We examine paternalism as an implicit contract in which workers trade faithful service for nonmarket goods. Paternalism reduced monitoring and turnover costs in cotton cultivation in the U.S. South until the mechanization of the cotton harvest in the 1950's. Until then, the effectiveness of paternalism was threatened by government programs that could have substituted for paternalism; but large Southern landowners had the political power to prevent the appearance of such programs in the South. With mechanization, the economic incentive to provide paternalism disappeared, and Southern congressmen allowed welfare programs to expand in ways consistent with their interests.