Slavery—Cronyism, Opportunity Cost, & Deadweight Loss

Slavery has existed throughout history in all places and cultures. In fact, while the American South dubbed it the “peculiar institution,” historically, voluntary-free labor is the true peculiar institution. Slave labor was not originally introduced by the political state yet, as with many things, slavery could not have had the scope or extent that it did in human history absent the coercive apparatus of the political state to uphold it. Through cronyism, slaveholders consistently had to seek privileged assistance from the legal system in order to maintain, socialize, and enforce slavery at the expense of the slaves and non-slaveholding population.

The enforcement costs for keeping slaves slaves would have been too high for the minority slaveholding elite to maintain slavery to that extent. As shown previously, especially by Mises, there were near-prohibitive costs to slavery, and it could not compete on a free market with free labor. Therefore, slaveholders constantly sought the intervention of the state to transfer the costs of maintaining and enforcing slavery to others. This would privatize profits for them, while socializing the costs. Historian Paul Johnson, in his A History of the American People (p. 73), wrote,

Much legislation of these years [colonial America] strengthened the hands of the planters against slaves. In Carolina, slavery was an early source of corruption in politics. Slavers were heard to boast that they could “with a bowl of punch get who they would Chosen of the parliament and afterwards who they would Chosen of the Grand Council.”

Cronyism—an alliance of private interests with political elites that uses the state apparatus to benefit or legally privilege private interests (at the expense of everyone else)—was at the heart of the maintenance, enforcement, and expansion of slavery. Because of the inherent initial and ongoing costs of slavery to the slaveholder (let alone to the slave), and the pressures of the free market, those who benefited from slavery constantly had to seek the help of the state to enforce slavery for them. In short, slaveholders had to ally with the state to transfer the costs of slavery onto non-slaveholders if they were to reap any positive profits from the system.

Profitability, Efficiency, & Deadweight Loss

The “profitability” of antebellum slavery is now the mainstream understanding in the economic-historic profession. This is probably mostly due to the influence of Time on the Cross by Fogel and Engerman and subsequent studies. Such assertions, however, often overlook the distinction between profitability and efficiency, opportunity costs, and the concept of deadweight loss. Jeffrey Rogers Hummel, in his “Deadweight Loss and the American Civil War,” argues convincingly,

Southern slavery was indeed profitable but nevertheless inefficient; it operated like other obvious practices — from piracy through monopoly to government subsidies — where individual gains do not translate into social benefits. In the terminology of economics, it was a system that imposed significant “deadweight loss” on the Southern economy, despite being lucrative for slaveholders….

....A recognition of slavery’s deadweight loss has major implications for the origins of the Civil War. Slavery’s survival required extensive subsidies from government at all levels. A federal Fugitive Slave Law was among the most crucial ways that the national government socialized the system’s enforcement.

Yet it is often flippantly claimed that everyone in America benefited from slavery, except the slaves, or that slavery made America rich at the expense of the slaves. Neither of these statements are true. Slavery did exploit the slaves at the expense of others—the slaveholding elite—but, while often profitable for them, it did not benefit everyone except the slaves; nor was it the source of general economic growth. In fact, slavery was costly for everyone—except for a few slaveholding elites allied with the state—and it did not produce greater wealth, rather it was a deadweight loss on the economy.

Opportunity Cost of Slavery—The Unseen

While there was certainly labor production from slavery, what we have to account for is an unseen, incalculable cost of slavery—what could have been alternatively produced by the enslaved people had they been free? Not only would this have been just, but—as opposed to contrasting slavery against nothing—free people and no slavery enforcement costs could have unleashed unrealized economic potential. This is, of course, a counterfactual, but if those slaves had not been coerced to labor and if there had been no enforcement costs, it is reasonable to assume net benefits.

Even if we could calculate the economic output of such a counterfactual economy that did not have slavery, and even if we observed less aggregate economic output in terms of production, we could still assume that this economy would be welfare-maximizing for all involved because it would honor the voluntary labor-leisure choices of its participants. Further, one working voluntarily is likely to work harder anyway. Chattel slavery robs both the slave and the overall economy of what could have been under free labor. Mises writes concerning labor incentives,

If one treats men like cattle, one cannot squeeze out of them more than cattle-like performances. But it then becomes significant that man is physically weaker than oxen and horses and that feeding and guarding a slave is, in proportion to the performance to be reaped, more expensive than feeding and guarding cattle. When treated as a chattel, man renders a smaller yield per unit of cost expended for current sustenance and guarding than domestic animals. If one asks from an unfree laborer human performances, one must provide him with specifically human inducements. If the employer aims at obtaining products which in quality and quantity excel those whose production can be extorted by the whip, he must interest the toiler in the yield of his contribution. Instead of punishing laziness and sloth, he must reward diligence, skill, and eagerness. But whatever he may try in this respect, he will never obtain from a bonded worker, i.e., a worker who does not reap the full market price of his contribution, a performance equal to that rendered by a freeman, i.e., a man hired on the unhampered labor market. The upper limit beyond which it is impossible to lift the quality and quantity of the products and services rendered by slave and serf labor is far below the standards of free labor. In the production of articles of superior quality an enterprise employing the apparently cheap labor of unfree workers can never stand the competition of enterprises employing free labor. It is this fact that has made all systems of compulsory labor disappear. (emphasis added)

Statute Labor—Sheltered from Market Competition

…what government, except one resting upon the sword, like the one we now have, was ever capable of maintaining slavery?—Lysander Spooner

Following the Civil War, abolitionist lawyer Lysander Spooner wrote of the seeming hypocrisy of a war allegedly to end chattel slavery achieved by subjugation. He also argued that the maintenance of slavery could only ever continue through a large, powerful government. What is identified here is that when expensive slave labor systems had to compete with free labor on a free market, it eroded slavery, therefore, to maintain slavery, cronyism was required to legally shield slave interests from the competitive pressures of the market. Mises wrote,

Now, at no time and at no place was it possible for enterprises employing servile labor to compete on the market with enterprises employing free labor. Servile labor could always be utilized only where it did not have to meet the competition of free labor. (emphasis added)

For example, America’s land abundance, labor scarcity, and industrialization—in a free and competitive labor market absent interventions—would have tended to push wages and living standards upward. Such competition was unacceptable to slaveholding interests because it threatened their cronyist profits at the expense of everyone else. Therefore, via law and policy at the local, state, and national level, the slaveholding elite used the government to privatize their profits while socializing their costs (e.g., fugitive slave laws, slave patrols, manumission restrictions, etc.). Writes Mises,

In the American colonies Negro slavery became the standard method of the plantations…. [This system] of unfree labor [was] sheltered by political institutions against the competition of enterprises employing free workers. (emphasis added)

In fact, “the planter aristocracy prevented the emergence of a sufficient supply of free labor and the development of a class of independent farmers.” Not only did such protectionism come with cronyism and costs transferred onto others, it also warped the market by hampering the development of what could have been under a free economy. Unfortunately, slavery—far from being a ruthlessly-efficient aspect of “capitalism”—was withdrawn from the realm of market competition. Mises affirms,

Yet the fact that the enterprises employing unfree labor would not be able to stand the competition of enterprises employing free labor was not contested by anybody. On this point the eighteenth- and early nineteenth-century authors on agricultural management were no less unanimous… But the abolition of slavery and serfdom could not be affected by the free play of the market system, as political institutions had withdrawn the estates of the nobility and the plantations from the supremacy of the market. (emphasis added)

Slavery was not an expression of “capitalist exploitation,” nor was it an inevitable result of a free market. Where slavery continued to exist and expand—even in the presence of mixed free markets and free labor—it was protected and socialized by governments. As Mark Thornton summarizes, “Slavery is found to be theoretically and historically a political institution incapable of existing in open-market competition.”

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