The Financial History of Slavery in the United States

 

This post was prompted by Sharon Ann Murphy’s recent publication of "The Financialization of Slavery by the First and Second Banks of the United States," in the Journal of Southern History (Murphy 2021). The paper has been getting a lot of attention on twitter. As it should. But it got me thinking more broadly about the progress that has been made in the last decade or so on the financial history of slavery in the United States.

For a long time, claims about slavery and finance in the United States were more likely to be asserted than established with evidence. This has been changing. Richard Kilbourne (1995) is often cited as a pioneer in the study of finance and slavery, and one of the factors he highlighted was the role of local sources of credit in financing slavery in the United States. Kilbourne had focused on one parish in Louisiana. Bonnie Martin, using thousands of mortgages from Virginia, South Carolina and Louisiana found that the use of credit was pervasive and that much of the finance for local sales came from “neighbors,” often the person selling the enslaved people (Martin 2010 and 2016). Clegg (2018) provided further evidence on slave mortgages and foreclosure sales and argued that the reliance on credit and threat of foreclosure were a significant force driving slaveholders toward capitalist behavior. Murphy examined the impact of such foreclosures during the Panic of 1819 on the lives of enslaved people (Murphy 2020).

While these papers frequently emphasized local finance, studies that focused on the westward expansion of cotton production and slavery were more likely to emphasize the role of nation or even international financial networks and institutions.  Schermehorn, for instance, found that slave traders involved in interstate sales often had to rely on long distance business connections, large banks with correspondents in major cities, and the Bank of the United States to move funds from one part of the country to another.  In Murphy’s recent paper on the First and Second Banks, she carefully documents the many instances in which bankers violated general norms of good banking and the rules of the Bank to support the purchase of plantations and slaves (Murphy 2021b).  Similarly, Saunt showed how financiers in New York and Boston were quick to take advantage of the opportunity to speculate in the new cotton territory opened up by the Indian Removal Act.

Life insurance also exhibited a mix of firms from the North and the South. Life insurance for enslaved people appears to have begun with firms in the South, but later firms from the North offered policies as well (Murphy 2005, and Ryder 2012).

While most studies have focused on how slave based production of commodities like cotton and sugar were financed, several authors have examined the ways in which enslaved people were used to finance other types of ventures.  Gonzalez, Marshall and Naidu (2017) showed how slave ownership, being able to provide enslaved people as collateral, facilitated the finance of other businesses in the Chesapeake. Murphy examines a case in which enslaved people were used directly to finance industrial investment in the South (2021a).

Another line of research that has only recently begun to be explored is the use of credit, and limitations on their access to credit, influenced the economic lives of enslaved people (Hilliard 2013, and Edwards 2021)

And there is more on the way, the Columbia University Press Studies in the History of American Capitalism series has two forthcoming books that explore aspect of financial history and slavery (Boodry forthcoming, and Pardo forthcoming).

         Clearly, a lot of work has been done. Still, it is important to note, as Murphy does, that many of the big questions are still unanswered. If you want to make claims about the relative importance of slavery to financial institutions or the relative importance of financial institutions to slavery, or the relative importance of northern institutions relative to southern Institutions we aren’t there yet. In addition, as with much of the literature on slavery in America, the time before the cotton boom could use more attention.

Boodry, Kathryn. Forthcoming. The Thread: Slavery, Cotton and Atlantic Finance from the Louisiana Purchase to Reconstruction.

Clegg, John J. "Credit market discipline and capitalist slavery in antebellum South Carolina." Social Science History 42, no. 2 (2018): 343-376.

Edwards, Justene Hill. Unfree Markets: The Slaves' Economy and the Rise of Capitalism in South Carolina. Columbia University Press, 2021.

Hilliard, Kathleen M. Masters, Slaves, and Exchange: Power's Purchase in the Old South. Cambridge University Press, 2013.

González, Felipe, Guillermo Marshall, and Suresh Naidu. "Start-up nation? Slave wealth and entrepreneurship in Civil War Maryland." The Journal of Economic History 77, no. 2 (2017): 373-405.

Kilbourne, Richard Holcombe. Debt, investment, slaves: credit relations in East Feliciana Parish, Louisiana, 1825-1885. University of Alabama Press, 1995.

Martin, Bonnie. "Slavery's invisible engine: mortgaging human property." The journal of southern history 76, no. 4 (2010): 817-866.

Martin, Bonnie. "Neighbor-to-Neighbor Capitalism." In Slavery's Capitalism, pp. 107-121. University of Pennsylvania Press, 2016.

Murphy, Sharon Ann. "Securing human property: Slavery, life insurance, and industrialization in the upper south." Journal of the Early Republic 25, no. 4 (2005): 615-652.

Murphy, Sharon Ann. "Collateral Damage: The Impact of Foreclosure on Enslaved Lives during the Panic." Journal of the Early Republic 40, no. 4 (2020): 691-696.

Murphy, Sharon Ann. "Enslaved Financing of Southern Industry: The Nesbitt Manufacturing Company of South Carolina, 1836–1850." Enterprise & Society (2021): 1-44.

 

Murphy, Sharon Ann. 2021. "The Financialization of Slavery by the First and Second Banks of the United States." Journal of Southern History, 87 (3) 385-426.

Pardo, Rafael. The Color of Bankruptcy: Financial Failure and Freedom in the Age of American Slavery.

Ryder, Karen Kotzuk. “Permanent property”: Slave life insurance in the antebellum Southern United States, 1820–1866. University of Delaware, 2012.

Saunt, Claudio. "Financing Dispossession: Stocks, Bonds, and the Deportation of Native Peoples in the Antebellum United States." Journal of American History 106, no. 2 (2019): 315-337.

Schermerhorn, Calvin. "Slave Trading in a Republic of Credit: Financial Architecture of the US Slave Market, 1815–1840." Slavery & Abolition 36, no. 4 (2015): 586-602.

 

P.S.

 Its not really relevant to the post, but I found Saunt’s paper particularly interesting because I had written about some of the same New York businessmen using the same sorts of finance to speculate in lands in western New York in the 1830s. Hansen, B. Institutions, Entrepreneurs, and American Economic History: How the Farmers’ Loan and Trust Company Shaped the Laws of Business from 1822 to 1929. Springer, 2009.

 

And, I apologize in advance to anyone that should have been included but was not and to anyone who was included but whose work I failed to accurately or adequately portray.

Stelzner and Beckert on the Contribution of Enslaved Workers to Output and Growth

 

There is a new working paper by Mark Stelzner and Sven Beckert The Contribution of Enslaved Workers to Output and Growth in the Antebellum United States that attempts to estimate the significance of enslaved labor to the American economy. The essence of the approach is to use slave prices to estimate slave production. The price of a slave should reflect the value of output that the enslaved person is expected to produce. They then use estimates of production in 1839 and 1859 to estimate the contribution to growth.

My initial reaction is that recognition that cotton was not the only good produced by enslaved people is long overdue, and their approach generally makes sense, though I need more time to consider the specifics. And I find the results plausible. 

That said, their estimate of the percentage of commodity output attributable to enslaved people seems somewhat low. They state that “For the United States as a whole, slaves created between 14.8 and 16.5 percent of total commodity output in 1839 and between 13.0 and 14.8 percent in 1859.” Enslaved people only accounted for 12% of the population, so why would I regard this estimate as low? While enslaved people accounted for about 12% of the population in 1859, they accounted for 21.7% of the labor force. Given that enslaved people were engaged primarily in commodity production, I would have expected their share of commodity output to be close to their share of the labor force. The difference may arise from the fact that much of the over-representation of enslaved people in the labor force comes from women and children being forced to work at higher rates than free people. Their estimates are actually very close to the share of the male labor force accounted for by enslaved men: enslaved men accounted for about 13.6% of the male labor force (labor force share are from Historical Statistics Millennial Edition Tables B11-10 and Ba 40-49). To the extent that the women and children were less involved in commodity production and their prices were lower than for adult males the estimation procedure would lead to estimates of output share that are less than the labor force share. The bottom line, however, is that their estimates of the commodity output share attributable to enslaved people is similar to estimates of the percentage of the labor force accounted for by enslaved people.

Although I find the results reasonable, I was surprised by the authors claims about their implications. They seem to suggest that it provides support for the earlier claims of Baptist and Beckert and refutes their critics. In conclusion, they state that “These estimates do not consider economic activity, like in insurance, banking, transportation and industrial sectors that were stimulated by the slave economy, and thus represent a lower bound estimate for the overall importance of slavery. However, they do show, as argued by Du Bois (1935), Callender (1902), Schmidt (1939), North (1961), Darity (1990), Johnson (2013), Beckert (2014), Baptist (2016), Beckert and Rockman (2016), and Stelzner (2020), that slavery was important historically for US economic development.” In other words, they frame their argument against a straw man who claims that slavery was unimportant instead of framing it against actual people who criticized claims by Baptist, Beckert and others that slave produced cotton was not just important but was the driving force behind economic growth, accounting for nearly half of all output. Ironically, they even criticize scholars who challenged claims about slave produced cotton as the driving force of economic growth for focusing too much attention on cotton. Although, I agree that the history of slavery in American economic development needs to move beyond cotton, if you are going to make misleading claims about the cotton economy you should expect people to challenge them with evidence about the cotton economy.

The claims about slave produced cotton being the driving force behind growth rely on the theory that there were large spillovers from cotton onto the rest of the economy. Many recent historians of slavery and the economy cited Douglass North’s theory that interregional trade linkages made cotton exports the driving force behind growth (this is also the argument of Callender and Schmidt). But research in the 1960s and 1970s had already shown that the available evidence did not support the argument. More recently arguments about linkages have shifted toward finance and services, but the evidence on these linkages remains largely anecdotal. That these connections were large has been asserted rather than established. To the best of my knowledge, quantitative estimates of their significance are still lacking. As they note in their conclusion, Stelzner and Beckert do not provide any evidence regarding them.

In sum, the paper provides a new approach to estimating the economic significance of slavery that begins with the labor of enslaved people rather than the production of specific goods. It finds that that the contribution of enslaved people to production was similar to their share of the labor force, which seems reasonable to me. It does not, however, provide any support for the theory that Baptist and Beckert built their original stories around?  In fact, to the extent that the share of commodity production is less than the share of the labor force one might regard the result as consistent with arguments about the negative economic effects of slavery.

Jonathan Levy's Ages of American Capitalism: My Second Impression

 

I finally finished grading and had a chance to read a bit more of Levy’s Ages of American Capitalism. I finished the Age of Capital but still have ages of control and chaos to get through. These may take a while; the closer we get to now the less history interests me. In the meantime, I’ll provide my second impression on the book. See here for the first impression.

 

As a reminder, Levy is trying write a story of American economic history that is more engaged with economics than previous work in the New History of Capitalism (by the way, I think this criticism was probably more valid when Levy began the book than when he finished it) and is organized around three theses.

Thesis #1: “Rather than a physical factor of production, a thing, capital is a process through which a legal asset is invested with pecuniary value in light of its capacity to yield a pecuniary profit.”

Thesis #2 “Capital is defined by the quest for pecuniary profit. Without capitals habitual quest for pecuniary gain there is no capitalism. But the profit motive of capitalists has never been enough to drive economic history, not even the history of capitalism.”

Thesis #3 The history of capitalism is a never-ending conflict between short term propensity to hoard and the long term propensity to invest. This conflict holds the key to explaining many of the dynamics of capitalism over time, including its periods of long term economic development and growth, and its repeating booms and busts.”

 

To a great extent, Levy lives up to his statement that he wants to engage more with economics than previous work in the new history of capitalism. I thought that this was particularly true in the chapters on the antebellum economy. Much of his interpretation is consistent with the work of economic historians, many of whom he cites; he does a good job describing free banking and general incorporation, the role of state and local governments in supporting transportation improvements, and the importance of intraregional trade in the economic development of the Northeast and Mid-Atlantic. He seems to side more with economists than historians like Baptist on the sources of productivity increase under slavery in the South. He accepts Fogel’s gang system thesis about productivity of enslaved labor in the South, but notes that the thesis is not universally accepted, noting in a footnote that Gavin Wright has challenged it.

 

On the other hand, I still believe that Levy’s approach to capital is problem. He rejects the definition of capital as a factor of production and the economic models that go with that definition. He insists that capital is a process not a physical thing, but he then presents a story of economic growth that is driven by investment in physical capital, largely ignoring another source of growth: technological change. The problem with this approach becomes particularly apparent when Levy gets to his interpretation of the Industrial Revolution.

Levy suggests that the industrial revolution began in Great Britain in the 1700s and that the U.S. joined its second wave. That sounds okay, but he puts the Industrial Revolution in the U.S. after the Civil War, which is much later than most economic historians would place it. U.S. manufacturers were copying British innovations in textiles by the 1790s, and by the early decades of the 19^th century, they were developing their own innovations, such as the Blanchard lathe for woodworking. 

 

Its not just a difference in timing. Levy defines the Industrial Revolution differently than most economic historians. Economic historians have traditionally defined the Industrial Revolution in terms of technological change. Specifically, changes in technology that increased productivity by allowing people to replace human action with machines and power from animate sources, human and animal, with power from inanimate sources. but as I pointed out before, technological change does not play a significant role in Levy’s story.  

According to Levy: “The best possible definition of industrial revolution, in general, is the process by which the pattern of investment definitely shifts into intermediate capital goods, breeding new economic habits (236).” It is not clear to me what “the process by which the pattern of investment definitely shifts into intermediate capital goods, breeding new economic habits” means.  Whatever it means it is about capital and not about technological change. Perhaps not surprisingly, this emphasis on Keynesian economics and investment in physical capital lead him down a path already trod by Walt Whitman Rostow. Levy explains that: “There is more productive capital in the hands of the same workers. Labor productivity increases and over time enterprises generate more wealth, as money incomes, however distributed, multiply. At a certain point in the process a threshold is reached; there is no going back (236).” One might as well say that there is takeoff into self-sustaining growth.

 

His emphasis on physical capital also leads to what I regard as an odd choice about how to approach his second thesis. Recall that the second part of thesis 2 was that “the profit motive of capitalists has never been enough to drive economic history, not even the history of capitalism.” This is an interesting claim that could be taken in a number of directions. One of the directions he appropriately follows is the role of government in promoting growth. But another direction he takes it is an insistence that people like Carnegie, and Ford were driven not just by a desire to profit but by the desire to make something. In his treatment of entrepreneurs, like Carnegie and Ford, he emphasizes their willingness to make large investments in fixed capital because they wanted to make things, rather than the technological innovations embodied in this capital. At times he comes close to a traditional great man theory of economic development, in which the vital few drive growth. For Levy, however, their greatness arises not from the innovations in products and processes that they implemented but from their willingness to sacrifice liquidity and make large fixed investments. Nevertheless, it is the psychological characteristics of these individuals that are used to explain large economic changes, rather than the constraints and opportunities that they faced. The approach also seems to imply that they needed to have this desire to make something to keep them from simply focusing on financial manipulation to make profits. Carnegie, Ford, and Rockefeller were, however, the wealthiest people in the country. America’s most prominent financier, J.P. Morgan, may have rivaled them in fame but not in wealth.

 

 

 

 

I also noted some additional errors or problems with citations in the book:

Referring to people like Gould, Vanderbilt and Drew he states that “They manipulated finance to enrich themselves.” Levy cited page 167 of Lindert and Williamson Unequal Gains. The closest thing I could find on page 167 was “the property share of income(and wealth) rose, and property income became more unequally distributed..”

 

In his discussion of slavery, he uses the term sunk cost to refer to fixed costs. Fixed costs are costs that do not vary with the level of output; they are fixed. Usually, things like buildings and equipment are fixed.  Sunk costs are costs that are not recoverable. To the extent that you can sell the building and equipment you can recover those costs; they are fixed but not sunk. If you spend $50,000 and three years getting a law degree those costs are sunk. You cannot recover them. Unlike the building and equipment, you cannot sell your degree to someone else to recover the cost. Enslaved people were a fixed cost, but not a sunk cost. As Levy himself points out they were among the most marketable assets.

 

“River steamboats clocked twenty miles an hour (116).” There is no citation. By 1860, the fastest steamboats on the Hudson could do twenty miles an hour, but Levy is talking about steamboats on the Ohio and the Mississippi in the 1830s. Even in 1860 the average speed would have been closer to half that (see Taylor Transportation Revolution 60 and 138).

 

Page 95 Writing about the years from the end of the War of 1812 until the Panics of 1837 and 1839 he states that “the commercial economy expanded likely in excess of 1.5 percent GDP per capita per year.” He cites pages 96-141 of Lindert and Williamson. I would prefer a more precise citation. I am also not sure what it means for the commercial economy to expand in excess of 1.5 percent GDP per capita per year. Is it the same as GDP per capita increasing at 1.5 per year. If so, why not just say that? It is possible to find periods of 1.5 % growth in per capita GDP during those years, but you have to carefully select the beginning and end dates, e.g., 1823-136 will do the trick, but the rate for the entire period was about half that.

 

On page 235 “A farmer might harvest wheat and selling it in a competitive market, earn a higher money income, but that would be the end of it. By contrast Carnegie manufactured steal. Steal an “intermediate” or “capital good” multiplied a whole series of backward and forward linkages, fostering downstream demand for coal and coke, as well as for the components of his factories, while supplying, upstream, goods for railroad corporations and the construction industry.” The obvious problem here is that wheat is an intermediate good, giving rise to demand for reapers and threshers and later tractors, and supplying upstream goods for bakers and manufacturers like the National Biscuit Company (Nabisco).

 

Levy also cites me. Which is nice. Unfortunately, the citation is a little misleading. On page 315 Levy was describing how Morgan reorganized railroads and wrote that “First, Morgan bankers placed the railroad corporations in preemptive bankruptcies called “friendly receiverships,” perfecting a legal technique employed by Jay Gould during the 1880s.” he cites my paper "The people's welfare and the origins of corporate reorganization: The Wabash receivership reconsidered." The Business History Review (2000): 377-405.  My paper, on the other hand, argues that Gould’s role in the development of receiverships was over-estimated. Specifically. I argued against an interpretation of the development of railroad receiverships first put forward by Albro Martin and widely adopted by other historians. Martin placed Gould at the center of the development of railroad reorganization, arguing that at Gould’s direction Solon Humphreys, a director and former president of the Wabash, St. Louis and Pacific Railway, went into a federal court and asked to have the company, which had not yet defaulted on its bonds, placed in receivership and that he be made the receiver. Martin claimed that these actions were unprecedented, that before this if a company defaulted the creditors went into court and obtained a receiver to look after their interests. But Martin had relied upon a law review article by an attorney who lost a case over the receivership to support the claim that these actions were unprecedented. I showed that far from being unprecedented, these actions were the norm and had been since before the Civil War. Courts had adopted the rationale that railroads were quasi-public, they had been chartered by states to provide transportation services for their citizens and they were damn well going to do that. I do appreciate the citation, but I suspect Levy may have remembered the wrong Business History Review paper. Peter Tufano’s "Business failure, judicial intervention, and financial innovation: Restructuring US railroads in the nineteenth century." The Business History Review (1997): 1-40 focused on Morgan’s actions in reorganizing railroads. It would have been the perfect citation.

 

In sum, my reading of the book so far continues to be that it has both strengths and weaknesses. I haven’t yet decided which way the scales are tipping. On to the Ages of Control and Chaos.