Economics of coercion2

American Negro Slavery 10/25/10 Greg Pratt, Mesa Community College

Slavery is the ubiquitous institution in human history
Stanley Engerman
10/25/10 Greg Pratt, Mesa Community College

Formal Institution
Informal institution

Greg Pratt, Mesa Community College 10/25/10

Greg Pratt, Mesa Community College 10/25/10 Command/centralized

10/25/10 Greg Pratt, Mesa Community College Economic Decision Making

10/25/10 Greg Pratt, Mesa Community College Trans Atlantic 25% North Africa/Europe and Asia 25% Intra Africa 50%

10/25/10 Greg Pratt, Mesa Community College New World Europe Africa 1600 25 100 50 1700 3 120 45 Today 310 500 1 Billion

Negro males listed in the 1850 census were engaged in fifty-four different occupations; only 9.9 percent of them were unskilled laborers. Some of them even held jobs as architects, bookbinders, brokers, engineers, jewelers, merchants, and musicians.

draymen,
porters,
carpenters,
masons,
bricklayers,
painters,
plasterers,
tinners,
coopers,
wheelwrights,
cabinetmakers,
blacksmiths,
shoemakers,
millers,
bakers, and
barbers

Tobacco per pound 0.50
Corn per bushel 0.969
Sweet potatoes per bushel 3.02
Wheat per bushel 3.24
Cotton per bale 271.00

Demand for labor is a derived demand
Price of output
Productivity of labor
Free labor
Indentured servants
Redeeptioners
Debt peonage
Slavery

Liberty
Individualism
L aissez faire
Egalitarianism
Populism
Except for slaves – their position was increasingly subject to greater coercion

The major expansive force in the US economy from 1800 -1850:
Douglas North

Time on the Cross Fogel and Engerman

To this point it might be useful to pause and consider this nascent slavery in the United States along the lines of economic growth, welfare and decision making.
Economic growth – hazy
Economic welfare – general improvement for society – slave welfare evolving – much less free – we’ll see what Fogel has to say in a minute
Decision making – evolution overall

antebellum Southern farms were 35 percent more efficient overall than Northern ones and that slave farms in the New South were 53 percent more efficient than free farms in either North or South.

This would mean that a slave farm that is otherwise identical to a free farm (in terms of the amount of land, livestock, machinery and labor used) would produce output worth 53 percent more than the free .

“ Economic history is about the performance of economies through time.” North

Are you better off today, than . . .
Braudel – material life
Examples
Live longer
Live “better”
reduction in average work week from
68 to 36 – seems to be a preference for leisure over work

Adam Smith – system of natural liberty
emergent and evolutionary – a spontaneous order that allows participants in society to use their own knowledge for their own aims without coercion
Hayek

Contra to Smith’s system of natural liberty
Centralized
Coercive
Planned
Adaptively inefficient

Flexible
Error and Trial
Receptive to change
It is adaptive rather than allocative efficiency which is the key to long run growth.

Successful political/economic systems have evolved flexible institutional structures that can survive the shocks and changes that are a part of successful evolution.

Voluntary
Involuntary

Buy and Sell
Life time
Inherited through the mother

Nature of man – angels or humans?
Theory of Moral Sentiments – impartial spectator as a mechanism to address humanity
Slavery inefficient
The Wealth of Nations – pursuit of self love will guide society to ends that no one could either anticipate or intend

Was Adam Smith correct?
Who benefited?
What was the nature of the institution?

Slave auction records
Estate inventories
Plantation records
Slave narratives
Abolitionist materials
Church records

Slaves worked more intensively
Methods of production – gang system
Plantation v diversify farm
Slaves responded to incentives?

Negative – Simon Legree
Reduced Rations
Prevent marriage
Sell family
Whippings
Mutilation
Death
Positive – Inducements
Days off
Private plots
Cabins
Marriage
Pay
Manumission

Sundays off
Bonuses in cash or in kind, or
Quit early if they finished tasks quickly.
Keep part of the harvest
Own small plots
Sell their own crops.

In antebellum Louisiana, slaves even had under their control a sum of money called a peculium. This served as a sort of working capital, enabling slaves to establish thriving businesses that often benefited their masters as well.

because slaves constituted a considerable portion of individual wealth, masters fed and treated their slaves reasonably well. . . , teenaged and adult slaves lived in conditions similar to -- sometimes better than -- those enjoyed by many free laborers of the same period.

10/25/10 Greg Pratt, Mesa Community College US South - slaves West Indian Slaves Africans White workers in the US 102.0 88.0 89.0 100.0

Calories – potatoes v sweet potatoes
Living conditions – city v rural
Type of work – indoors v outdoors
Impact
Health
Child mortality
Height

The entire US and world – cotton was the grease for the Industrial Evolution – textile industry
Textile manufacturers – increasingly inexpensive input
Merchant capitalists – financing and shipping raw materials and finished goods
Transportation

Banking and finance
Consumers (greater access to and much cheaper clothing)
In short, . . . the south benefited and, to a greater extent
THE NORTH

1800 – 1860
Prices secular decline
Increasing output per acre and in total
Expansion of the activity
Profits
Adaptively efficient?

Founding fathers in the late 18 th century believed slavery would die out within 50 years
What happened . . .
The Cotton Gin

The immenent economist Abe Lincoln, in 1858 said that, with his plan, slavery would die out?
Steve Douglas said, ok, lets accept your assertion . . . When?
Abe said . . . 100 years

Some would argue that the American Negro slavery was so adaptively efficient . . .
New areas for cotton growth
Increasing innovation and productivity
Expansion of types of activity
Increasing complexity of activity

AN ADAPTIVELY EFFICIENT INSTITUTION

Leads to economic growth
Does not necessarily lead to an increase in individual welfare
Cannot persist with coercive economic decision making . . . in the long run.

UN – official end 1970
China - 1910
Thailand - 1905
Brazil - 1888
Cuba - 1886
US - 1863
Haiti - 1804

1860 4 million slaves with a value of 4 billion dollars
This was the size of the US economy (estimated GDP)
This was 40 per cent of total bank assets in the US

600,000 dead (over 50% to disease)
600,000 injured
In 1863 Union estimated daily cost was 2.5 million
10 billion in direct costs by both sides
14 billion in pensions to surviving soldiers
Inflation
Coercion and loss of liberty

10/25/10 Greg Pratt, Mesa Community College NET DIRECT COSTS OF THE CIVIL WAR in millions of $1860 discounted to June 1861 @ 6% Category Union Confederacy Government expenditures 2,291 1,011 Labor Costs Undercounted Because of Draft 11 20 less Labor Costs Overcounted Because of Risk Premium -256 -178 Net Cost of Resources Destruction of Physical Capital 0 1,487 Destruction of Human Capital Killed 955 684 Wounded 365 261 Total 3,366 3,286 Source: Claudia Goldin and Frank Lewis, "The Economic Costs of the American Civil War: Estimates and Implications," Journal of Economic History

10/25/10 Greg Pratt, Mesa Community College The Costs of the Civil War (Millions of 1860 Dollars) South North Total Direct Costs: Government Expenditures 1,032 2,302 3,334 Physical Destruction 1,487 1,487 Loss of Human Capital 767 1,064 1,831 Total Direct Costs of the War 3,286 3,366 6,652 Per capita 376 148 212 Indirect Costs: Total Decline in Consumption 6,190 1,149 7,339 Less: Effect of Emancipation 1,960 Effect of Cotton Prices 1,670 Total Indirect Costs of The War 2,560 1,149 3,709 Per capita 293 51 118 Total Costs of the War 5,846 4,515 10,361 Source: Ransom, (1998: 51, Table 3-1); Goldin and Lewis. (1975; 1978)

Government borrowing
Loss of economic growth during the period 1861-1865 (never to be recovered)
Expansion of the doctrine of Total War
Given the cost to eventually eliminate, this institution had deep economic underpinings, was productive and, in aggregate, stimulative to growth and

Doomed to failure due to the coercive nature of the institution, not due to the moral reprehension of the practice.
Adaptively efficient institutions persist (Adam Smith was wrong)
Slavery is a moral vice (Adam Smith was right)

Institutions that are adaptively efficient and coercive can be very, very difficult to change peacefully.

Economics of coercion2

by Greg Pratt on Oct 25, 2010

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Economics of coercion2 Presentation Transcript