1. CHAPTER © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 13 The Entrenchment of Slavery and Regional Conflict

2. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Economics of Slavery  In this chapter, we examine the economics of slavery, separate from the obvious moral evils of slavery as an institution.  Economists analyze many controversial issues (slavery, gun control, abortion) about which many people have strong opinions. The goal is to use economic theory and empirical evidence to gain a better understanding about the topics

3. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Southern Agriculture  Crops:  Cotton, Tobacco, Sugar and Rice  Larger size farms than in other regions  Both in terms of acres and labor  Economies of Scale  Small farms did exist but did not specialize in cash crops (exception is tobacco)

4. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Slavery and Cotton  Whitney’s Cotton Gin (1793)  enabled cotton to be separated on a competitive commercial basis by mechanical means.  From 1820 to 1860:  cotton output rose by a factor of 11.5  the slave population rose by a factor of 2.5  (more workers)  and output per slave rose by a factor of 4.6  (more output per worker)

5. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Slavery and Cotton Ownership of slaves became more concentrated by the 1850’s. The percentage of Southern families owning slaves fell from 36% in 1830 to 25% in 1860. Increased income inequality

6. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Questions about Southern Agriculture  What was the effect of Slavery on Southern Economic Growth?  Were Slave Owners Rational?  Was the purchase of a slave a rational decision on the part of the planter?  Were slave plantations efficient?  Did they use the least cost way of producing cotton?  Would slavery have ended shortly after 1860 without the Civil War?

7. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Questions about Southern Agriculture  What was the effect of Slavery on Southern Economic Growth?  Historians have suggested that the institution of slavery was economically inefficient and slowed economic growth in the South.  What does the evidence show us?

8. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. What effect did Slavery have on Southern Economic Growth? 18401860Growth rate National Average$96$1281.4 North$109$1411.3 North East$129$1811.7 North Central$65$891.6 South*$74$1031.7 South Atlantic*$66$841.2 East South Central*$69$891.3 West South Central*$151$1842.0 Per Capita Income 1840-1860 by region * Includes slaves Although per capita income is lower than North, growth rate of income is higher especially in West where cotton is the main crop

9. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. What was the effect of Slavery on Southern Economic Growth?  The evidence suggests that the North was growing faster than the south (particularly in New England with manufacturing)  However, the areas of fastest growth in the South were in the regions of the South most heavily involved in Slavery and cotton production.

10. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Were Slave Plantations Efficient?  Fogel and Engerman, Time on the Cross  Robert Fogel won the Nobel Prize in 1993  He is best known as a leading advocate of cliometrics- use of quantitative methods in history.

11. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Were Slave Plantations Efficient?  Time on the Cross changed they way people thought about slavery and also was one of the first high profile uses of New Economic History  Controversial due to topic (and conclusions).

12. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Efficiency-What does it mean? Least cost way of production – Slave labor less costly when cost of maintaining and monitoring labor for the same output is less than the wage payment to free labor – In this sense, we could argue that the use of slavery in cotton production was efficient

13. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Efficiency-What does it mean? Pareto Optimality (or allocative efficiency) – is a state of allocation of resources in which it is impossible to make any one individual better off without making at least one individual worse off. – Given an initial allocation of goods among a set of individuals, a change to a different allocation that makes at least one individual better off without making any other individual worse off is called a Pareto improvement. – An allocation is defined as "Pareto efficient" or "Pareto optimal" when no further Pareto improvements can be made.

14. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Efficiency-What does it mean? – Slavery is not Pareto Optimal or Pareto Efficient – Payment necessary to get free labor to work as hard as a slave is greater than the benefit to owner of using slave rather than free labor

15. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Were Slave Plantations efficient? Simplistic Analysis: Survivorship Number of large plantations increases, suggesting that they were efficient. If there was a more profitable way to produce cotton in the South, plantations using slaves should disappear over time.

16. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. How to measure efficiency? Measure Total Factor Productivity Total Factor Productivity measures output relative to inputs (labor, capital, resources) How productive are farms in different areas? Compare Northern Agriculture to Southern Agriculture Look at productivity differences between slave plantations of different types

17. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Economies of Scale  Data is from the Parker-Gallman Sample of the 1860 Census (index: North= 100) Farm size(#slaves)Old SouthNew South 098.4112.7 1-15103.3127.2 16-50124.9176.1 51 or more135.1154.7 All slave farms118.9153.1 All Farms116.2144.7 Larger farms had greater total factory productivity

18. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Comparisons of Efficiency in Southern Agriculture by Farm Type and Size For small farms (less than 15 workers), slave labor and free labor are equivalent in term of productivity

19. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Results  Large Plantations are more efficient than smaller plantations when slave labor is used (economies of scale)  Little or no difference between small farms with free workers and small farms with slaves.

20. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Sources of Economics of Scale  Specialization-  Team production, workers given tasks that fit their strengths  Gang Labor System-  high work intensity rather than longer hours  Production was organized more like an assembly line in a factory rather than a typical farm.

21. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Would slavery have collapsed on its own?

22. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Would slavery have collapsed on its own?  In the 1900s, historians claimed:  that slavery had become unprofitable by the 1840s and 1850s and would have ended without the Civil War.  Evidence?  Slave Prices were steadily rising while cotton prices were stagnant.

23. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.. Cotton prices remained stagnant throughout this period

24. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Price of a Male Slave, New Orleans, 1800–1860 Slave Prices tripled between 1820 and 1860

25. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Would slavery have collapsed on its own?  If slave prices were rising, but cotton prices were stagnant, historians reasoned that rates of buying a slave would have to be a losing proposition and slavery would be dying out.  Are these historians correct in their analysis?

26. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Conrad and Meyer  In the 1950s, two economist attempted to actually measure the rate of returns of slaves as an investment.  They wanted to evaluate this proposition that slavery would have died out on its own.

27. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  If slave owners were rational, and maximizing profit, what factors should determine the price of a slave?  The value of what the slave produces minus cost of maintenance

28. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Value of what the slave produces minus cost of maintenance: Need to estimate:  Pc = price of cotton  MPs = marginal product of slave (how much cotton he produces in year)  Maintenance costs

29. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Use Present Value formula r is the rate of return N = number of years the average slave lives Ps=∑ N t=1 ((Pc * MPs-maintenance cost)/(1 + r) t ) If slave owners are profit maximizers, both the price of cotton and productivity should effect the slave price.

30. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Conrad and Meyer Data They collected data from slave markets. Detailed information about prices and characteristics of slaves recorded and published. They estimate Pc, MPs, N from the data, solve for rate of return

31. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Net Income by Sex and Age Shows the net income a slave owner could expect from a typical slave at different ages. Slaves began to cover their cost of maintenance at an early age—late adolescence.

32. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Rate of Return  Conrad and Meyers found rates of return that varied from 2.2% to 5.4% on poor quality land in South Atlantic area to 10%- 13% in South West.  These rates are comparable to what could have earned on alternate investments such as Railroad bonds.  Slaves were not highly speculative investments.

33. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Rate of Return  Conclusion: Slave prices were rising because productivity in cotton farming was rising  Even though it cost more to buy a slave, the amount of cotton produced per worker was rising, so the plantations would still earn high profits.  This suggests that slavery was not dying out and was still an economically viable institution.

34. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Would slavery have collapsed on its own?  Slavery was profitable and the least cost way of producing cotton  Slavery was not the least cost way of producing other crops and was not profitable in manufacturing.  Not clear it would have ended anytime soon without the Civil War, (but it is also unlikely that it would have expanded beyond cotton production).

35. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Slave Prices in today’s Dollars  In 1860, an unskilled slave in excellent health cost around $1800 in the South.  To gain some perspective, it would help to understand much that is in modern currency.  How can we figure this out?

36. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Converting Prices over Time  To figure out how much something in the past costs in today’s dollars, we need to know the cost of living in the past and compare that to the cost of living today.  Cost of living is measured by the Consumer Price Index (CPI)  CPI: average cost of goods and services that are commonly consumed

37. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Slave Prices in today’s Dollars  We can compare the consumer price index today to that of 1860.  In 2007, the CPI was 25.7 times that of 1860: ($1800)*(25.7) = $46,000 $1800 in 1860 is worth about $46,000 in 2007 dollars

38. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Slave Prices in today’s Dollars  Alternately, we could compare 1860 wage rate to 2007 wage rates.  In 1860 wages were $0.10/hour, similar unskilled wages in 2007 are around $7.50/hour. $1800*($7.50/$0.10) = $135,000

39. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Emancipation Outside the United States  Slavery abolished in British Caribbean and South America mostly before 1850  Emancipation accomplished largely through non-violent methods which included payments to slave owners to compensate them for their financial investments in slaves.  By 1860, America and Brazil are the only major slave-owning countries left.

40. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Constraints on Slavery and Emancipation in the United States  Constitutional Compromise:  Slavery is permitted to continue  After 20 years (1807) slave importation would be prohibited  Assumption: Slavery will eventually die out  1787 Northwest land Ordinance prohibits slavery in the Northwest Territory

41. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Constraints on Slavery and Emancipation  Between 1777 and 1804, eight states had progressed towards eliminating slavery.  Current slaves were not freed,  newborns would become free when they reached adulthood  Must pay their former owners the cost of caring for them as children.  Nothing stopped Northerners from selling their slaves to the South

42. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Constraints on Slavery and Emancipation  The slave owners paid very little of the cost of emancipating the slaves in these Northern States.  Newborn slaves paid the owners their own rearing costs  Male slaves born before the laws were not freed, so the owners took no losses  The value of female slaves fell by about 10%  Also slaves could be sold to the South where they would retain their full value

43. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. A Chronology of Emancipation, 1772–1888 (Continued)