEO Process  456 Application: Financing a New Business   501
SEO Price Reaction   458 Leverage and Firm Value   502
SEO Costs  459 The Effect of Leverage on Risk and Return   503
Homemade Leverage  505
Summary 460 ● Critical Leverage and the Cost of Capital   505
Thinking 461 ● Problems 461 ● Data l C
 ommon Mistake Capital Structure
Case 464 Fallacies  506
l G
 lobal Financial Crisis Bank Capital
CHAPTER 15 Debt Financing  467
Regulation and the ROE Fallacy   508
15.1 Corporate Debt  468 MM and the Real World   509
l N
 obel Prize Franco Modigliani and
Private Debt  468
l Debt Financing at Hertz: Bank Loans   468
Merton Miller  509
l D ebt Financing at Hertz: Private 16.3 Debt and Taxes   510
Placements  469 The Interest Tax Deduction and Firm Value   510
Public Debt  469 Value of the Interest Tax Shield   511
l Debt Financing at Hertz: Public Debt   471 The Interest Tax Shield with Permanent
15.2 Other Types of Debt   473 Debt  513
Sovereign Debt  473 Leverage and the WACC with Taxes   514
Municipal Bonds  474 Debt and Taxes: The Bottom Line   514
l Detroit’s Art Museum at Risk   475 16.4 The Costs of Bankruptcy and Financial
Asset-Backed Securities  475 Distress  515
l G
 lobal Financial Crisis CDOs, Direct Costs of Bankruptcy   516
Subprime Mortgages, and the Financial l Bankruptcy Can Be Expensive   516
Crisis  476 Indirect Costs of Financial Distress   516
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 Detailed Contents xiii

16.5 Optimal Capital Structure: The Tradeoff l Royal & SunAlliance’s Dividend Cut   558
Theory  517 Signaling and Share Repurchases   558
Differences Across Firms   517 l Interview With John Connors  559
Optimal Leverage  518 17.6 Stock Dividends, Splits, and Spin-Offs   560
16.6 Additional Consequences of Leverage: Stock Dividends and Splits   560
Agency Costs and Information   519 l Berkshire Hathaway’s A and B Shares   561
Agency Costs  519 Spin-Offs  561
l Airlines Use Financial Distress 17.7 Advice for the Financial Manager   562
to Their Advantage   520
l G
 lobal Financial Crisis Moral Hazard Summary 563 ● Critical
and Government Bailouts   521 Thinking 565 ● Problems 565 ● Data
l F
 inancial Distress and Rolling the Dice, Case 568
Literally  522 PART 6 Integrative Case  570
Debt and Information   522
16.7 Capital Structure: Putting It All Together   524
Summary 525 ● Critical
PART 7 Financial Planning and
Thinking 527 ● Problems 527 Forecasting  571
Chapter 16 Appendix The Bankruptcy CHAPTER 18 Financial Modeling and Pro
Code  535 Forma Analysis  573

CHAPTER 17 Payout Policy  537 18.1 Goals of Long-Term Financial Planning   574

Identify Important Linkages   574
17.1 Cash Distributions to Shareholders   538 Analyze the Impact of Potential Business
Dividends  539 Plans  574
Share Repurchases  540 Plan for Future Funding Needs   574
17.2 Dividends Versus Share Repurchases in a 18.2 Forecasting Financial Statements: The Percent
­Perfect Capital Market   541 of Sales Method   575
Alternative Policy 1: Pay a Dividend with Excess Percent of Sales Method   575
Cash  542 Pro Forma Income Statement   576
Alternative Policy 2: Share Repurchase (No Pro Forma Balance Sheet   577
Dividend)  542 l C ommon Mistake Confusing Stockholders’
l C  ommon Mistake Repurchases and Equity with Retained Earnings   578
the Supply of Shares   544 Making the Balance Sheet Balance: Net New
Alternative Policy 3: High Dividend (Equity Financing  578
Issue)  544 Choosing a Forecast Target   580
Modigliani-Miller and Dividend Policy 18.3 Forecasting a Planned Expansion   580
Irrelevance  545 KMS Designs’ Expansion: Financing Needs   581
l C  ommon Mistake The Bird in the Hand KMS Designs’ Expansion: Pro Forma Income
Fallacy  546 Statement  582
Dividend Policy with Perfect Capital Markets   546 l C ommon Mistake Treating Forecasts
17.3 The Tax Disadvantage of Dividends   547 as Fact  584
Taxes on Dividends and Capital Gains   547 Forecasting the Balance Sheet   584
Optimal Dividend Policy with Taxes   547 18.4 Growth and Firm Value   585
Tax Differences Across Investors   550 Sustainable Growth Rate and External
17.4 Payout Versus Retention of Cash   552 Financing  586
Retaining Cash with Perfect Capital 18.5 Valuing the Expansion   589
Markets  552 Forecasting Free Cash Flows   589
Retaining Cash with Imperfect Capital l C ommon Mistake Confusing Total and
Markets  553 Incremental Net Working Capital   591
17.5 Signaling with Payout Policy   556 KMS Designs’ Expansion: Effect on Firm
Dividend Smoothing  556 Value  591
Dividend Signaling  557 Optimal Timing and the Option to Delay   594
xiv Detailed Contents

Summary 595 ● Critical 20.3 Short-Term Financing with Bank Loans   638
Thinking 596 ● Problems 596 Single, End-of-Period Payment Loan   638
Line of Credit   638
Chapter 18 Appendix The Balance Sheet Bridge Loan  639
and Statement of Cash Flows   600
Common Loan Stipulations and Fees   639
20.4 Short-Term Financing with Commercial
CHAPTER 19 Working Capital Paper  641
Management  603 l S hort-Term Financing and the Financial
­Crisis of the Fall of 2008   641
19.1 Overview of Working Capital   604
The Cash Cycle   604 20.5 Short-Term Financing with Secured
Working Capital Needs by Industry   606 Financing  643
Firm Value and Working Capital   607 Accounts Receivable as Collateral   643
l A Seventeenth-Century Financing
19.2 Trade Credit  608
Solution  643
Trade Credit Terms   609
Inventory as Collateral   644
Trade Credit and Market Frictions   609
l L oan Guarantees: The Ex-Im Bank
l C ommon Mistake Using APR Instead of
Controversy  644
EAR to ­Compute the Cost of Trade Credit   610
Managing Float  611 20.6 Putting It All Together: Creating a Short-Term
Financial Plan  646
19.3 Receivables Management  612
Determining the Credit Policy   612 Summary 647 ● Critical
l The 5 C’s of Credit   612 Thinking 648 ● Problems 649
Monitoring Accounts Receivable   614
PART 7 Integrative Case  653
19.4 Payables Management  616
Determining Accounts Payable Days
Outstanding  616 PART 8 Special Topics  659
Stretching Accounts Payable   617
CHAPTER 21 Option Applications and
19.5 Inventory Management  618 Corporate Finance  661
Benefits of Holding Inventory   618
Costs of Holding Inventory   619 21.1 Option Basics  662
l Inventory Management Adds to Option Contracts  662
the ­Bottom Line at Gap   619 Stock Option Quotations   663
19.6 Cash Management  620 Options on Other Financial Securities   665
Motivation for Holding Cash   620 l O ptions Are for More Than Just
Alternative Investments  620 Stocks  665
l Hoarding Cash  622 21.2 Option Payoffs at Expiration   665
The Long Position in an Option Contract   666
Summary 622 ● Critical
The Short Position in an Option Contract   667
Thinking 624 ● Problems 624 ● Data
Profits for Holding an Option to Expiration   669
Case   627
Returns for Holding an Option to Expiration   671
CHAPTER 20 Short-Term Financial 21.3 Factors Affecting Option Prices   672
Planning  629 Strike Price and Stock Price   672
Option Prices and the Exercise Date   672
20.1 Forecasting Short-Term Financing Needs   630 Option Prices and the Risk-Free Rate   673
Application: Springfield Snowboards, Inc.   630 Option Prices and Volatility   673
Negative Cash Flow Shocks   630 21.4 The Black-Scholes Option Pricing
Positive Cash Flow Shocks   631 Formula  674
Seasonalities  631
The Cash Budget   633 21.5 Put-Call Parity  676
Portfolio Insurance  676
20.2 The Matching Principle   635
Permanent Working Capital   635 21.6 Options and Corporate Finance   679
Temporary Working Capital   635 Summary 681 ● Critical
Permanent Versus Temporary Working Capital   635 Thinking 682 ● Problems 682 ● Data
Financing Policy Choices   636 Case 684
 Detailed Contents xv

23.2 Exchange Rate Risk   720

CHAPTER 22 Mergers and Acquisitions   687
Exchange Rate Fluctuations   721
l Brexit  722
22.1 Background and Historical Trends   688
Merger Waves  689 Hedging with Forward Contracts   724
Types of Mergers   690 Cash-and-Carry and the Pricing of Currency
Forwards  726
22.2 Market Reaction to a Takeover   690
Hedging Exchange Rate Risk with Options   728
22.3 Reasons to Acquire   691
23.3 Internationally Integrated Capital Markets   730
Economies of Scale and Scope   691
l C
 ommon Mistake Forgetting to Flip the
Vertical Integration  692
Exchange Rate  732
Expertise  692
Monopoly Gains  692 23.4 Valuation of Foreign Currency Cash
Efficiency Gains  693 Flows  732
Tax Savings from Operating Losses   693 Application: Ityesi, Inc.   732
Diversification  694 The Law of One Price as a Robustness
Earnings Growth  695 Check  734
Managerial Motives to Merge   696 23.5 Valuation and International Taxation   736
22.4 The Takeover Process   697 A Single Foreign Project with Immediate
Valuation  697 ­Repatriation of Earnings   736
The Offer  698 Multiple Foreign Projects and Deferral of Earnings
Merger “Arbitrage”  700 Repatriation  736
Tax and Accounting Issues   701 23.6 Internationally Segmented Capital
Board and Shareholder Approval   702 Markets  737
22.5 Takeover Defenses  703 Differential Access to Markets   737
Poison Pills  703 Macro-Level Distortions  738
Staggered Boards  704 Implications of Internationally Segmented Capital
White Knights  705 Markets  739
Golden Parachutes  705 23.7 Capital Budgeting with Exchange
Recapitalization  705 Rate Risk  740
Other Defensive Strategies   705 Application: Ityesi, Inc.   741
Regulatory Approval  706 Conclusion  742
l Weyerhaeuser’s Hostile Bid for Willamette
Summary 742 ● Critical
Industries  706
­Thinking 744 ● Problems 745
22.6 Who Gets the Value Added from a ● Data Case 749
Takeover?  707
The Free Rider Problem   707 Index 751
Toeholds  708
The Leveraged Buyout   708
l T
 he Leveraged Buyout of RJR-Nabisco
by KKR  710
The Freezeout Merger   711
Competition  711 Chapters on the Web
These Web Chapters are on at
Summary 712 ● Critical www.myfinancelab.com
Thinking 714 ● Problems 714
Web Chapter 1 Leasing

CHAPTER 23 International Corporate Web Chapter 2 Insurance and Risk Management

Finance  717 Web Chapter 3 Corporate Governance

23.1 Foreign Exchange  718

The Foreign Exchange Market   718
Exchange Rates  720
 About the Authors

Jonathan Berk is the A.P. Giannini Professor of

Finance at the Graduate School of Business, Stanford
University and is a Research Associate at the National
Bureau of Economic Research. Before coming to Stan-
ford, he was the Sylvan Coleman Professor of Finance
at Haas School of Business at the University of Califor-
nia, Berkeley. Prior to earning his PhD, he worked as
an Associate at Goldman Sachs (where his education
in finance really began).
Professor Berk’s research interests in finance
include corporate valuation, capital structure, mutual
funds, asset pricing, experimental economics, and labor
economics. His work has won a number of research
awards including the TIAA-CREF Paul A. Samuelson
Award, the Smith Breeden Prize, Best Paper of the
Jonathan Berk, Peter DeMarzo, and Jarrad Harford Year in The Review of Financial Studies, and the FAME
Research Prize. His paper, “A Critique of Size-Related
Anomalies,” was selected as one of the two best papers ever published in The Review of
Financial Studies. In recognition of his influence on the practice of finance he has received
the Bernstein-Fabozzi/Jacobs Levy Award, the Graham and Dodd Award of Excellence,
and the Roger F. Murray Prize. He served two terms as an Associate Editor of the Journal
of Finance, and a term as a director of the American Finance Association, the Western
Finance Association, and academic director of the Financial Management Association. He
is a Fellow of the Financial Management Association and a member of the advisory board
of the Journal of Portfolio Management.
Born in Johannesburg, South Africa, Professor Berk is married, with two daughters,
and is an avid skier and biker.

Peter DeMarzo is the Mizuho Financial Group Professor of Finance at the Graduate
School of Business, Stanford University. He is the current Vice President of the ­American
Finance Association and a Research Associate at the National Bureau of Economic Research.
He teaches MBA and PhD courses in Corporate Finance and Financial Modeling. In a­ ddition
to his experience at the Stanford Graduate School of Business, Professor DeMarzo has
taught at the Haas School of Business and the Kellogg Graduate School of Management,
and he was a National Fellow at the Hoover Institution.
Professor DeMarzo received the Sloan Teaching Excellence Award at Stanford, and the
Earl F. Cheit Outstanding Teaching Award at U.C. Berkeley. Professor DeMarzo has served
as an Associate Editor for The Review of Financial Studies, Financial Management, and
the B.E. Journals in Economic Analysis and Policy, as well as a Director of the Ameri-
can Finance Association. He has served as Vice President and President of the Western
Finance Association. Professor DeMarzo’s research is in the area of corporate investment
and financing, asset securitization, and contracting, as well as market structure and regula-
tion. His recent work has examined issues of the optimal design of contracts and securities,
xvi
 About the Authors xvii

leverage dynamics and the role of bank capital regulation, and the influence of information
asymmetries on stock prices and corporate investment. He has received numerous awards
including the Western Finance Association Corporate Finance Award and the Barclays
Global Investors/Michael Brennan best-paper award from The Review of Financial Studies.
Professor DeMarzo was born in Whitestone, New York, and is married with three boys.
He and his family enjoy hiking, biking, and skiing.

Jarrad Harford is the Paul Pigott - PACCAR Professor of Finance at the University
of Washington. Prior to Washington, Professor Harford taught at the Lundquist College
of Business at the University of Oregon. He received his PhD in Finance with a minor in
Organizations and Markets from the University of Rochester. Professor Harford has taught
the core undergraduate finance course, Business Finance, for over nineteen years, as well
as an elective in Mergers and Acquisitions, and “Finance for Non-financial Executives” in
the executive education program. He has won numerous awards for his teaching, includ-
ing the UW Finance Professor of the Year (2010, 2012, 2016), Panhellenic/Interfraternity
Council Business Professor of the Year Award (2011, 2013), ISMBA Excellence in Teaching
Award (2006), and the Wells Fargo Faculty Award for Undergraduate Teaching (2005). Pro-
fessor Harford is currently a Managing Editor of the Journal of Financial and Quantitative
­Analysis, and serves as an Associate Editor for the Journal of Financial Economics, and
Journal of Corporate Finance. His main research interests are understanding the dynamics
of merger and acquisition activity as well as the interaction of corporate cash management
policy with governance, payout and global tax considerations. Professor Harford was born
in Pennsylvania, is married, and has two sons. He and his family enjoy traveling, hiking,
and skiing.
Exploring the Variety of Random
Documents with Different Content
you think that would fix ’em, eh? No? No, I suppose not. If they got
mad at anything, they’d forget their mothers, eh? Yes, I suppose
they would. Can’t depend on niggers. But I reckon they’d come
back. Only to be worse off in Mexico—eh?”
“Nothing but——”
“Being free, eh? Get tired of that, I should think. Nobody to take
care of them. No, I suppose not. Learn to take care of themselves.”
Then he turned to our host and began to ask him about his
neighbours, many of whom he had known when he was a boy, and
been at school with. A sorry account he got of most. Generally they
had run through their property; their lands had passed into new
hands; their negroes had been disposed of; two were now, he
thought, “strikers” for gamblers in Natchez.
“What is a striker?” I asked the landlord at the first opportunity.
“Oh! to rope in fat fellows for the gamblers; they don’t do that
themselves, but get somebody else. I don’t know as it is so; all I
know is, they don’t have no business, not till late at night; they
never stir out till late at night, and nobody knows how they live, and
that’s what I expect they do. Fellows that come into town flush, you
know—sold out their cotton and are flush—they always think they
must see everything, and try their hands at everything—they get
hold of ’em and bring ’em in to the gamblers, and get ’em tight for
’em, you know.”
“How’s —— got along since his father died?” asked Mr. S.
“Well, ——’s been unfortunate. Got mad with his overseer; thought
he was lazy and packed him off; then he undertook to oversee for
himself, and he was unfortunate. Had two bad crops. Finally the
sheriff took about half his niggers. He tried to work the plantation
with the rest, but they was old, used-up hands, and he got mad that
they would not work more, and tired o’ seein’ ’em, and ’fore the end
of the year he sold ’em all.”
Another young man, whom he inquired about, had had his property
managed for him by a relative till he came of age, and had been
sent North to college. When he returned and got into his own hands,
the first year he ran it in debt $16,000. The income from it being
greatly reduced under his management, he had put it back in the
care of his relative, but continued to live upon it. “I see,” continued
our host, “every time any of their teams pass from town they fetch a
barrel or a demijohn. There is a parcel of fellows, who, when they
can’t liquor anywhere else, always go to him.”
“But how did he manage to spend so much,” I inquired, “the first
year after his return, as you said,—in gambling?”
“Well, he gambled some, and run horses. He don’t know anything
about a horse, and, of course, he thinks he knows everything. Those
fellows up at Natchez would sell him any kind of a tacky for four or
five hundred dollars, and then after he’d had him a month, they’d
ride out another and make a bet of five or six hundred dollars they’d
beat him. Then he’d run with ’em, and of course he’d lose it.”
“But sixteen thousand dollars is a large sum of money to be worked
off even in that way in a year,” I observed.
“Oh, he had plenty of other ways. He’d go into a bar-room, and get
tight and commence to break things. They’d let him go on, and the
next morning hand him a bill for a hundred dollars. He thinks that’s a
smart thing, and just laughs and pays it, and then treats all around
again.”
By one and the other, many stories were then told of similar follies of
young men. Among the rest, this:—
A certain man had, as was said to be the custom when running for
office, given an order at a grocery for all to be “treated” who applied
in his name. The grocer, after the election, which resulted in the
defeat of the treater, presented what was thought an exorbitant bill.
He refused to pay it, and a lawsuit ensued. A gentleman in the
witness box being asked if he thought it possible for the whole
number of people taking part in the election to have consumed the
quantity of liquor alleged, answered—
“Moy Goad! Judge!” (reproachfully): “Yes, sir! Why, I’ve been
charged for a hundred and fifty drinks ’fore breakfast, when I’ve
stood treat, and I never thought ’o disputin’ it.”
At supper, Mr. S., looking at the daughter of our host, said—
“What a pretty girl that is. My dear, do you find any schools to go to,
out here—eh? I reckon not. This isn’t the country for schools.
There’ll not be a school in Mississippi ’fore long, I reckon. Nothing
but Institutes, eh? Ha! ha! ha! Institutes, humph! Don’t believe
there’s a school between this and Natchez, is there?”
“No, sir.”
“Of course there isn’t.”[14]
“What sort of a country is it, then, between here and Natchez?” I
asked. “I should suppose it would be well settled.”
“Big plantations, sir. Nothing else. Aristocrats. Swell-heads, I call
them, sir. Nothing but swell-heads, and you can’t get a night’s
lodging, sir. Beyond the ferry, I’ll be bound, a man might die on the
road ’fore he’d get a lodging with one of them. Eh, Mr. N.? So, isn’t
it? ‘Take a stranger in, and I’ll clear you out!’ That’s the rule. That’s
what they tell their overseers, eh? Yes, sir; just so inhospitable as
that. Swell-heads! Swell-heads, sir. Every plantation. Can’t get a
meal of victuals or a night’s lodging from one of them, I don’t
suppose, not if your life depended on it. Can you, Mr. N.?”
“Well, I believe Mr. ——, his place is right on the road, and it’s half
way to the ferry, and I believe he tells his overseer if a man comes
and wants something to eat, he must give it to him, but he must not
take any pay for it, because strangers must have something to eat.
They start out of Natchez, thinking it’s as ’tis in other countries; that
there’s houses along, where they can get a meal, and so they don’t
provide for themselves, and when they get along about there, they
are sometimes desperate hungry. Had to be something done.”
“Do the planters not live themselves on their plantations?”
“Why, a good many of them has two or three plantations, but they
don’t often live on any of them.”
“Must have ice for their wine, you see,” said Mr. S., “or they’d die. So
they have to live in Natchez or New Orleans. A heap of them live in
New Orleans.”
“And in summer they go up into Kentucky, do they not? I’ve seen
country houses there which were said to belong to cotton-planters
from Mississippi.”
“No, sir. They go North. To New York, and Newport, and Saratoga,
and Cape May, and Seneca Lake. Somewhere that they can display
themselves more than they do here. Kentucky is no place for that.
That’s the sort of people, sir, all the way from here to Natchez. And
all round Natchez, too. And in all this section of country where
there’s good land. Good God! I wouldn’t have my children educated,
sir, among them, not to have them as rich as Dr. ——, every one of
them. You can know their children as far off as you can see them.
Young swell-heads! You’ll take note of ’em in Natchez. You can tell
them by their walk. I noticed it yesterday at the Mansion House.
They sort o’ throw out their legs as if they hadn’t got strength
enough to lift ’em and put them down in any particular place. They
do want so bad to look as if they weren’t made of the same clay as
the rest of God’s creation.”
Some allowance is of course to be made for the splenetic
temperament of this gentleman, but facts evidently afford some
justification of his sarcasms. This is easily accounted for. The farce of
the vulgar-rich has its foundation in Mississippi, as in New York and
in Manchester, in the rapidity with which certain values have
advanced, especially that of cotton, and, simultaneously, that of
cotton lands and negroes.[15] Of course, there are men of
refinement and cultivation among the rich planters of Mississippi,
and many highly estimable and intelligent persons outside of the
wealthy class, but the number of such is smaller in proportion to that
of the immoral, vulgar, and ignorant newly-rich, than in any other
part of the United States. And herein is a radical difference between
the social condition of this region and that of the sea-board slave
States, where there are fewer wealthy families, but where among
the few people of wealth, refinement and education are more
general.
I asked how rich the sort of men were of whom he spoke.
“Why, sir, from a hundred thousand to ten million.”
“Do you mean that between here and Natchez there are none worth
less than a hundred thousand dollars?”
“No, sir, not beyond the ferry. Why, any sort of a plantation is worth
a hundred thousand dollars. The niggers would sell for that.”
“How many negroes are there on these plantations?”
“From fifty to a hundred.”
“Never over one hundred?”
“No; when they’ve increased to a hundred they always divide them;
stock another plantation. There are sometimes three or four
plantations adjoining one another, with an overseer for each,
belonging to the same man. But that isn’t general. In general, they
have to strike off for new land.”
“How many acres will a hand tend here?”
“About fifteen—ten of cotton, and five of corn; some pretend to
make them tend twenty.”
“And what is the usual crop?”
“A bale and a half to the acre on fresh land and in the bottom. From
four to eight bales to a hand they generally get: sometimes ten and
better, when they are lucky.”
“A bale and a half on fresh land? How much on old?”
“Well, you can’t tell. Depends on how much it’s worn and what the
season is so much. Old land, after a while, isn’t worth bothering
with.”
“Do most of these large planters who live so freely, anticipate their
crops as the sugar planters are said to—spend the money, I mean,
before the crop is sold?”
“Yes, sir, and three and four crops ahead generally.”
“Are most of them the sons of rich men? are they old estates?”
“No, sir; lots of them were overseers once.”
“Have you noticed whether it is a fact that these large properties
seldom continue long in the same family? Do the grandsons of
wealthy planters often become poor men?”
“Generally the sons do. Almost always their sons are fools, and soon
go through with it.”
“If they don’t kill themselves before their fathers die,” said the other.
“Yes. They drink hard and gamble, and of course that brings them
into fights.”
This was while they were smoking on the gallery after supper. I
walked to the stable to see how my horse was provided for, and took
my notes of the conversation. When I returned they were talking of
negroes who had died of yellow fever while confined in the jail at
Natchez. Two of them were spoken of as having been thus “happily
released,” being under sentence of death, and unjustly so, in their
opinion.
A man living in this vicinity having taken a runaway while the fever
was raging in the jail at Natchez, a physician advised him not to
send him there. He did not, and the negro escaped; was some time
afterward recaptured, and the owner having learned from him that
he had been once before taken and not detained according to law,
he made a journey to inquire into the matter, and was very angry.
He said, “Whenever you catch a nigger again, you send him to jail,
no matter what’s to be feared. If he dies in the jail, you are not
responsible. You’ve done your duty, and you can leave the rest to
Providence.”
“That was right, too,” said Mr. P. “Yes, he ought to a’ minded the law.
Then if he’d died in jail, he’d know ’twasn’t his fault.”
Next morning, near the ferry house, I noticed a set of stocks, having
holes for the head as well as the ankles; they stood unsheltered and
unshaded in the open road.
I asked an old negro what it was.
“Dat ting, massa?” grinning; “well, sah, we calls dat a ting to put
black people, niggers, in, when dey misbehaves bad, and to put
runaways in, sah. Heaps o’ runaways, dis country, sah. Yes, sah,
heaps on ’em round here.”[16]
Mr. S. and I slept in the same room. I went to bed some time before
him; he sat up late, to smoke, he said. He woke me when he came
in, by his efforts to barricade the door with our rather limited
furniture. The room being small, and without a window, I
expostulated. He acknowledged it would probably make us rather
too warm, but he shouldn’t feel safe if the door were left open. “You
don’t know,” said he; “there may be runaways around.”
He then drew two small revolvers, hitherto concealed under his
clothing, and began to examine the caps. He was certainly a nervous
man, perhaps a madman. I suppose he saw some expression of this
thought in my face, for he said, placing them so they could be easily
taken up as he lay in bed, “Sometimes a man has a use for them
when he least expects it. There was a gentleman on this road a few
days ago. He was going to Natchez. He overtook a runaway, and he
says to him, ‘Bad company’s better’n none, boy, and I reckon I’ll
keep you along with me into Natchez.’ The nigger appeared to be
pleased to have company, and went along, talking with him, very
well, till they came to a thicket place, about six miles from Natchez.
Then he told him he reckoned he would not go any further with him.
‘What! you black rascal,’ says he; ‘you mean you won’t go in with
me? You step out and go straight ahead, and if you turn your face
till you get into Natchez, I’ll shoot you.’ ‘Aha! massa,’ says the nigger,
mighty good-natured, ‘I reckon you ’aint got no shootin’ irons;’ and
he bolted off into the thicket, and got away from him.”
At breakfast, Mr. S. came late. He bowed his head as he took his
seat, and closed his eyes for a second or two; then, withdrawing his
quid of tobacco and throwing it in the fireplace, he looked round
with a smile, and said:—
“I always think it a good plan to thank the Lord for His mercies. I’m
afraid some people’ll think I’m a member of the church. I aint, and
never was. Wish I was. I am a Son, though [of Temperance?] Give
me some water, girl. Coffee first. Never too soon for coffee. And
never too late, I say. Wait for anything but coffee. These swell-heads
drink their coffee after they’ve eaten all their dinner. I want it with
dinner, eh? Don’t nothing taste good without coffee, I reckon.”
Before he left, he invited me to visit his plantations, giving me
careful directions to find them, and saying that if he should not have
returned before I reached them, his wife and his overseer would
give me every attention if I would tell them he told me to visit them.
He said again, and in this connection, that he believed this was the
most inhospitable country in the world, and asked, “as I had been a
good deal of a traveller, didn’t I think so myself?” I answered that
my experience was much too small to permit me to form an opinion
so contrary to that generally held.
If they had a reputation for hospitality, he said, it could only be
among their own sort. They made great swell-head parties; and
when they were on their plantation places, they made it a point to
have a great deal of company; they would not have anything to do if
they didn’t. But they were all swell-heads, I might be sure; they’d
never ask anybody but a regular swell-head to see them.
His own family, however, seemed not to be excluded from the swell-
head society.
Among numerous anecdotes illustrative of the folly of his
neighbours, or his own prejudices and jealousy, I remember none
which it would be proper to publish but the following:-
“Do you remember a place you passed?” [describing the locality].
“Yes,” said I; “a pretty cottage with a large garden, with some
statues or vases in it.”
“I think it likely. Got a foreign gardener, I expect. That’s all the
fashion with them. A nigger isn’t good enough for them. Well, that
belongs to Mr. A. J. Clayborn.[?] He’s got to be a very rich man. I
suppose he’s got as many as five hundred people on all his places.
He went out to Europe a few years ago, and sometime after he
came back, he came up to Natchez. I was there with my wife at the
same time, and as she and Mrs. Clayborn came from the same
section of country, and used to know each other when they were
girls, she thought she must go and see her. Mrs. Clayborn could not
talk about anything but the great people they had seen in Europe.
She was telling of some great nobleman’s castle they went to, and
the splendid park there was to it, and how grandly they lived. For
her part, she admired it so much, and they made so many friends
among the people of quality, she said, she didn’t care if they always
stayed there. In fact, she really wanted Mr. Clayborn to buy one of
the castles, and be a nobleman himself. ‘But he wouldn’t,’ says she;
‘he’s such a strong Democrat, you know.’ Ha! ha! ha! I wonder what
old Tom Jeff. would have said to these swell-head Democrats.”
I asked him if there were no poor people in this country. I could see
no houses which seemed to belong to poor people.
“Of course not, sir. Every inch of the land bought up by the swell-
heads on purpose to keep them away. But you go back on to the
pine ridge. Good Lord! I’ve heard a heap about the poor folks at the
North; but if you ever saw any poorer people than them, I should
like to know what they live on. Must be a miracle if they live at all. I
don’t see how these people live, and I’ve wondered how they do a
great many times. Don’t raise corn enough, great many of them, to
keep a shoat alive through the winter. There’s no way they can live,
’less they steal.”
At the ferry of the Homochitto I fell in with a German, originally from
Dusseldorf, whence he came seventeen years ago, first to New York;
afterward he had resided successively in Baltimore, Cincinnati, New
Orleans, Pensacola, Mobile, and Natchez. By the time he reached the
last place he had lost all his money. Going to work as a labourer in
the town, he soon earned enough again to set him up as a trinket
peddler; and a few months afterward he was able to buy “a leetle
coach-dray.” Then, he said, he made money fast; for he would go
back into the country, among the poor people, and sell them
trinkets, and calico, and handkerchiefs, and patent medicines. They
never had any money. “All poor folks,” he said; “dam poor; got no
money; oh no; but I say, ’dat too bad, I don’t like to balk you, my
frind; may be so, you got some egg, some fedder, some cheeken,
some rag, some sass, or some skin vot you kill.’ I takes dem dings
vot they’s got, and ven I gets my load I cums to Natchez back and
sells dem, alvays dwo or dree times so much as dey coss me; and
den I buys some more goots. Not bad beesnes—no. Oh, dese poor
people dey deenk me is von fool ven I buy some dime deir rag vat
dey bin vear; dey calls me de ole Dutch cuss. But dey don’t know
nottin’ vot it is vorth. I deenk dey neever see no money; may be so
dey geev all de cheeken vot they been got for a leetle breaspin vot
cost me not so much as von beet. Sometime dey be dam crazy fool;
dey know not how do make de count at all. Yees, I makes some
money, a heap.”

From the Homochitto to the suburbs of Natchez, a good half-day’s

ride, I found the country beautiful; fewer hills than before, the soil
very rich, and the land almost all inclosed in plantations, the
roadside boundaries of which are old rose-hedges. The road is well
constructed, and often, in passing through the hills, with high banks
on each side, coped with thick and dark, but free and sportive
hedges, out of which grow bending trees, brooding angle-like over
the traveller, the sentiment of the most charming Herefordshire lanes
is reproduced. There are also frequent oak-woods, the trees often of
great height. Sometimes these have been inclosed with neat palings,
and slightly and tastefully thinned out, so as to form noble grounds
around the residences of the planters, which are always very simple
and unostentatious wooden houses. Near two of these are unusually
good ranges of negro-houses. On many of the plantations, perhaps
most, no residence is visible from the road, and the negro quarters,
when seen, are the usual comfortless log-huts.
Within three miles of the town the country is entirely occupied by
houses and grounds of a villa character; the grounds usually paltry
with miniature terraces, and trees and shrubs planted and trimmed
with no regard to architectural or landscape considerations. There is,
however, an abundance of good trees, much beautiful shrubbery,
and the best hedges and screens of evergreen shrubs that I have
seen in America. The houses are cheap and shabby.
I was amused to recognize specimens of the “swell-head” fraternity,
described by my nervous friend, as soon as I got into the villa
district. First came two boys in a skeleton waggon, pitching along
with a racking pony, which ran over Jude; she yelped, I wheeled
round, and they pulled up and looked apologetic. She was only
slightly hurt, but thereafter gave a quicker and broader sheer to
approaching vehicles than her Texas experience had taught her to
do.
Then came four youthful riders, and two old, roué-looking men, all
upon a match-trot; the young fellows screaming, breaking up, and
swearing. After them cantered a mulatto groom, white-gloved and
neatly dressed, who, I noticed, bowed politely, lifting his hat and
smiling to a very aged and ragged negro with a wheelbarrow and
shovel, on the foot path.
Next came—and it was a swelteringly hot afternoon—an open
carriage with two ladies taking an airing. Mr. S. had said that the
swell-heads had “got to think that their old maumy niggers were not
good enough for their young ones;” and here, on the front seat of
the carriage, was a white and veritable French bonne, holding a
richly-belaced baby. The ladies sat back, good-looking women
enough, prettily dressed, and excessively demure. But the dignity of
the turn-out chiefly reposed in the coachman, an obese old black
man, who had, by some means, been set high up in the sun’s face,
on the bed-like cushion of the box, to display a great livery top-coat,
with the wonted capes and velvet, buttoned brightly and tightly to
the chin, and crowned by the proper emblazoned narrow-brimmed
hat; his elbows squared, the reins and whip in his hands, the sweat
in globules all over his ruefully-decorous face, and his eyes fast
closed in sleep.
The houses and shops within the town itself are generally small, and
always inelegant. A majority of the names on the signs are German;
the hotel is unusually clean, and the servants attentive; and the
stable at which I left Belshazzar is excellent, and contains several
fine horses. Indeed, I never saw such a large number of fine horses
as there is here, in any other town of the size. At the stable and the
hotel there is a remarkable number of young men, extraordinarily
dressed, like shop-boys on a Sunday excursion, all lounging or
sauntering, and often calling at the bar; all smoking, all twisting lithe
walking-sticks, all “talking horse.”
But the grand feature of Natchez is the bluff, terminating in an
abrupt precipitous bank over the river, with the public garden upon
it. Of this I never had heard; and when, after seeing my horse dried
off and eating his oats with great satisfaction—the first time he has
ever tasted oats, I suppose, and I had not seen them before for
many months—I strolled off to see the town, I came upon it by
surprise. I entered a gate and walked up a slope, supposing that I
was approaching the ridge or summit of a hill, and expecting to see
beyond it a corresponding slope and the town again, continuing in
terraced streets to the river. I suddenly found myself on the very
edge of a great cliff, and before me an indescribably vast expanse of
forest, extending on every hand to a hazy horizon, in which, directly
in front of me, swung the round, red, setting sun. Through the
otherwise unbroken forest, the Father of Waters had opened a
passage for himself, forming a perfect arc, the hither shore of the
middle of the curve being hidden under the crest of the cliff, and the
two ends lost in the vast obscurity of the Great West. Overlooked
from such an eminence, the size of the Mississippi can be realized—
which is difficult under ordinary circumstances; but though the fret
of a swelling torrent is not wanting, it is perceptible only as the most
delicate chasing upon the broad, gleaming expanse of polished steel,
which at once shamed all my previous conceptions of the
appearance of the greatest of rivers.
Coming closer to the edge and looking downward, you see the lower
town, of Natchez, its roofs with water flowing all around them, and
its pigmy people wading, and labouring to carry upward their goods
and furniture, in danger from a rising movement of the great water.
Poor people, “emigrants and niggers” only.
I laid down, and would have reposed my mind in the infinite vision
westward, but was presently disturbed by a hog which came
grunting near me, rooting in the poor turf of this wonderful garden. I
rose and walked its length. Little more has been done than to inclose
a space along the edge, which it would have been dangerous to
build upon, to cut out some curving alleys now recaptured by the
grass and weeds, and to plant a few succulent trees. A road to the
lower town, cutting through it, is crossed by slight wooden foot-
bridges, and there are some rough plank benches, adorned with
stencilled “medical” advertisements. Some shrubs are planted on the
crumbling face of the cliff, so near the top that the swine can obtain
access to them. A man, bearded and smoking, and a woman with
him, sitting at the extreme end, were the only visitors except myself
and the swine.

As I am writing there is a bustle in the street. A young man is being

lifted up and carried into the bar-room. He is insensible. A beautiful
mare, from which he has evidently been thrown, is led back from
around the corner, quivering with excitement.
I could find no reading-room; no recent newspapers except The
Natchez Free Trader, which has nothing but cotton and river news
and steamboat puffs; no magazines but aged Harpers; and no
recent publications of any sort are for sale or to be seen at the
booksellers’; so, after supper, I went to the bluff again, and found it
most solemnly beautiful; the young moon shining through rents in
the clouds: the great gleaming crescent of water; the dim, ungapped
horizon; the earth sensibly a mere swinging globe.
Of all the town, only five Germans, sitting together, but smoking in
silence, had gathered for this evening worship.
As I returned up the main street, I stopped opposite a house from
which there came the sound of excellent music—a violin and piano. I
had heard no music since I was in Western Texas, and I leaned upon
a lamp-post for an hour, listening. Many stopped near me for a few
minutes, and went on. At length, a man who had remained some
time, addressed me, speaking in a foreign tongue. “Can’t you speak
English?” said I.
“You are not an American?”
“Yes.”
“I should tzink it not.”
“I am; I am a New Yorker.”
“So?—O yes, perhaps, but not zis country.”
“What are you?”
“Italian.”
“Do you live here?”
“Yes.”
“Are there many Italians in Natchez?”
“Yes—some many—seven. All big dam rascaal. Yes. Ha! ha! ha! True.
Dam rascaal all of us.”
“What do you do for a living here?”
“For me it is a cigar-store; fruit; confectionary.”
“And the rest?”
“Oh, everytzing. I don’t expect dem be here so much long now.”
“Why—what will they do?”
“Dey all go to Cuba. Be vawr zair soon now. All go. All dam rascaal
go, can go, ven ze vawr is. Good ting dat for Natchez, eh? Yes, I
tzink.”
He told me the names of the players; the violinist, an Italian, he
asserted to be the best in America. He resided in Natchez, I
understood, as a teacher; and, I presume, the town has
metropolitan advantages for instruction in all fashionable
accomplishments. Yet, with a population of 18,601, the number of
children registered for the public schools and academies, or
“Institutes,” of the county seat, is but 1,015; and among these must
be included many sent from other parts of the State, and from
Arkansas and Louisiana; the public libraries contain but 2,000
volumes, and the churches seat but 7,700.[17]
Franklin, the next county in the rear of the county in which Natchez
is situated (Adams), has a population of 6,000, and but 132 children
attending school.
Mr. Russell (North America: its Agriculture and Climate, page 258)
states that he had been led to believe that “as refined society was to
be found at Natchez as in any other part of the United States;” but
his personal observation is, that “the chief frequenters of the best
hotel are low, drunken fellows.” I find a crowd of big, silly boys, not
drunk, but drinking, smoking, chewing, and betting, and a few men
who look like dissolute fourth-rate comedians, who have succeeded
in swindling a swell-mob tailor.
The first night after leaving Natchez I found lodging with a German,
who, when I inquired if he could accommodate me, at once said,
“Yes, sir, I make it a business to lodge travellers.”
He had a little farm, and owned four strong negro men and a
woman with several children. All his men, however, he hired out as
porters or servants in Natchez, employing a white man, a native of
the country, to work with him on his farm.
To explain the economy of this arrangement, he said that one of his
men earned in Natchez $30 a month clear of all expenses, and the
others much more than he could ever make their labour worth to
him. A negro of moderate intelligence would hire, as a house-
servant, for $200 a year and his board, which was worth $8 a
month; whereas he hired this white fellow, who was strong and able,
for $10 a month; and he believed he got as much work out of him
as he could out of a negro. If labour were worth so much as he got
for that of his negroes, why did the white man not demand more?
Well—he kept him in whisky and tobacco beside his wages, and he
was content. Most folks here did not like white labourers. They had
only been used to have niggers do their work, and they did not
know how to manage with white labourers; but he had no difficulty.
I asked if eight dollars would cover the cost of a man’s board? He
supposed it might cost him rather more than that to keep the white
man; eight dollars was what it was generally reckoned in town to
cost to keep a negro; niggers living in town or near it were expected
to have “extras;” out on the plantations, where they did not get
anything but bacon and meal, of course it did not cost so much. Did
he know what it cost to keep a negro generally upon the
plantations? It was generally reckoned, he said, that a nigger ought
to have a peck of meal and three pounds of bacon a week; some
didn’t give so much meat, but he thought it would be better to give
them more.
“You are getting rich,” I said. “Are the Germans generally,
hereabouts, doing well? I see there are a good many in Natchez.”
“Oh yes; anybody who is not too proud to work can get rich here.”
The next day, having ridden thirty tedious miles through a sombre
country, with a few large plantations, about six o’clock I called at the
first house standing upon or near the road which I have seen for
some time, and solicited a lodging. It was refused, by a woman.
How far was it to the next house? I asked her. Two miles and a half.
So I found it to be, but it was a deserted house, falling to decay, on
an abandoned plantation. I rode several miles further, and it was
growing dark, and threatening rain, before I came in sight of
another. It was a short distance off the road, and approached by a
private lane, from which it was separated by a grass plat. A well
dressed man stood between the gate and the house. I stopped and
bowed to him, but he turned his back upon me and walked to the
house. I opened a gate and rode in. Two men were upon the gallery,
but as they paid no attention to my presence when I stopped near
them, I doubted if either were the master of the house. I asked,
“Could I obtain a lodging here to-night, gentlemen?” One of them
answered, surlily, “No.” I paused a moment that they might observe
me—evidently a stranger benighted, with a fatigued horse, and then
asked, “Can you tell me, sir, how far it is to a public-house?” “I don’t
know,” replied the same man. I again remained silent a moment.
“No public-houses in this section of the country, I reckon, sir,” said
the other. “Do you know how far it is to the next house on the road,
north of this?” “No,” answered one. “You’ll find one about two miles,
or two miles and a half from here,” said the other. “Is it a house in
which I shall be likely to get a lodging, do you know?” “I don’t know,
I’m sure.”
“Good night, gentlemen; you’ll excuse me for troubling you. I am
entirely a stranger in this region.”
A grunt, or inarticulate monosyllable, from one of them, was the
only reply, and I rode away, glad that I had not been fated to spend
an evening in such company.
Soon afterward I came to a house and stables close upon the road.
There was a man on the gallery playing the fiddle. I asked, “Could
you accommodate me here to-night, sir?” He stopped fiddling, and
turned his head toward an open door, asking, “Wants to know if you
can accommodate him?” “Accommodate him with what?” demanded
a harsh-toned woman’s voice. “With a bed of course—what do you
s’pose—ho! ho! ho!” and he went on fiddling again. I had, during
this conversation, observed ranges of negro huts behind the stables,
and perceived that it must be the overseer’s house of the plantation
at which I had previously called. “Like master, like man,” I thought,
and rode on, my inquiry not having been even answered.
I met a negro boy on the road, who told me it was about two miles
to the next house, but he did not reckon that I would get in there.
“How far to the next house beyond that?” “About four miles, sir, and
I reckon you can get in there, master; I’ve heerd they did take in
travellers to that place.”
Soon after this it began to rain and grow dark; so dark that I could
not keep the road, for soon finding Belshazzar in difficulty, I got off
and discovered that we were following up the dry bed of a small
stream. In trying to get back I probably crossed the road, as I did
not find it again, and wandered cautiously among trees for nearly an
hour, at length coming to open country and a fence. Keeping this in
sight, I rode on until I found a gate, entering at which, I followed a
nearly straight and tolerable good road full an hour, as it seemed to
me, at last coming to a large negro “settlement.”
I passed through it to the end of the rows, where was a cabin larger
than the rest, facing on the space between the two lines of huts. A
shout brought out the overseer. I begged for a night’s lodging; he
was silent; I said that I had travelled far, was much fatigued and
hungry; my horse was nearly knocked up, and I was a stranger in
the country; I had lost my road, and only by good fortune had found
my way here. At length, as I continued urging my need, he said—
“Well, I suppose you must stop. Ho, Byron! Here, Byron, take this
man’s horse, and put him in my stable. ’Light, sir, and come in.”
Within I found his wife, a young woman, showily dressed—a
caricature of the fashions of the day. Apparently, they had both been
making a visit to neighbours, and but just come home. I was not
received kindly, but at the request of her husband she brought out
and set before me some cold corn-bread and fat bacon.
Before I had finished eating my supper, however, they both quite
changed their manner, and the woman apologized for not having
made coffee. The cook had gone to bed and the fire was out, she
said. She presently ordered Byron, as he brought my saddle in, to
get some “light-wood” and make a fire; said she was afraid I had
made a poor supper, and set a chair by the fire-place for me as I
drew away from the table.
I plied the man with inquiries about his business, got him interested
in points of difference between Northern and Southern agriculture,
and soon had him in quite a sociable and communicative humour. He
gave me much overseer’s lore about cotton culture, nigger and cattle
maladies, the right way to keep sweet potatoes, etc.; and when I
proposed to ride over the plantation with him in the morning, he
said he “would be very thankful for my company.”
I think they gave up their own bed to me, for it was double, and had
been slept in since the sheets were last changed; the room was
garnished with pistols and other arms and ammunition, rolls of
negro-cloth, shoes and hats, handcuffs, a large medicine chest, and
several books on medical and surgical subjects and farriery; while
articles of both men’s and women’s wearing apparel hung against
the walls, which were also decorated with some large patent-
medicine posters. One of them is characteristic of the place and the
times.[18]
We had a good breakfast in the morning, and immediately afterward
mounted and rode to a very large cotton-field, where the whole
field-force of the plantation was engaged.
It was a first-rate plantation. On the highest ground stood a large
and handsome mansion, but it had not been occupied for several
years, and it was more than two years since the overseer had seen
the owner. He lived several hundred miles away, and the overseer
would not believe that I did not know him, for he was a rich man
and an honourable, and had several times been where I came from
—New York.
The whole plantation, including the swamp land around it, and
owned with it, covered several square miles. It was four miles from
the settlement to the nearest neighbour’s house. There were
between thirteen and fourteen hundred acres under cultivation with
cotton, corn, and other hoed crops, and two hundred hogs running
at large in the swamp. It was the intention that corn and pork
enough should be raised to keep the slaves and cattle. This year,
however, it has been found necessary to purchase largely, and such
was probably usually the case,[19] though the overseer intimated the
owner had been displeased, and he “did not mean to be caught so
bad again.”
There were 135 slaves, big and little, of which 67 went to field
regularly—equal, the overseer thought, to fully 60 prime hands.
Besides these, there were 3 mechanics (blacksmith, carpenter, and
wheelwright), 2 seamstresses, 1 cook, 1 stable servant, 1 cattle-
tender, 1 hog-tender, 1 teamster, 1 house servant (overseer’s cook),
and one midwife and nurse. These were all first-class hands; most of
them would be worth more, if they were for sale, the overseer said,
than the best field-hands. There was also a driver of the hoe-gang
who did not labour personally, and a foreman of the plough-gang.
These two acted as petty officers in the field, and alternately in the
quarters.
There was a nursery for sucklings at the quarters, and twenty
women at this time who left their work four times each day, for half
an hour, to nurse their young ones. These women, the overseer
counted as half-hands—that is, expected to do half the day’s work of
a prime field-hand in ordinary condition.
He had just sold a bad runaway to go to Texas, he happened to
remark. He was whipping the fellow, when he turned and tried to
stab him—then broke from him and ran away. He had him caught
almost immediately with the dogs. After catching him, he kept him in
irons till he had a chance to sell him. His niggers did not very often
run away, he said, because they had found that he was almost sure
to catch them. As soon as he saw that one was gone he put the
dogs on, and if rain had not just fallen, they would soon find him.
Sometimes they did manage to outwit the dogs, but then they
almost always kept in the neighbourhood, because they did not like
to go where they could not sometimes get back and see their
families, and he would soon get wind of where they had been; they
would come round their quarters to see their families and to get
food, and as soon as he knew it, he would find their tracks and put
the dogs on again. Two months was the longest time any of them
ever kept out. He had dogs trained on purpose to run after niggers,
and never let out for anything else.
We found in the field thirty ploughs, moving together, turning the
earth from the cotton plants, and from thirty to forty hoers, the
latter mainly women, with a black driver walking about among them
with a whip, which he often cracked at them, sometimes allowing
the lash to fall lightly upon their shoulders. He was constantly urging
them also with his voice. All worked very steadily, and though the
presence of a stranger on the plantation must have been a most
unusual occurrence, I saw none raise or turn their heads to look at
me. Each gang was attended by a “water-toter,” that of the hoe-
gang being a straight, sprightly, plump little black girl, whose
picture, as she stood balancing the bucket upon her head, shading
her bright eyes with one hand, and holding out a calabash with the
other to maintain her poise, would have been a worthy study for
Murillo.
I asked at what time they began to work in the morning. “Well,” said
the overseer, “I do better by my niggers than most. I keep ’em right
smart at their work while they do work, but I generally knock ’em off
at 8 o’clock in the morning, Saturdays, and give ’em all the rest of
the day to themselves, and I always gives ’em Sundays, the whole
day. Pickin’ time, and when the crap’s bad in grass, I sometimes
keep ’em to it till about sunset, Saturdays, but I never work ’em
Sundays.”
“How early do you start them out in the morning, usually?”
“Well, I don’t never start my niggers ’fore daylight, ’less ’tis in pickin’
time, then maybe I get ’em out a quarter of an hour before. But I
keep ’em right smart to work through the day.” He showed an
evident pride in the vigilance of his driver, and called my attention to
the large area of ground already hoed over that morning; well hoed,
too, as he said.
“At what time do they eat?” I asked. They ate “their snacks” in their
cabins, he said, before they came out in the morning (that is before
daylight—the sun rising at this time at a little before five, and the
day dawning, probably, an hour earlier); then at 12 o’clock their
dinner was brought to them in a cart—one cart for the plough-gang
and one for the hoe-gang. The hoe-gang ate its dinner in the field,
and only stopped work long enough to eat it. The plough-gang drove
its teams to the “weather houses”—open sheds erected for the
purpose in different parts of the plantation, under which were
cisterns filled with rain water, from which the water-toters carried
drink to those at work. The mules were fed with as much oats (in
straw), corn and fodder as they would eat in two hours; this forage
having been brought to the weather houses by another cart. The
ploughmen had nothing to do but eat their dinner in all this time. All
worked as late as they could see to work well, and had no more
food nor rest until they returned to their cabins.[20] At half-past nine
o’clock the drivers, each on an alternate night, blew a horn, and at
ten visited every cabin to see that its occupants were at rest, and
not lurking about and spending their strength in fooleries, and that
the fires were safe—a very unusual precaution; the negroes are
generally at liberty after their day’s work is done till they are called
in the morning. When washing and patching were done, wood
hauled and cut for the fires, corn ground, etc., I did not learn:
probably all chores not of daily necessity were reserved for Saturday.
Custom varies in this respect. In general, with regard to fuel for the
cabins, the negroes are left to look out for themselves, and they
often have to go to “the swamp” for it, or at least, if it has been
hauled, to cut it to a convenient size, after their day’s work is done.
The allowance of food was a peck of corn and four pounds of pork
per week, each. When they could not get “greens” (any vegetables)
he generally gave them five pounds of pork. They had gardens, and
raised a good deal for themselves; they also had fowls, and usually
plenty of eggs. He added, “the man who owns this plantation does
more for his niggers than any other man I know. Every Christmas he
sends me up a thousand or fifteen hundred dollars’ [equal to eight
or ten dollars each] worth of molasses and coffee, and tobacco, and
calico, and Sunday tricks for ’em. Every family on this plantation gets
a barrel of molasses at Christmas.”[21]
Beside which, the overseer added, they are able, if they choose, to
buy certain comforts for themselves—tobacco for instance—with
money earned by Saturday and Sunday work. Some of them went
into the swamps on Sunday, and made boards (which means slabs
worked out with no other instrument than an axe). One man sold
last year as much as fifty dollars’ worth.
Finding myself nearer the outer gate than the “quarters,” when at
length my curiosity was satisfied, I did not return to the house. After
getting a clear direction how to find my way back to the road I had
been upon the previous day, I said to the overseer, with some
hesitation, “You will allow me to pay you for the trouble I have given
you?” He looked a little disconcerted by my putting the question in
this way, but answered in a matter-of-course tone, “It will be a dollar
and a quarter, sir.”
This was the only large plantation I had an opportunity of seeing at
all closely, over which I was not chiefly conducted by an educated
gentleman and slave owner, by whose habitual impressions and
sentiments my own were probably somewhat influenced. From what
I saw in passing, and from what I heard by chance of others, I
suppose it to have been a very favourable specimen of those
plantations on which the owners do not reside. A merchant of the
vicinity recently in New York tells me that he supposes it to be a fair
enough example of plantations of its class. There is nothing
remarkable in its management, so far as he had heard. When I
asked about the molasses and Christmas presents, he said he
reckoned the overseer must have rather stretched that part of his
story, but the owner was a very good man. A magistrate of the
district, who had often been on the plantation, said in answer to an
inquiry from me, that the negroes were very well treated upon it,
though he did not think they were extraordinarily so. His comparison
was with plantations in general.[22] He also spoke well of the
overseer. He had been a long time on this plantation—I think he said
ever since it had begun to be cultivated. This is very rare; it was the
only case I met with in which an overseer had kept the same place
ten years, and it was a strong evidence of his comparative
excellence, that his employer had been so long satisfied with him.
Perhaps it was a stronger evidence that the owner of the negroes
was a man of good temper, systematic and thorough in the
management of his property.[23]
The condition of the fences, of the mules and tools, and tillage,
which would have been considered admirable in the best farming
district of New York—the dress of the negroes and the neatness and
spaciousness of their “quarters,” which were superior to those of
most of the better class of plantations on which the owners reside,
all bore testimony to a very unusually prudent and provident policy.
I made no special inquiries about the advantages for education or
means of religious instruction provided for the slaves. As there
seems to be much public desire for definite information upon that
point, I regret that I did not. I did not need to put questions to the
overseer to satisfy my own mind, however. It was obvious that all
natural incitements to self-advancement had been studiously
removed or obstructed, in subordination to the general purpose of
making the plantation profitable. Regarding only the balance-sheet
of the owner’s ledger, it was admirable management. I am sorry to
have to confess to an impression that it is rare, where this is the
uppermost object of the cotton-planter, that an equally frugal
economy is maintained; and as the general character of the district
along the Mississippi, which is especially noticeable for the number
of large and very productive plantations which it contains, has now
been sufficiently illustrated, I will here present certain observations
which I wish to make upon the peculiar aspect of slavery in that and
other districts where its profits to the owners of slaves are most
apparent.
 CHAPTER V.
SLAVERY IN ITS PROPERTY ASPECT—MORAL
AND RELIGIOUS INSTRUCTION OF THE
SLAVES, ETC.

In a hilly part of Alabama, fifty miles north of the principal cotton-

growing districts of that State, I happened to have a tradesman of
the vicinity for a travelling companion, when, in passing an unusually
large cluster of negro cabins, he called my attention to a rugged
range of hills behind them which, he said, was a favourite lurking-
ground for runaway negroes. It afforded them numerous coverts for
concealment during the day, and at night the slaves of the plantation
we were passing would help them to find the necessaries of
existence. He had seen folks who had come here to look after
niggers from plantations two hundred miles to the south, ward. “I
suppose,” said he, “’t would seem kind o’ barbarous to you to see a
pack of hounds after a human being?”
“Yes, it would.”
“Some fellows take as much delight in it as in runnin’ a fox. Always
seemed to me a kind o’ barbarous sport.” [A pause.] “It’s necessary,
though.”
“I suppose it is. Slavery is a custom of society which has come to us
from a barbarous people, and, naturally, barbarous practices have to
be employed to maintain it.”
“Yes, I s’pose that’s so. But niggers is generally pretty well treated,
considering. Some people work their niggers too hard, that’s a fact. I
know a man at ——; he’s a merchant there, and I have had dealings
with him; he’s got three plantations, and he puts the hardest
overseers he can get on them. He’s all the time a’ buying niggers,
and they say around there he works ’em to death. On these small
plantations, niggers ain’t very often whipped bad; but on them big
plantations, they’ve got to use ’em hard to keep any sort of control
over ’em. The overseers have to always go about armed; their life
wouldn’t be safe, if they didn’t. As ’tis, they very often get cut pretty
bad.” (Cutting is knifing; it may be stabbing, in south-western
parlance).
He went on to describe what he had seen on some large plantations
which he had visited for business purposes—indications, as he
thought, in the appearance of “the people,” that they were being
“worked to death.” “These rich men,” he said, “are always bidding
for the overseer who will make the most cotton; and a great many
of the overseers didn’t care for anything but to be able to say
they’ve made so many bales in a year. If they make plenty of cotton,
the owners never ask how many niggers they kill.”
I suggested that this did not seem quite credible; a negro was a
valuable piece of property. It would be foolish to use him in such a
way.
“Seems they don’t think so,” he answered. “They are always
bragging—you must have heard them—how many bales their
overseer has made, or how many their plantation has made to a
hand. They never think of anything else. You see, if a man did like to
have his niggers taken care of, he couldn’t bear to be always hearing
that all the plantations round had beat his. He’d think the fault was
in his overseer. The fellow who can make the most cotton always
gets paid the best.”
Overseers’ wages were ordinarily from $200 to $600, but a real
driving overseer would very often get $1,000. Sometimes they’d get
$1,200 or $1,500. He heard of $2,000 being paid one fellow. A
determined and perfectly relentless man—I can’t recall his exact
words, which were very expressive—a real devil of an overseer,
would get almost any wages he’d ask; because, when it was told
round that such a man had made so many bales to the hand,
everybody would be trying to get him.
The man who talked in this way was a native Alabamian, ignorant,
but apparently of more than ordinarily reflective habits, and he had
been so situated as to have unusually good opportunities for
observation. In character, if not in detail, I must say that his
information was entirely in accordance with the opinions I should
have been led to form from the conversations I heard by chance,
from time to time, in the richest cotton districts. That his statements
as to the bad management of large plantations, in respect to the
waste of negro property, were not much exaggerated, I find frequent
evidence in southern agricultural journals. The following is an extract
from one of a series of essays published in The Cotton Planter, the
chief object of which is to persuade planters that they are under no
necessity to employ slaves exclusively in the production of cotton.
The writer, Mr. M. W. Phillips, is a well-known, intelligent, and
benevolent planter, who resides constantly on his estate, near
Jackson, Mississippi:—
“I have known many in the rich planting portion of
Mississippi especially, and others elsewhere, who, acting
on the policy of the boy in the fable, who ‘killed the goose
for the golden egg,’ accumulated property, yet among
those who have relied solely on their product in land and
negroes, I doubt if this be the true policy of plantation
economy. With the former everything has to bend, give
way to large crops of cotton, land has to be cultivated wet
or dry, negroes to work, cold or hot. Large crops planted,
and they must be cultivated, or done so after a manner.
When disease comes about, as, for instance, cholera,
pneumonia, flux, and other violent diseases, these are
more subject, it seemeth to me, than others, or even if
not, there is less vitality to work on, and, therefore, in like
situations and similar in severity, they must sink with more
certainty; or even should the animal economy rally under
all these trials, the neglect consequent upon this ‘cut and
cover’ policy must result in greater mortality. Another
objection, not one-fourth of the children born are raised,
and perhaps not over two-thirds are born on the place,
which, under a different policy, might be expected. And
this is not all: hands, and teams, and land must wear out
sooner; admitting this to be only one year sooner in
twenty years, or that lands and negroes are less
productive at forty than at forty-two, we see a heavy loss.
Is this not so? I am told of negroes not over thirty-five to
forty-five, who look older than others at forty-five to fifty-
five. I know a man now, not short of sixty, who might
readily be taken for forty-five; another on the same place
full fifty (for I have known both for twenty-eight years,
and the last one for thirty-two years), who could be sold
for thirty-five, and these negroes are very leniently dealt
with. Others, many others, I know and have known
twenty-five to thirty years, of whom I can speak of as
above. As to rearing children, I can point to equally as
strong cases; ay, men who are, ‘as it were,’ of one family,
differing as much as four and eight bales in cropping, and
equally as much in raising young negroes. The one
scarcely paying expenses by his crop, yet in the past
twenty-five years raising over seventy-five to a hundred
negroes, the other buying more than raised, and yet not
as many as the first.
“I regard the ‘just medium’ to be the correct point. Labour
is conducive to health; a healthy woman will rear most
children. I favour good and fair work, yet not overworked
so as to tax the animal economy, that the woman cannot
rear healthy children, nor should the father be over-
wrought, that his vital powers be at all infringed upon.
“If the policy be adopted, to make an improvement in land
visible, to raise the greatest number of healthy children, to
make an abundance of provision, to rear a portion at least
 of work horses, rely on it we will soon find by our tax list
that our country is improving. * * *
“Brethren of the South, we must change our policy.
Overseers are not interested in raising children, or meat,
in improving land, or improving productive qualities of
seed, or animals. Many of them do not care whether
property has depreciated or improved, so they have made
a crop [of cotton] to boast of.
“As to myself, I care not who has the credit of making
crops at Log Hall; and I would prefer that an overseer,
who has been one of my family for a year or two, or
more, should be benefited; but this thing is to be known
and well understood. I plant such fields in such crops as I
see fit; I plant acres in corn, cotton, oats, potatoes, etc.,
as I select, and the general policy of rest, cultivation, etc.,
must be preserved which I lay down. A self-willed
overseer may fraudulently change somewhat in the latter,
by not carrying out orders—that I cannot help. What I
have written, I have written, and think I can substantiate.”
From the Southern Agriculturist, vol. iv., page 317:—
“OVERSEERS.
* * * “When they seek a place, they rest their claims
entirely on the number of bags they have heretofore made
to the hand, and generally the employer unfortunately
recognizes the justice of such claims.
“No wonder, then, that the overseer desires to have entire
control of the plantation. No wonder he opposes all
experiments, or, if they are persisted in, neglects them;
presses everything at the end of the lash; pays no
attention to the sick, except to keep them in the field as
long as possible; and drives them out again at the first
moment, and forces sucklers and breeders to the utmost.
He has no other interest than to make a big cotton crop.