Output Inefficiency.
The slaveholder was like an employer of free labor with extra options. Masters had two ways to motivate their slaves: the positive incentives of free labor or negative incentives employing force and violence.
Slaveholders thus confronted a classic trade–off.
They would tend to choose whichever incentive was cheaper at the margin. Because coercion itself requires labor, as well as other resources, not to mention possible loss of output from injuring or killing the slave, it was not always cheaper than paying an implicit wage. Not all of a slave’s labor was coercively extracted. American slaves not only were fed and housed, but also sometimes received other payments. Slaveholders found positive incentives to be less costly for jobs requiring greater skill, initiative, or self–discipline. In towns and cities, where such jobs were more common, the practice of hiring out slaves and giving them a fixed sum or percentage became well established. Slaves who were skilled carpenters, masons, or other artisans often could “hire their own time,” that is, choose their own employers. Some lived separately from their masters.
Indeed, Time on the Cross initially identified these positive incentives as the source of slavery’s alleged efficiency. But Fenoaltea, “The Slavery Debate: A Note From the Sidelines” (1981), exposed the logical tension in attributing slavery’s productivity to how well slaves were treated. If slave labor was, in fact, more physically productive in agriculture than free labor, this could not possibly be the result of monetary payments to slaves or other positive incentives, because those are the precise incentives slavery shares with free labor. The ability to coerce the slave was its only possible advantage over free labor. Eventually F&E shifted ground by focusing on the gang-labor system that drove slaves to accomplish as much “in roughly 35 minutes as a free farmer did in a full hour.”
The choice between positive and negative incentives depended on the type of work. This divided the Old South’s labor market into three sectors. The sector where positive incentives were less costly was dominated by free labor. In the sector where the trade-off was close, slave and free labor went head-to-head in competition, as among skilled artisans and in southern factories. The labor market’s third sector was plantation agriculture, where motivating workers with punishments was generally less costly. Nearly three-quarters of all slaves toiled in this sector. Plantations run with wage labor were virtually non-existent in all slave societies, and very rare after emancipation.
Because coercion was what made plantation slaves more productive than free farmers, slavery operated like a tax on leisure. 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. This increased labor input caused output to increase but welfare (economic well-being) to decrease. Measuring this welfare loss requires some estimate of the wage a free laborer would have required to be willing to work at the same pace. F&E actually offered such an estimate, using it to derive a total loss of slave income of $84 million in 1850. This was only partly offset by the planters’ gains from the increased cotton output, leaving a total net loss for the southern economy of $74 million, or around 10 percent of the South’s regional income. Hummel, working with alternative estimates from other scholars, comes up with an estimate of the deadweight loss from output inefficiency of between $38 million and $176 million during the same year, 1850. (Note to readers: These numbers may sound amazingly low. Keep in mind, though, that the 1850 dollar was worth approximately 33 times the value of a dollar in 2022 and also remember that the overall southern economy was tiny compared to the one today.)
One confirmation of slavery’s output inefficiency is the post-Civil War’s significant decline in southern output and income per capita. The real value of total commodity output (agriculture, manufacturing, and mining) in the eleven defeated Confederate states did not return to its 1860 level until nearly two decades later and, since population had also risen, real output per person in 1880 was almost 20 percent below prewar levels. Another extended cliometric debate is about the reasons for this. But among the several explanations put forward by economic historians, there is a consensus that wartime destruction cannot come close to explaining the magnitude and duration of this collapse. One factor that clearly played a role, proposed by Ransom and Sutch (1975; One Kind of Freedom, 1977), was the decline in the labor input from former slaves, which fell by almost one-third. This is further evidence that slavery pushed the slaves off their preferred combination of labor and leisure.
The total value of all slaves as of 1860 is estimated at between $2.7 and $3.7 billion, making it one of largest capital assets in the U.S. at the time. Emancipation returned all this human capital from slaveholders to the freed slaves. Despite still facing onerous legal and social disabilities, the former slaves took more leisure. Women and children abandoned the fields and the elderly were no longer required to work, whereas males gained more control over their labor input through sharecropping and other new less-demanding arrangements. Although F&E attributed the resulting fall in output to emancipation’s destruction of plantation agriculture, with its economies of scale, those apparent scale economies were instead the result of overworking the slaves. This explanation is consistent with what happened in other post-emancipation societies, such as Haiti and the British West Indies. In short, one of the major sources of the fall in output is the same as the source of increased welfare.
Indeed, Time on the Cross initially identified these positive incentives as the source of slavery’s alleged efficiency. But Fenoaltea, “The Slavery Debate: A Note From the Sidelines” (1981), exposed the logical tension in attributing slavery’s productivity to how well slaves were treated. If slave labor was, in fact, more physically productive in agriculture than free labor, this could not possibly be the result of monetary payments to slaves or other positive incentives, because those are the precise incentives slavery shares with free labor. The ability to coerce the slave was its only possible advantage over free labor. Eventually F&E shifted ground by focusing on the gang-labor system that drove slaves to accomplish as much “in roughly 35 minutes as a free farmer did in a full hour.”
The choice between positive and negative incentives depended on the type of work. This divided the Old South’s labor market into three sectors. The sector where positive incentives were less costly was dominated by free labor. In the sector where the trade-off was close, slave and free labor went head-to-head in competition, as among skilled artisans and in southern factories. The labor market’s third sector was plantation agriculture, where motivating workers with punishments was generally less costly. Nearly three-quarters of all slaves toiled in this sector. Plantations run with wage labor were virtually non-existent in all slave societies, and very rare after emancipation.
Because coercion was what made plantation slaves more productive than free farmers, slavery operated like a tax on leisure. 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. This increased labor input caused output to increase but welfare (economic well-being) to decrease. Measuring this welfare loss requires some estimate of the wage a free laborer would have required to be willing to work at the same pace. F&E actually offered such an estimate, using it to derive a total loss of slave income of $84 million in 1850. This was only partly offset by the planters’ gains from the increased cotton output, leaving a total net loss for the southern economy of $74 million, or around 10 percent of the South’s regional income. Hummel, working with alternative estimates from other scholars, comes up with an estimate of the deadweight loss from output inefficiency of between $38 million and $176 million during the same year, 1850. (Note to readers: These numbers may sound amazingly low. Keep in mind, though, that the 1850 dollar was worth approximately 33 times the value of a dollar in 2022 and also remember that the overall southern economy was tiny compared to the one today.)
One confirmation of slavery’s output inefficiency is the post-Civil War’s significant decline in southern output and income per capita. The real value of total commodity output (agriculture, manufacturing, and mining) in the eleven defeated Confederate states did not return to its 1860 level until nearly two decades later and, since population had also risen, real output per person in 1880 was almost 20 percent below prewar levels. Another extended cliometric debate is about the reasons for this. But among the several explanations put forward by economic historians, there is a consensus that wartime destruction cannot come close to explaining the magnitude and duration of this collapse. One factor that clearly played a role, proposed by Ransom and Sutch (1975; One Kind of Freedom, 1977), was the decline in the labor input from former slaves, which fell by almost one-third. This is further evidence that slavery pushed the slaves off their preferred combination of labor and leisure.
The total value of all slaves as of 1860 is estimated at between $2.7 and $3.7 billion, making it one of largest capital assets in the U.S. at the time. Emancipation returned all this human capital from slaveholders to the freed slaves. Despite still facing onerous legal and social disabilities, the former slaves took more leisure. Women and children abandoned the fields and the elderly were no longer required to work, whereas males gained more control over their labor input through sharecropping and other new less-demanding arrangements. Although F&E attributed the resulting fall in output to emancipation’s destruction of plantation agriculture, with its economies of scale, those apparent scale economies were instead the result of overworking the slaves. This explanation is consistent with what happened in other post-emancipation societies, such as Haiti and the British West Indies. In short, one of the major sources of the fall in output is the same as the source of increased welfare.
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