Reading the Classics in Economics

This a the blog version of a tweet thread from earlier today. It was prompted by tweets by Florian Ederer listing the classic texts he had not read and essentially arguing that everything essential is in current graduate textbooks.

 

Smith’s Wealth of Nations: I read it all, and I can’t say I recommend that. On the other hand, the first two chapters are still one of the best descriptions of markets as a means for large numbers of people, who don’t even know each other, to cooperate in ways that make them all better off. By the way, unlike the book, the chapters are very short. It is free at econlib.org

 

Marx’s Das Kapital: Read the first volume. Maybe the good stuff is in the later volumes. I do recommend The Communist Manifesto as a short clear introduction to his theory of history.

 

Keynes General Theory of Employment, Interest and Money: I read it but can’t say that it had much of an impact on me. It may be that I had encountered most of the interesting ideas before and just found the book a slog. Some people regard Keynes as a great writer, but I didn’t think the General Theory provided evidence of that.

 

Schumpeter’s Capitalism, Socialism and Democracy: I read it. You should read Schumpeter, but the best place to start is his “The Creative Response in Economic History” in the Journal of Economic History (1947).

 

Hayek’s Road to Serfdom, Friedman’s Free to Choose and Capitalism and Freedom. Read them all. First two are quick reads. Best reason to read them is to see that while the authors were pro market they were not as anti-government as many of their followers.

 

Veblen. I’ve read Theory of the Leisure Class and Theory of Business Enterprise, and several of his papers. I do recommend Theory of the Leisure Class, but don’t read it for the social criticism, as many people have. Read it for the argument in favor of a broader economics. Veblen is arguing that you can’t just study the choices people make, given tastes, technology, and resources. You need understand how tastes, technology and resources change over time.

Does all this make me a better or worse economist? I have no idea. I read them to satisfy my own curiosity. In retrospect some of the time spent on Smith, Marx and Keynes could have been better spent on something else.

I think Ederer was in a way correct. The essentials of current economic theory and empirical research methods are in the graduate level textbooks. A person can become a successful economist without reading older texts, but that does that mean they shouldn’t read any of the classics.

 

I think it would be good for economics if economists learned that what are considered legitimate questions and methods in economics have changed over time. The appropriate set of questions and the appropriate methods for answering them are part of the culture of the discipline, a culture that evolves over time. Current textbooks provide a very limited view of what it means to study how people choose to allocate scarce resources.

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.