"Hatred and Profits: Getting Under the Hood of the Ku Klux Klan", Fryer & Levitt 2007 (discussion: http://marginalrevolution.com/marginalrevolution/2007/09/the-ku-klux-kla.html ); excerpts:

"The Ku Klux Klan reached its heyday in the mid-1920s, claiming millions of members. In this paper, we analyze the 1920s Klan, those who joined it, and the social and political impact that it had. We utilize a wide range of newly discovered data sources including information from Klan membership roles, applications, robe-order forms, an internal audit of the Klan by Ernst and Ernst, and a census that the Klan conducted after an internal scandal. Combining these sources with data from the 1920 and 1930 U.S. Censuses, we find that individuals who joined the Klan were better educated and more likely to hold professional jobs than the typical American. Surprisingly, we find few tangible social or political impacts of the Klan. There is little evidence that the Klan had an effect on black or foreign born residential mobility, or on lynching patterns. Historians have argued that the Klan was successful in getting candidates they favored elected. Statistical analysis, however, suggests that any direct impact of the Klan was likely to be small. Furthermore, those who were elected had little discernible effect on legislation passed. Rather than a terrorist organization, the 1920s Klan is best described as a social organization built through a wildly successful pyramid scheme fueled by an army of highly-incentivized sales agents selling hatred, religious intolerance, and fraternity in a time and place where there was tremendous demand.

Founded in the aftermath of the Civil War as a whimsical social club, the Klan quickly transformed into a terrorist organization aimed at subjugating newly freed blacks and driving out moderate whites who attempted to improve the plight of Freedmen in the Reconstruction South. Legal and military action undermined the effectiveness of the Klan, and by the 1870s it had largely disappeared. The Klan was revived in 1915. Its popularity and influence grew, first slowly, and then more rapidly, to a peak in the mid-1920s. By that time it claimed four million members, was credited with engineering the election of politicians across the country, and included in its membership some of the most powerful men in America.1 Marred by a high profile sex scandal, the Klan’s membership rolls decreased dramatically in the latter half of the 1920s and the Klan has since remained a shadow of its former self. In this paper, we analyze the Klan during its peak years in the 1920s with the goal of understanding a number of different questions. First, is the 1920s Klan principally a terrorist organization, as most believe, or better described as a popular social club with an enormously successful marketing department? Second, what were the quantifiable social and political impacts of the 1920s Klan? Third, does economics provide a useful lens for understanding the internal organization of the Klan?

To begin to answer these questions, we first construct a unique data set on membership in the Ku Klux Klan in the 1920s. The datasets contains data on over 60,000 actual Klan members whose names we gleaned from internal Klan documents including membership lists, filed application forms, meeting attendance sheets, pieces of signed correspondence between members and officials, and order forms for robes and other paraphernalia. Using the names, the individual’s geographic location, and other identifying characteristics from the Klan records, the individuals were then matched with census records, giving us data on a range of demographic and other variables.
Second, we use county-level data from Indiana and Pennsylvania, two Klan strongholds during the 1920s, on the number of Klansmen in a given county to relate the popularity of the Klan to measures of migration and political influence. Finally, using credible estimates of the number of Klan members in Indiana between 1923 and 1925 from two sources, an internal audit performed by Ernst & Ernst and a census of Klan members in Indiana conducted in response to the scandal surrounding the Klan leader of Indiana and twenty-two other states, we estimate the revenues that high-ranking individuals within the Klan likely accrued.
The results we obtain using our new dataset on members of the Klan are in some cases quite surprising. Individuals who joined the Klan were better educated and more likely to hold professional jobs than the typical American, reinforcing earlier findings of a number of historians on the subject (Goldberg 1981). Yet, despite the sophistication of its members and its enormous rolls, we find that the Klan had few tangible social or political impacts. There is little evidence that the Klan had an effect on black or foreign-born residential mobility or on lynching patterns. There is some evidence that the Klan was successful at getting candidates it favored elected, but the direct impact of the Klan was small. Moreover, even when the Klan succeeded in the electoral process (e.g. Indiana in 1925 had a Klan-endorsed governor, as well as control of the state legislature), there is little evidence that the legislation that got passed effectively advanced the Klan’s mission (Jackson 1992, Goldberg 1981).
Instead, the Klan’s true genius lay in its uncanny ability to raise revenue. We estimate that at the peak of the Klan, initiation fees, dues, and profits from robes in the state of Indiana alone generated nearly $4 million (in 2006 dollars) annually for the national Klan leader, $2.4 million for the head of the Indiana Klan, and over $300,000 each for the national head salesman and the salesman responsible for Indiana. Per capita income in the United States at this time was roughly $8,000 in 2006 dollars. Rather than a terrorist organization, the 1920s Klan is better described as a wildly successful pyramid scheme fueled by an army of highly incentivised sales agents.

Many of the Klan’s early activities were child-like mischief. In one favorite Klan tactic, a white-sheeted, masked Klansman would ride up to a Black home at night and demand water. When the well bucket was offered, the Klansman would gulp it down and demand more, having actually poured the water through a rubber tube that flowed into a leather bottle concealed beneath his robe. After draining several buckets, the Klansman would exclaim that he had not had a drink since he died on the battlefield at Shiloh, and gallop away.

In January 1869, Nathan Forrest ordered the dissolution of the Klan, arguing that it was “being perverted from its original honorable and patriotic purposes, becoming injurious instead of subservient to the public peace.” Though many local Klans did dissolve following Forrest’s orders, many others did not (Chalmers 1987)...The bill, known as the Ku Klux Klan Act, was passed that spring and signed by President Ulysses S. Grant in the summer of 1871. Combined with the 1870 Force Act, an early civil rights law, federal authorities began using U.S. Army troops to break up Klan activities and began prosecuting Klansmen in federal courts. The Klan ceased operations by the mid-1870s, but not before the Colfax massacre in Louisiana—the bloodiest incident of Klan violence in history—which resulted in the death of 280 Blacks (Wade 1987). For over forty years the Klan laid dormant.
Around 1915, it is widely believed that the confluence of two events, the release of The Birth of a Nation and the lynching of Leo Frank led to the coming of the second Klan (Wade 1987, Newton 2006)...In September 1915, a Georgia physician named William J. Simmons saw Griffith’s film. Inspired, he led a group of 34 men, including two veterans of the first Klan and many members of the Knights of Mary Phagan, on a second trip to Stone Mountain. On Thanksgiving Day, in what Simmons would later claim were sub-zero temperatures, the group inaugurated the second coming of the Klan. Simmons declared himself Grand Wizard (Newton 2006, Wade 1987). Over the next several years, the Klan spread, though the overall membership remained small. In 1921, new Klan leadership forced Simmons out and instituted strong financial incentives for recruiters. Only then did membership truly accelerate.
By 1924, estimates of the Klan’s peak size range from 1.5 million (Jackson 1992) to as many as four million, or roughly 5-14% of the eligible population.8 The largest estimates of membership are based on claims of Klan leaders, which are likely to be inflated...they are not completely out of the realm of possibility. An analysis of data from an internal census of Indiana Klan membership in 1925 finds that a total number of Klansmen is 162,267 or 18.44% of the eligible Indiana population. Klan penetration into Indiana is reputed to have been among the highest in the country, so extrapolating this percentage to the whole of the United States will yield a (potentially very loose) upper bound of 5.2 million Klan members. If instead we extrapolate from the membership rolls of the Pennsylvania we obtain estimates of approximately 400,000; using the Colorado Klan numbers yields an estimate even greater than the 5.2 million based on Indiana.

The Grand Wizard (or Emperor) served as the nominal chair of the body, with the Imperial Wizard acting as the chief executive and aided by a fifteen-member Imperial Kloncilium. These included the Klaliff (first vice president), the Klazik (second vice president), the Klokard (lecturer), the Kludd (chaplain), the Kligrapp (secretary), the Klabee (treasurer), the Kladd (conductor), the Klarago (inner-guard), the Klexter (outer-guard), the Klonsel (general counsel), the Night Hawk (courier), and the four Klokann (auditors). These individuals were responsible for keeping the Klan’s books, providing in-house legal advice, and serving as a Klan cabinet.  ...In addition to the main Klan hierarchy, there was an auxiliary structure (illustrated in Figure 3) that existed primarily as a source of income generation for those involved. Klan members generated a tremendous amount of revenue. Each Ghoul paid a $10 initiation fee (equivalent to $115 in current dollars), $6.50 to buy an official Klan robe (which cost roughly $2 to make), an annual membership fee of $5, an imperial tax of $1.80, and was also encouraged to purchase other Klan-sanctioned merchandise including swords, Bibles, helmets, dry-cleaning, and life insurance.
Joining the Klan was not a cheap endeavor. Using the numbers above, the first year of membership costs $23.30 (roughly $275 in 2006 dollars) and subsequent years were $6.80 (approximately $80 in 2006 dollars). At its peak in 1924, the Klan conservatively generated annual revenues from all sources of at least $25 million – equivalent to $300 million in current dollars. Only a small portion of this revenue was required to fund basic operations (Alexander 1965).

The second Klan fell as swiftly as it rose. David Curtis Stephenson, the Grand Dragon of Indiana and twenty-two other states and arguably the most powerful and visible Klan official in the country, was accused of raping and murdering Madge Oberholtzer, a 28-year-old schoolteacher in whom he had a sexual interest (Wade 1987). In March 1925, Stephenson kidnapped Oberholtzer, forced her onto a train heading to Chicago, forced her to drink, raped her, and even bit off portions of her flesh. Oberholtzer died shortly thereafter, leaving a death bed statement detailing her treatment at Stephenson’s hands. In November 1925, Stephenson was tried and convicted of second-degree murder and sentenced to life in prison. The trial received spectacular media attention. The details of the murder were so gory and contrasted so sharply with Stephenson’s support of temperance and his self-defined image as a defender of “Protestant womanhood,” that entire Klaverns deserted the Klan. Ed Jackson, the governor who had been Stephenson’s protégé, refused to pardon him. In response, Stephenson released two boxes full of “dirt” he had collected on politicians and individuals he had once supported, destroying the careers of many Indiana officials. This internal turmoil devastated the Klan: by 1930, its national membership had declined to 30,000 (Moore 1991, Wade 1987).

First, we scoured the country for archives, libraries, and historical societies that contained data on the Klan. Once we found those that contained potentially relevant information, we analyzed these collections for data on individual Klan members, minutes from Klavern meetings, expenses, applications, and so on. Many of these forms contain information about each Klan member (e.g., name, height, weight, years of education). From this, we developed an initial list of Klan members. In the final stage, we link Klan members to the 1920 and 1930 Censuses so that they could be compared to non-Klan individuals. Appendix A details each of these stages. Our two most comprehensive datasets are from Pennsylvania and Colorado. The Pennsylvania data consists of thirty microfilms worth of material and 32,390 Klan members. The majority of the membership data comes from dues records, personal correspondence, and applications for membership. There is also a wealth of information on finances, including receipts, checks, and quarterly reports sent from the Klabee to the Realm office. The data from Colorado is contained on three microfilms, one of which is a copy of the membership and dues ledger from the Denver metro area Klans totaling 20,351 names, addresses, and records of dues paid. We have similar individual level data, though less expansive in terms of numbers of Klansmen or accompanying information, gathered from Harlowton, Montana; Knox County, Tennessee; and Wood County, Ohio. The total number of Klansmen in these data was 2,800 making a total of over 55,000.11 Given the clandestine nature of Klan activities, it is impossible to know how representative the data set we have assembled is. We are encouraged, however, by the geographic diversity of the areas the data cover, and by the varied ways in which the different data sources originated (in one case Klan headquarters was burglarized and the stolen files dropped off at a police station; in another case old records were found years later stored in an attic). Perhaps the most limiting feature of our data is that we were unable to obtain any records on Klan members or activities in the Deep South.

For common names in large counties, the expected number of people sharing a name is not trivial, e.g. we estimate that there were approximately 500 John Smith’s in Philadelphia County in 1920.

As one would predict, members of the Klan are much more likely to be native born. They are also less likely to hold unskilled jobs and more likely to be in service jobs or professionals (except in Pennsylvania), which stands in sharp contrast to the image of today’s Klansmen. Literacy rates for all individuals, Klan and non-Klan, are very high, but slightly higher within the Klan. In most locations, Klan members are less likely to never have been married. In both Colorado and Pennsylvania, where we have data across counties, the share of blacks and foreigners is similar for Klan members and those not in the Klan...A number of patterns emerge from Table 2. As would be expected given the strong nativist sentiments of the Klan, being native born is positively associated with Klan membership in all of our samples, with odds ratios ranging from 1.38 in Harlowton (i.e. being native born raises the likelihood of being in the Klan by 38 percent) to 3.26 in Pennsylvania (being native born more than triples the likelihood of being in the Klan). For Knoxville all Klan members are native born, so the parameter can not be estimated. The estimate is statistically different from one for all columns except Harlowton. For all of the areas except Pennsylvania, Klan membership is associated with relatively high status jobs (both those in service jobs and professionals are over-represented relative to the unskilled/unemployed), although the differences are not always statistically significant. Literacy is higher among Klansmen in all samples, though the estimates are not statistically significant in a few of the cases. These findings are consistent with a quote MacLean (1994, p. xii) attributes to an unnamed contemporary who described Klan members as “if not the ‘best people,’ at least the next best...the good, solid middle class citizens.” [In terms of having relatively high education, this pattern of Klan membership parallels that of modern day terrorist organizations, as reported by Krueger and Malecková (2003), or social movements more generally (Glaeser, Laibson, and Sacerdote 2002).]  Klan members also tend to be older and more likely to have been married. In Colorado and Pennsylvania, where we can include the share of the population in the county that is Black or foreign, the only statistically significant result is that
in Pennsylvania Klan membership is strongly positively related to the percent foreign.19

Complicating this analysis is the fact that even if one finds a positive correlation between Klan activity at the county level and an outcome such as hate crimes, it is unclear whether this is causal since the same factors that lead people in an area to commit hate crimes lead them to embrace the Klan. The Klan may worsen hate crimes, or it may simply thrive in places where hate crimes would have occurred regardless of their presence. Our attempts to differentiate these two stories hinge on the crucial role that D.C Stephenson played in the rise and fall of the Klan. Stephenson’s charisma and entrepreneurial skills were critical to the success of the Klan in Indiana. Although similar nativist sentiments were at work in nearby states such as Pennsylvania and Ohio, the Klan grew much more slowly in these places absent a Stephenson-like figure. Thus, one might argue that a comparison of Indiana to Pennsylvania over the first part of the 1920s provides a crude measure of an independent contribution of the Klan. With Stephenson’s conviction for murder, however, the Indiana Klan collapsed even more quickly than it grew. Assuming that underlying nativist beliefs were unlikely to dissipate simply because of the murder trial and the dissolution of an To further understand the determinants of Klan involvement, we regressed county-level data on klan membership on county characteristics. Unfortunately, very imprecise estimates made this exercise of little marginal value beyond the individual level regressions presented. organization, the period immediately following his conviction in 1925 provides another avenue for identifying the causal impact of the Klan. In this section, we look for evidence of an impact of the Klan in the form of the number of lynchings, migration patterns of Blacks and foreigners, vote shares in congressional elections, and legislation passed. We tackle these various outcomes in turn.

Figure 4 presents a time series of Black lynching from 1880-1930 using data from Project HAL. The time series pattern in lynchings is exactly opposite of what one would expect if the Klan had a major impact. The number of lynchings peaked after 1890—a time period in which the Klan did not exist—and decreases steadily afterward. Between 1915 and 1925, when Klan memberships grew at fever pace, lynching continued to decrease, hitting their lowest levels in the time-series precisely when Klan popularity is at its peak. There is not a single recorded Black lynching in either Pennsylvania or Indiana in the 1920s when the Klan was thriving there.

[Substitution effect, like violence and video games / movies / porn?]

The results in Table 3a provide little evidence for a causal impact of Klan activity on migration patterns of Blacks or foreigners. The coefficients in the period before the Klan becomes active (columns 1-4) are generally similar in sign and magnitude to those when the Klan is at its peak (columns 5-8). Absent controls, for both these periods the Klan measure is associated with strong negative values on migration of both groups. In other words, the places where the Klan will thrive/is thriving, are places that are experiencing relative declines in the share Black or foreign. Once one controls for county population and the initial shares, however, the results for Blacks disappear. Black populations are growing more quickly in the most populous counties (such as Philadelphia), which are also areas with relatively little Klan activity. The coefficients for foreigners persist with controls. The fact that the same pattern exists in the 1910-1920 period, however, suggests a common cause of foreign emigration and Klan activity, as opposed to a causal impact of the Klan itself.

Numerous historians have documented widespread electoral victories for Klan-supported candidates across the nation (Jackson 1992). The Klan exercised its political might in other ways as well, such as marching 50,000 Klansmen down Pennsylvania Avenue in August 1925. There is anecdotal evidence of Klan-initiated voter intimidation; an example is depicted in figure 5. Politicians of both parties throughout the south and Midwest were under the Klan’s sway. Five U.S. Senators and at least four governors were Klansmen (Jackson 1992, McVeigh 2001). In 1924, the Klan captured the Republican primaries in Colorado, elected a governor of one house of the legislature, several judges and sheriffs, and the Denver chief of police. (Goldberg 1981). In Alabama, it ended the career of veteran Senator Oscar Underwood, whom it denounced as the “Jew, jug, and Jesuit candidate,” and replaced him with Hugo Black, who accepted an engraved life membership in the KKK (Morison 1980). While the Klan clearly had a national reach and was particularly strong throughout much of the Midwest and the South, most historians believe that it experienced the most political success in Indiana. Stephenson not only aggressively boosted Klan membership and used his wealth to sponsor favored candidates, but actively meddled in Republican Party politics to engineer the election of pro-Klan candidates. At the 1924 Republican convention, Stephenson was able to force a large number of anti-Klan Republicans off the party’s ticket, an event that foreshadowed a near sweep of the state legislature and the Indiana congressional delegation that November.22 Edward L. Jackson's election to the governorship was the Klan’s crowning achievement that year (Jackson 1992). Many historians have presented these anecdotes as prima facie evidence that the Klan had an important impact on the political scene....We investigate the change in Republican vote share between 1924 and 1926 and between 1924 and 1934. The Stephenson case, which initiated the crumbling of the Klan, occurred in 1925. This provides a rare opportunity to estimate the impact of the Klan during its decline. In all cases, the unit of observation is a county, with observations weighted by the county's population...Yet, as the table suggests, the Klan had surprisingly little influence. During the Klan’s peak growth period, the coefficient on percent Klan is .22. Evaluated at the mean, this implies that a 10 percentage point increase in Klan was associated with a 2.2 increase in the Republican vote share between 1920 and 1924. Klan popularity in a county is associated with a small decline immediately following the Stephenson trial, a decline that grows larger with time. Despite our estimates regarding the relatively small effect of the Klan on changes in vote shares, one cannot deny that eleven of the thirteen elected candidates elected to the U.S. House in Indiana in the 1924 elections were those backed by the Klan, and the Klan controlled virtually the entire state government. A key question, then, is whether these politicians were able to pass legislation that furthered Klan goals. In 1925, a series of bills were introduced, mainly concerning education, to further the Klan’s “100 percent Americanism” campaign. Weaver (1954) provides careful documentation of Klan-initiated legislation...The final bill [of these], which lost by the thinnest of margins in the previous congress, was the only one enacted (Weaver 1954).

Among the local leadership, only the Exalted Cyclops and the Kligrapp were paid for their services, but this pay was minimal and these individuals almost always held other jobs outside the Klan as well. Klan membership appears to be driven less by pecuniary opportunities and more by the factors that underlie social clubs of all kinds, namely shared interests and ideologies, networking opportunities, a sense of belonging or “fraternity,” etc. (Alexander 1965). The one exception was the Grand Dragon in charge of a state (or “realm”).24 When the sales structure was initially put into place in 1922, it appears that none of the initiation fees went to the Grand Dragon who was in charge of the state, but by 1924, $2.50 of each initiation was funneled to the Grand Dragon. In addition, each member was required to pay an annual $1 realm tax which was paid to the Grand Dragon responsible for that state (Alexander 1965). Loucks (1936) also reports that 50 cents of the $6.50 cost of a robe went to the Grand Dragon.
...The sales force was organized on a multi-level marketing principle, much like modern companies such as Amway and Avon. The U.S. was split into nine Domains with a Grand Goblin in charge of each. A Goblin would then hire a King Kleagle for each state under his control; the King Kleagle was responsible for the army of Kleagles, salesmen who were paid by commission, in his state. The Kleagles were the core of the financial structure, actively hawking memberships for $10 apiece, and pocketing $4 from each membership sold. As noted earlier, by 1924, $2.50 was directed to the Grand Dragon who ran the state. The remaining $3.50 was sent up the recruiting structure, with the person in charge of sales in the state (King Kleagle) taking $1, the regional sales overseer (Great Goblin) getting $.50, the national sales overseer (Imperial Kleagle) $1.25, and the two most powerful men in the klan (Imperial Wizard and Grand Wizard) splitting 75 cents.
Robes and other Klan paraphernalia generated a second source of revenue. All Klan members were required to purchase an official Klan robe produced by an approved factory; Klan members were not allowed to make their own robes. These robes were sold initially for $6.50, with the price later reduced to $5.00 when the Klan constructed its own robe production factory (Jackson 1992). The robes cost only $2.00 to produce, generating large profits for the Klan leadership. The revenues from the sale of robes were split four ways. The Kleagle who recruited the purchaser, the King Kleagle, and the Grand Dragon who headed the realm each received 50 cents. The remaining $5 went to the national headquarters, which netted $3 in profit after paying the $2 production cost. Besides the purchase of robes, members were encouraged to buy an array of other officially-sanctioned products ranging from life insurance sold through the Empire Mutual Life Insurance Company, robe dry-cleaning services, and even specially wrapped candies with the klan insignia on it (Alexander 1965). The final source of income was the “Imperial Tax,” which was levied on all members of a Klavern after it had received its charter, usually when it had 100 members (Alexander 1965). The tax, which totaled $1.80 per Klansmen per year, was levied in four parts of $0.45 year. This revenue stream flowed directly to the top and was not shared by anyone outside the Imperial office.

The values shown have been transformed into 2006 dollars using the consumer price index.26 Our estimates are based off an assumption of 140,000 total Klan members in Indiana and 22,511new members per year, with the latter number derived from the increase between the two Klan internal audits. New initiation fees, shown in column 1, generated revenues of nearly $200,000 for the national headquarters, over $300,000 for the highest ranking person in the national sales structure (Imperial Kleagle), over $600,000 for D.C. Stephenson, the Grand Dragon of Indiana, $132,000 for the regional sales manager (Great Goblin), $265,000 for the sales manager in Indiana (King Kleagle), and over $1 million for the street-level salesmen (Kleagles).

According to our estimates, the single state of Indiana generated nearly $4 million in revenues for the national headquarters.27 After some modest expenses, most of that revenue would go directly to the Imperial Wizard, with the Grand Wizard having claims on some of it. D.C. Stephenson, the head of the Indiana Klan, received nearly $2.5 million annually from the state’s operations. The head of the state sales hierarchy pocketed nearly $400,000 a year. To put these numbers into perspective, in current dollars, a typical full professor during this time earned $45,000 in current dollars (Bachman 1929), Babe Ruth earned $613,000, and President Calvin Coolidge earned $885,000."
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