In response to my post about Jeff Hummel’s article on slavery, “U.S. Slavery and Economic Thought,” in David R. Henderson, ed., The Concise Encyclopedia of Economics, commenter Warren Platt quoted one part of Jeff’s article and made a lengthy comment. Here’s the part Warren quoted:
Strictly speaking, economists usually and most broadly employ the term “efficiency” as a measure of welfare rather than of output. Thus, while economic historians now agree that antebellum slavery marginally increased the output of cotton and other products, it still could have diminished total welfare. In measuring efficiency, economists have no precise unit to compare the subjective gains and losses from involuntary transfers. But because most coercive transfers in the Old South were from poor slaves to rich slaveholders, to assume unrealistically that such transfers were a wash in which slaveholder gains equaled slave losses is to bias the analysis in favor of slavery. [bold added by Warren.]
Warren wrote:
I guess what’s bugging me is the concept of “efficiency” as deployed in Jeffrey’s encyclopedia entry is that it may be too squishy to be of objective use.
Strictly speaking, economists usually and most broadly employ the term “efficiency” as a measure of welfare rather than of output. Thus, while economic historians now agree that antebellum slavery marginally increased the output of cotton and other products, it still could have diminished total welfare. In measuring efficiency, economists have no precise unit to compare the subjective gains and losses from involuntary transfers. But because most coercive transfers in the Old South were from poor slaves to rich slaveholders, to assume unrealistically that such transfers were a wash in which slaveholder gains equaled slave losses is to bias the analysis in favor of slavery.
I get it that “Slaves were being pushed off their preferred labor-leisure trade off, forcing them to work harder and/or longer than they otherwise would have chosen.” And that “This increased labor input caused output to increase but welfare (economic well-being) to decrease [for the slaves!]
But what about the slaveholders? Couldn’t it be equally argued that the gain in economic well-being exceeded the losses of well-being to the enslaved? The Southern planter class was the closest thing the USA ever had to a European-style aristocracy. Natchez Mississippi in 1860 had the highest percentage of millionaires (who would be worth at least $33 million in today’s dollars) of any town or city in the United States. Could not one argue that such a level of opulence enabled a qualitatively higher, refined lifestyle that far exceeded the welfare losses of the slaves? And that after emancipation, the slaveholders were pushed off their preferred labor-leisure tradeoff and that their loss may have exceeded the gain to the formerly enslaved persons?
If one wanted to put a dollar figure on the gain to economic welfare to the planter class that could perhaps be approximated by the risk and the cost of the war itself. One website says the direct costs to the South were around $3.25 billion. Then of course there was the loss of the value of the slaves themselves. So we’re talking around $7 billion, that would have been worth 100 years of the net economic losses estimated by F&E that only took into account the gain to planters of the extra cotton production, or around 10 years worth of the entire Southern regional income. (Imagine the United States of today expending $230 trillion in a risky & ultimately vain attempt to preserve the current status quo.)
Now, don’t get me wrong: I am not trying to make a case for slavery. I get it that slavery is superbad. But slavery can be sufficiently condemned on moral grounds with no need for economics to bend over backwards to show that the Southern planters were not only immoral but were also stupid. Certainly, Thomas Jefferson was immoral as judged by our 21st century morality; but to say he was stupid? That’s a stretch. [bold in Warren’s original.]
I was pretty sure I knew the answer from having read and edited Jeff’s article. But I was also sure that Jeff would do a better job than I at explaining. Like Jeff, by the way, I had no idea why Warren thought that Jeff was claiming that Thomas Jefferson was stupid.
Jeff has once again stepped up to the plate and responded. Here’s his response:
Warren, yes some slaveholders were very wealthy. But bear in mind that only about one-fourth of white households in the Old South owned any slaves at all, and about half of those owned fewer than five. The South’s per capita income in 1860, including the slaves, was about 20 percent below that of the North. Even if you completely exclude the third of the population enslaved, per capita income in the South was still only about equal to per capita income in the North. Thus the tiny minority of planters who enjoyed a “level of opulence” that “enabled a qualitatively higher, refined lifestyle” were confined to no more than one percent of heads of white households.
Of course, all slaveholders were wealthier than their slaves because they owned between $2.7 and $3.7 billion of their slaves’ human capital. But because wealth and income are related yet still distinct measures, that total alone tells us little about the impact of emancipation on incomes, much less welfare. Emancipation did not eliminate this human capital; it just transferred it back to its rightful owners, the slaves. Around four million former slaves became wealthier, while a far smaller number of former slaveholders became a lot poorer. Yet because the freed slaves did not use all of their restored human capital to generate income but instead to consume more leisure, total commodity output initially fell after emancipation. Because the freed slaves were now devoting a portion of their human capital to consumption, the resulting reduction in the monetary value of the freed slave’s stock of human capital is roughly equivalent to the discounted present value of the prior increase in the slaveholders’ income flow from forcing slaves to work harder and longer than they would have freely chosen.
How large was this additional income gain to planters? For one year alone, 1850, Fogel and Engerman estimated it to be $10 million. This is not slaveholders’ total return on their exploited human capital but just the increase from forcing slaves off their preferred labor-leisure trade off. F&E also estimated that the resulting increase in output also generated an additional $14 million to consumers of slave products in the form of reduced prices. Based on the wage premiumthat would have been required to entice free labor to work at the same pace as slaves, F&E concluded that slaves suffered an additional loss of $84 million in potential income. No matter how you slice the gains from the increased output, and even assume all gains went to slaveholders instead of consumers of slave products, you still have a total deadweight loss of $60 million. That is how much the welfare loss to slaves exceeded all the gains from additional output to anyone else in the world.
Based on alternative estimates of the underlying variables offered by other cliometricians, you can end up with total deadweight loss slightly lower or much larger. But none of these alternative calculations comes close to finding that the gains to slaveholders were greater than the welfare loss to slaves. That is why my entry brackets the annual deadweight loss from output inefficiency to the southern economy (ignoring gains to foreign consumers) at between $38 million and $176 million. Unless you drastically reduce the wage premium required to attract free labor to plantation work, it is impossible to get a result in which the slaveholders’ monetary gain exceeded the slaves’ welfare loss. Indeed, if the slaveholders’ gain had in fact been greater, after emancipation planters should have been able to pay former slaves or other workers a wage high enough to continue laboring on plantations. Yet the only place this actually happened to a limited extent was on some particularly lucrative sugar plantations in Louisiana.
As for slaveholders being stupid, nowhere did I suggest that nor does my analysis in any way imply such. Rather it treats planters as hard-nosed, capital-owning businessmen guided by profit under the constant pressure of competition. Only the slave owner willing to employ his slaves in the most productive manner would earn a return sufficient to cover slave prices. But that does not mean that the outcome was efficient in the sense of maximizing welfare. The businessman who successfully lobbies for a lavish government subsidy is certainly not stupid and usually hard working. But under most circumstances, economic analysis demonstrates that the resulting gains to him and his customers are less than the losses imposed on taxpayers, potential competitors, and others.
Given that most planters were already hard working, it is not likely that emancipation significantly altered their preferred allocation between labor and leisure. Even if it did, changing one’s preferred labor-leisure trade off is far different than being violently forced off one’s preferred labor-leisure trade off. People’s preferences can alter all the time due to changing market circumstances, and doing so maximizes their subjective welfare. Surely forcing a teetotaler to pay for and drink alcohol against his or her will is not quite the same as a former teetotaler who has voluntarily decided to buy a drink. In fact, the supply of labor is partly a function of how changing wages cause individuals to change their labor-leisure trade-off. Or, to return to our businessman with a government subsidy financed with taxes, if instead his enterprise was financed with voluntary contributions, then that part of what welfare analysis previously counted as a loss would now become a gain. You likewise would get a different result if the slaves worked on the plantations voluntarily (but then they wouldn’t be slaves).
You are free to eschew welfare analysis as “squishy,” and it admittedly can be imprecise, but doing so deprives you of a useful and standard economic tool for evaluating government policies. You then can still argue that lavish government subsidies are immoral but not that they are inefficient. [bold and italics in original]
