Review of Austrian Economics

Slavery, Profitability, and the Market Process

Mark Thornton

The economic interpretations of the slave economies of the New World, as well as those social interpretations which adopt the neoclassical economic model but leave the economics out, assume everything they must prove. By retreating from the political economy from which their own methods derive, they ignore the extent to which the economic process permeates the society. They ignore, that is, the interaction between economics, narrowly defined, and the social relations of production on the one hand and state power on the other.1

Introduction

The most significant recent development in the study of economic history has been the investigation of the profitability of American slavery made famous in Robert Fogel and Stanley Engerman’s Time on the Cross. Their book not only rewrote the history of antebellum slavery, it ushered in a completely new methodology of economic history: the cliometric revolution.2 The book was also very well received by the media, something extremely rare in an academic study.3

Although often obscured in the technical terms of the scholarly debate, the profitability thesis provides an ex post facto justification for the Civil War, one of the most destructive and significant events in American history. From this justification perspective, slavery was profitable and would have continued indefinitely had it not been for the Civil War. Therefore, the Civil War is the primary motive for debating the profitability of slavery. Was slavery the cause of the Civil War? Would slavery have eventually collapsed without the war? Or would it have continued? As Gavin Wright, the noted economic historian, put it, “The knowledge that slavery would not have died out through purely economic mechanisms may relate to the historical ‘necessity’ of the war.”4

This relationship between the profitability of slavery and the Civil War underlies a more general relationship between the evils of slavery and the market. The literature clearly implies that slavery was an institution of the market and was sustained by market forces. In other words, the bounty of freedom was delivered on the backs of slaves. We are left with the apparent contradiction: “How is it that the arrangement that produced one of the great examples of a reasonably free market system also produced one of the most pernicious examples of a slave labor system?”5

The profitability thesis provides one resolution to this contradiction by accepting the Civil War as a political solution for a market-created problem of slavery. According to this revisionist thinking, America’s bloodiest and most destructive conflict becomes the solution to the vexing problem of the morally intolerable institution of slavery.6

This paper offers an alternative explanation of the profitability of slavery that is consistent with traditional history and economic theory. This explanation, based on economic theory, finds the profitability thesis wrong where it is relevant and irrelevant where it is correct. This explanation disputes the implications that slavery and the slave trade are market phenomena and that slavery was “profitable.” Slavery is found to be theoretically and historically a political institution incapable of existing in open-market competition.7

Slavery is demonstrated to have survived in the antebellum South, not because of the market, but because political forces prevented the typical decay and destruction of slavery experienced elsewhere. Modern slavery was abolished throughout the remainder of the Western world without deadly civil war among free people. Brazil, the largest slave state, became the last American country to abolish slavery in 1888. In ancient Greece and Rome, slavery was viewed as a temporary status as slaves were often encouraged to buy their freedom. These slave systems, like the indigenous African variety, could only be sustained through a continuous influx of new slaves obtained through war.

State slave codes restricted and prevented the market-based method of emancipation and therefore precluded a general emancipation of slaves. More precisely, two typical state statutes that significantly reduced the private costs of slavery are shown to have been largely ignored, thereby propagating the impression of slavery’s efficiency. Specifically, slave patrol statutes socialized the costs of policing slavery and recapturing runaway slaves by drafting non-slave-holders into slave patrols. Second, state statutes prohibited or effectively restricted private manumission of slaves. Combined with statutes that prevented immigration, required emigration, and restricted the movement and rights of free blacks, the slave codes significantly reduced the costs and risks of the slave owner by reducing and socializing the enforcement costs of slavery.8

Time on the Cross:
The Profitability of Slavery

Who would have thought that the development of the computer would have a major impact on the historical interpretation of slavery? When Alfred Conrad and John Meyer (1958) published their article, “The Economics of Slavery in the Ante Bellum South,” they did just that.9 Not only had they established a new view of slavery, they had inaugurated the cliometric era in the study of economic history. Their computer-processed calculations have become the foundation for the revisionist view that slavery was a profitable institution of the market.10

Prior to Conrad and Meyer, the major body of professional opinion held that slavery could not compete against free labor. “On this point the eighteenth and early nineteenth-century authors on agricultural management were no less unanimous than the writers of ancient Rome on farm problems.”11 With reference to the antebellum period, U. B. Phillips found that slaveholding was “essentially burdensome,” and that the system of slavery was an “obstacle to all progresss”12 The world-wide collapse of slavery combined with economic opinion arid Southern experience to substantiate the traditional view that slave labor could not compete with free labor.13

The first major assault on the traditional view of slavery was Kenneth Stampp’s The Peculiar Institution (1956), where Stampp argued that slavery was a profitable institution. The profitability of slavery was the testable proposition that Conrad and Meyer employed the computer to solve, sending methodological shockwaves through academia that ripple on to this day. The empirical literature questioning and confirming the view that slavery was profitable continues to grow.14

Stampp has also argued that slavery was a key factor in the economic growth of the antebellum South. In 1961, Douglass North published his influential The Economic Growth of the United States, 1790–1860, where he concluded that King Cotton not only stimulated economic development in the South, but that it was the leading force in the expansion of the entire American economy. This two-pronged attack was so successful that, according to Ransom, the views of U. B. Phillips were “almost totally abandoned.”15

The pinnacle of this revolution was the publication of Robert Fogel and Stanley Engerman’s Time On The Cross. Based on an historical method that relies on “technical mathematical points” and the discovery of new data, this approach brought Southern antebellum slavery from a burdensome system to one that is now considered to have been more profitable and efficient than the free labor system of the North.

Fogel and Engerman’s principal contribution was to find that slavery was highly profitable and 35 percent more efficient than northern family farming. They found that slavery also worked well in the cities. Indeed, as the antebellum South grew rapidly, slavery became ever more entrenched and slaveholders anticipated unprecedented prosperity on the eve of the Civil War. They found slaves to be hardworking, highly motivated, and more efficient than their white counterparts. They found that the general condition of the black family, specifically the extent of sexual exploitation, promiscuity, and slave breeding, to have been greatly exaggerated or untrue. In fact, the material conditions of the slave did not differ substantially from that of the free laborer. They estimated that the slave was allowed to keep 90 percent of lifetime productivity (only 10 percent exploitation) and that the use of whippings was largely kept to a minimum.

Fogel and Engerman’s primary objective was to establish the “record of black achievement under adversity.” Among the major historical contributions to slavery, Aptheker created the archetype of the rebel, Elkins created the Sambo, and Stampp created the timid rebel. Fogel and Engerman introduced a Horito Alger characterization of the antebellum slave, and while this is surely an exaggeration of fact, the notion of a productive, managerial, and incentive-responsive slave is an important addition to our understanding of the diversity of antebellum slavery. Unfortunately, this historical typecasting, as if one were casting for a movie, is both unnecessary and misleading from an economic perspective. A variety of slave types did of course exist in the antebellum South, differing within and across plantations, states, and time.

Fogel and Engerman’s overriding concern with demonstrating the record of black slave achievement tends to confuse the evaluation of the institution of slavery. In the antebellum debate, economic development was the primary economic concern while individual profitability was considered neither an effective defense nor an effective indictment of slavery. The economic argument against slavery emphasized the inferior nature of slave labor, restrictions on entrepreneurship, and the constraint that slavery placed on capital accumulation. Rather than refuting these accusations directly, the antebellum defenders of slavery, like Fogel and Engerman more than a century later, argued that slavery made the Negro more productive and that slaves were better cared for than free labor in the North.

Fogel and Engerman state that their “cliometric research has served to emphasize the deeply moral nature of the antislavery crusade.”16 However, rather than clarifying matters between ethics and economics, Fogel and Engerman have only added (unintentionally) to the condemnation of the market economy by implication. In their Time, it was the market economy that created and sustained slavery. While implications are difficult to prove, some indication may be gleaned from their chapter headings and subheadings, such as “The Level of Profits and the Capitalist Character of Slavery.”17 Based on his thorough empirical critique of Fogel and Engerman’s Time on the Cross, Herbert Gutman describes their primary message as follows:

The enslaved and their owners performed as actors and actresses in a drama written, directed, and produced by the “free market.” That is the main theme of Time on the Cross, its essential message.18

Fogel and Engerman are clearer about the implication of their research on the crucial association between profitable slavery and the Civil War. They found that the percentage of free blacks in the population was shrinking and that there was nothing in the statistical record “to encourage the view that southern slavery was on the brink of its own dissolution.”19 The fact that slavery was profitable “punctured the claim that the Civil War was a tragic blunder.” Slavery was not to expire due to economic causes but from “econocide . . . a political execution of an immoral system at its peak of economic success, incited by men ablaze with moral fervor.”20

A storm of protest developed in the wake of the publication of Time on the Cross. Virtually all of the prominent economic historians of the Civil War joined the debate with the combined assault leaving little of Fogel and Engerman’s startling conclusions and extensions intact. Their most fundamental problem was said to be systematic errors and misuse of “fact.” A second set of problems centered on the misspecification and limitations of models they developed. Even when properly specified, their models often failed to address the issues they wished to consider or failed to support the types of comparisons they proposed, such as comparing northern and southern farming. A third problem with Time was that the conclusions which the authors wished to make about the characteristics of the antebellum slave and slaver were not necessarily warranted on the basis of the evidence.21

It is beyond the scope of this paper to repeat all the previously published critiques of Time. The sheer number and detail of these critiques testify both to the importance and the extent of error in Time. Some introduction, however, is in order. Gutman, for example, concludes that on important matters of fact the conclusions of Fogel and Engerman are:

based upon flawed assumptions about slave culture and slave society, based upon the misuse of important quantitative data, or derived from inferences and estimates that are the result of a misreading of conventional scholarship.22

The full import of the Time perspective is captured by noted social historian, Kenneth Stampp:

Fogel and Engerman appear to be so preoccupied with the efficiency of slave agriculture that they disregard irrationality, friction, and conflict. As a result, two cliometricians who want to restore to blacks their true history in slavery have written a book which deprives them of their voice, their initiative, and their humanity. Time on the Cross replaces the untidy world of reality, in which masters and slaves, with their rational and irrational perceptions and their human passions, survived as best they could, with a model of a tidy, rational world that never was.23

It is worth noting one particular example of factual error which indicates the types of problems in Time. Fogel and Engerman reported that according to 1860 census data there were no slave prostitutes in the city of Nashville, a “fact” that would support their claim that sexual exploitation by whites and promiscuity among blacks had been exaggerated. However, according to the same census, no occupation is listed for any slave in Nashville. The census simply did not list slave occupations.24

Time on the Cross which debuted to much fanfare and suffered the torture of a thousand cuts, is still remarkably well regarded in the profession. The authors may have silently (or partially) conceded most of their primary “corrections to the record,” but Time remains the most generous evaluation of slavery and the authors remain standard bearers of both the cliometric methodological revolution and the profitability thesis, both of which continue to dominate the profession. However, with the dust settled, a primary target of this paper, the profitability thesis, can be examined in specific detail.25

Profitability and the Economic Theory of Slavery

Harold Woodman proposed a crucial methodological question when he asked, “Can the economics of slavery be discussed adequately in purely economic terms?”26 On one hand, general agreement could be reached on the point that the question of slavery cannot be “decided” solely on the basis of economic considerations. On the other hand, it can be argued that slavery has never been discussed in purely economic terms.

The literature on the economics of slavery, for the most part, covers the history of an institution that had important economic consequences, rather than theoretically examining the institution from the strictly economic perspective. Economists of the cliometric bent and otherwise have largely followed the lead of historians. Their contribution has been to mechanize, test, and rewrite history.27 Little remains of the profitability thesis except that investment in slaves might have earned a “normal rate of return.” This is what an economic theorist would expect, but this is no defense of the viability of slavery. The contributions of Fogel and Engerman concerning slave treatment, productivity, etc. while overstated, can be usefully employed in this and the following section to show how the market process undermined the institution of slavery.

First of all, it should be understood that slavery is a political institution that is based on the use of force, not contract.28 Unfortunately, it is not obvious enough that there is a world of difference between making contracts involving the exchange of labor for money and the institution of slavery where the individual is completely and perpetually subordinated to an owner or master. Market exchanges are voluntary with wages accepted demonstrating the highest valued option. Likewise, it is illogical to argue that an individual can voluntarily sell oneself into slavery. Such an arrangement is not contractual because no matter how willing the “slave” is, individuals are incapable in fact of permanently and completely transferring their will and of preventing a change of mind in the future. Labor is alienable, the individual’s will is not.29

While this logic is virtually indisputable it is also practically irrelevant because slavery is typically not of the “voluntary” type. Indentured servitude was popular as people fled the repressive conditions of Europe for the freedom and opportunity of the colonies. However, this market-based approach did not result in slavery in the accepted use of the term, and as Eric Williams described, “[t]his temporary service at the outset denoted no inferiority or degradation.”30 While this capitalistic approach did not result in slavery in fact, it did take on many appearances of slavery under the watchful eye of the Colonial Board which was established in 1661 under the leadership of the King’s brother in order to “control” the trade.31 Nonetheless, real slavery as we understand it is not a result of voluntary agreement.

The African slave trade is often thought to have been introduced by Europeans as an instrument of capitalistic aggression. However, Robin Law has clearly shown that slavery existed in Africa long before contact with European traders.32 In fact, slavery was a central, indeed prominent, institution of African statecraft.

Prior to extensive European contact, Slave Coast states closely controlled their societies, including the emerging marketplace. The state, led by an hereditary “king,” was based largely on militarism geared for the personal material gain of the leaders of the state. At the heart of their motivation, as exhibited even in their military tactics, was the taking of captives for sale as slaves.33 The absolutism of this form of slavery was amply demonstrated by their brutality and aggression against slaves. Some of the captives from the losing army would be tortured and decapitated with the head presented to the victorious army’s king. Presumably, many of those tortured and killed had been injured during the battle and were therefore of little economic value to the victors.34

This form of absolute slavery was supplemented by the more general slavery of the populace. Indeed, the head of all inhabitants “belonged” to the king. This established the right of the king to all persons, places, and possessions throughout the kingdom. It was also the basis of the king’s right to administer “justice.”35 Of course the normal measures of partial slavery, such as forced labor and taxation, were a normal part of Slave Coast life.36

Originally, it was believed that the militarism and slavery exhibited in the development of the Dahomian state was the result of European contact.37 However, these traits existed in the predecessor states of Allada and Whydah. Militarism “clearly had its roots in the political culture of these earlier kingdoms.” In fact, when the Portuguese began trading in Africa in the 1480s, they purchased slaves largely for resale within Africa.38 Therefore, while the rise of the Dahomian state may in part be attributed to European contact and the expansion of the Atlantic slave trade, it would be incorrect to impart the total responsibility on the Europeans.39

The Atlantic slave trade, rather than being the result of a market process, developed under the confluence of two non-market factors. First of all, slavery already existed in the tribal African societies, which were the sources of slaves, before the arrival of Europeans. Second, the slave trade was not founded by private firms but was established by the colonial powers which instituted monopolies to exploit the indigenous slavery. The Dutch West India Company was chartered in 1621, and the Royal Company of Adventurers for the importation of Negroes was formed in 1662 (Royal African Company). These organizations were companies in name only. They were governmental military structures that had been organized on the basis of the profit motive to allow for independent decision making on locations in Africa which were too distant from Europe for direct control. Under these conditions, they were able to maximize their efficiency in generating slaves, revenues, and domestic influence. Therefore, while it is true that the “Negroes therefore were stolen in Africa to work lands stolen from the Indians,” it would be more accurate to place most of the blame for these crimes on the governments involved.40

One area of general confusion among economists and other social scientists concerns the origins of slavery in the American colonies. This confusion is amply exhibited by Thomas Sowell who states that, “It is not known when slavery began, because the first captured Africans became indentured servants, like an even larger number of contemporary whites.”41 It should have been obvious to Sowell that slaves, not free labor, must be captured. The general confusion on this issue most likely arose from a debate about the dating of the origins of American slavery, a debate which was itself ignited over concern about modern race relations rather than the historical record. This “debate” might never have developed, if historians had depended more on the facts rather than on “interpretation.” There is no persuasive evidence that Negroes were ever treated like white servants upon their arrival in 1619 and 1640 when their status as slaves was first indicated in legal records.42

What is certain is that they were slaves before they arrived in America. Because slavery was not accounted for in British common law, it is logical that the legal system of slavery developed only after the importation of African slaves. The legal structure that attended the introduction of African slaves took time to develop, developing first in custom and then in law. “[I]n short slavery as Americans came to know it, was not accomplished overnight.”43

It was also accomplished with the help of various government programs and subsidies. For example, a British Parliamentary subsidy for American indigo was a primary reason for the proliferation of slavery in South Carolina. According to Rosengarten, it was not until England enacted a subsidy for Carolina indigo, in order to suppress indigo from the French West Indies, that the black slave population expanded and surpassed the white population in the sea island region. The subsidy was of course revoked during the American Revolution, but it left behind “a social structure and a labor routine,” that is, a slave-based economy.44

The basic analysis of slave versus free labor is well known. Contractual labor represents a symmetrical relationship that involves a coordination of individuals’ values, efforts, abilities, and resources. Slave labor is an asymmetrical relationship of domination and subordination. Slave labor can possibly be efficient for the slave owner, but cannot be viewed as such for the slave or for society as a whole.45

In a market economy, all market participants perform economic calculations, but in the slave economy only the slave owners are allowed to perform such calculations. We therefore expect less calculation and entrepreneurship in the slave economy. Slave labor within a market economy does however have a special advantage over the socialist economy. Slaves in a market economy are viewed as a capital asset and typically put to their highest valued market use. Therefore, the slave is protected against depreciation and often targeted for appreciation. Slaves in a socialist economy, where there is no ownership, are typically viewed as a consumption item to be depreciated. The free-market orientation of the antebellum economy is a necessary prerequisite for the success of antebellum slavery and appreciation in the slave population and slave standards of living.46

The productivity of slaves is less than that of free labor because in slavery productivity is dissociated from economic reward. The competitive disadvantages of slave labor are revealed when the requirements of labor begin to exceed those of draft animals. One common means of improving productivity, especially popular among governments which own slaves, is the infliction of punishment for unsatisfactory results. This method has the disadvantage of increasing the costs of operations and the depreciation of the slaves, both in terms of productivity and market value.47 According to Ludwig von Mises:

experience has shown that these methods of unbridled brutalization render very unsatisfactory results. Even the crudest and dullest people achieve more when working of their own accord than under the fear of the whip.48

In order to stimulate “working of their own accord,” owners must offer incentives for productivity and loosen the bonds of slavery. The more productive and capital-using applications of labor require even greater incentives and freedoms if the master is to expect effective decision making and care of his physical capital from the slave. The self-interest of the master therefore can reduce the degree of slavery, resulting in a relationship that resembles family or friendship rather than a Nazi work camp.49

The market not only reduces the degree and burden of slavery, it can eliminate slavery altogether through manumission. There are three basic categories of manumission.

PURCHASE: A slave may accumulate wages and bonuses to purchase freedom. A free person, such as a friend or relative, may purchase the slave into freedom. This is more likely as free labor encroaches into slave labor regions and was often facilitated by low asking prices of slaveholders.

WILL: A slaveholder may grant freedom to a slave in a last will and testament as a reward for years of faithful service or as religious penance.

SPECIAL: A slaveholder may grant freedom to a slave for an extraordinary act, such as saving the owner’s life. Slaveholders may grant freedom to commemorate special events such as a marriage or birth. Owners and government may grant freedom to slaves serving in defense of the country or for informing on riot or assassination attempts.

The rate of manumission could be expected to increase as competition from free labor reduced the expected returns from slavery. In other words, every manumission not only reduces slavery by one soul, it provides a further catalyst for the ultimate destruction of slavery: proximate free labor competition.

The issue of the viability or survivability of antebellum Southern slavery must take several special factors into account. First, free labor was relatively scarce in the cotton belt and generally served as a complement to slave labor instead of a competitive factor. Second, the weather and isolation of the cotton belt reduced the supply of free labor and made comparisons with more temperate and metropolitan regions difficult.50

Third, cotton as a product was simple to produce. As quality and complexity of production increases, slave labor becomes less competitive with free labor. Fourth, the extensive availability of fertile land associated with the opening of the old American Southwest was an added factor in slavery’s relative success. Slaves have to be fed and clothed year round so that when they could not be easily kept productive (such as building and maintaining roads, chopping fire wood, lumber, and clearing forest land), free labor would tend to dominate.51

The complex issues involved in the choice between slavery and free labor have been unfortunately simplified to the single issue of profit. Profit is a theoretical concept that explains the reallocation of resources in the market economy. The profitability-of-slavery thesis provides various calculations of estimated accounting profits of ante-bellum cotton plantations that employed both free and slave labor during the Industrial Revolution. We would certainly expect to see profitable firms during this tumultuous period. However, the important question is what factors account for this profitability. Was it the rapid increase in the demand for cotton, cheap fertile land, entrepreneurial management, slavery, or some combination of these factors? While this is a difficult issue to resolve precisely, the case for slave labor can be easily dismissed.52

A prime reason for the belief in the viability of slavery is that prices of slaves were higher at the end of the antebellum period than at the beginning. In fact, prices were higher than ever in the year before the Civil War, but these high prices were clearly the result of factors other than the inherent nature of slave labor. In fact, higher slave prices can be used to address one aspect of Time on the Cross that has apparently gone unchallenged, the authors’ alleged disproof of the “natural limits thesis.” This thesis claims that slavery would have disappeared under the pressure of scarce fertile land and urban expansion.53

Fogel and Engerman argue that slavery would not have disappeared without the Civil War. In fact, their estimates indicate that slave prices would have increased by more than 50 percent by 1890. While there are certainly many easily recognizable technical problems involved in such estimates, the most significant problem is that their estimate plays directly into the hands of the economic theory of slavery and the natural limits theorists. Higher slave prices would only serve to signal the market to discover substitutes for slave labor. Specifically, if the price of slaves did continue to rise, the market would have responded with substitutes such as free labor and labor saving equipment, such as mechanical agricultural devices to pick cotton.54

Slavery and the Political Process in the Antebellum South

Despite all the supposed natural advantages of slave labor in the Southern antebellum economy, slavery was fleeing from both the competition of free labor and urbanization towards the isolated virgin lands of the Southwest. More importantly, the character of antebellum slavery had changed to reflect the “loosening of bonds.” Slaves were given increasing responsibility, receiving professional training, and beginning to possess a good deal of independence and property within the plantation. Indeed, the slave was moving off the plantation, becoming in effect, free labor for hire. As Clement Eaton described:

Behind the facade of increasing values of slave property there had been ceaselessly at work for at least two decades a slow and subtle erosion of the base of the institution. The disintegrating forces were strongest and most noticeable in the Upper South and in the towns and cities, where the growing practice of obtaining the service of slave labor by hire instead of by purchase was invisibly loosening the bonds of an archaic system.55

Despite the change in the character of slavery and the material economic improvement in antebellum slave life relative to other slave economies, very little progress had been made towards slavery’s legal abolition. Although they were discussed, no emancipation or compensation schemes were seriously considered before the Civil War.56 Things also appeared bleak in terms of market-based emancipation. As Fogel and Engerman noted, the percentage of the free black population in the South actually fell from 1830 to 1860. Kenneth Stampp also concluded that “[T]here was no evidence in 1860 that bondage was a ‘decrepit institution tottering towards a decline’” and that there was no “reason to assume that masters would have found it economically desirable to emancipate their slaves in the foreseeable future.”57 “[T]he failure of voluntary emancipation” represents a divergence between economic theory and our understanding of the market economy on the one hand and real world results on the other.58 In order to explain such puzzles, economists normally look at institutional rigidities, changes in relative scarcity, and most especially to government interventions in the economy.59 The positive contribution of this paper is to introduce such an explanation: the role that certain slave codes played in the profitability and survival of slavery in the ante-bellum South. Despite the almost obvious implications of the slave codes, this form of government intervention has been ignored as an economic factor in the profitability and perpetuation of slavery.60 While the direction of this approach could have been derived from the work of Genovese,61 and while Stampp certainly discussed the subject at length, it seems that Ludwig von Mises made the clearest statement of the connection between government intervention and the inability of markets to bring down antebellum slavery:

The abolition of slavery and serfdom could not be effected 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.62

The political institutions that had withdrawn the plantation from the supremacy of the market were slave code statutes. While all the statutes had some impact, the statutes that required slave patrols and the laws that prohibited the manumission of slaves are of primary importance.

The patrol statutes required all white males to participate in slave patrol duty. The state required counties to establish regular patrols, and the counties in turn placed responsibility for organizing patrols on local judges and constables. These officials appointed a series of rotating patrol leaders who would be responsible for organizing and reporting on the activities of their patrols. Failure to participate in the patrols or to carry out organizing responsibilities would result in a series of escalating fines.

In order to prevent slaves from escaping, the patrol was responsible for patrolling the roads at night, monitoring the movement of blacks by checking their passes, and inspecting slave residences.63 The compensation the patrollers received for being drafted into service was the violence they inflicted upon slaves and the money they received for capturing and selling unclaimed runaway slaves. Both sources of compensation served to increase the effectiveness of the patrols.64

Statutes were also established in the slave states that restricted or prohibited the right of an owner to manumit slaves. Restrictions precluded slaves from buying their freedom, owners from granting freedom, and owners from manumitting their slaves in a last will and testament. Sometimes these prohibitions were outright and binding while at other times the restrictions only served to complicate and frustrate the owners attempts to free slaves. Near the end of the antebellum period, an owner would have to transport slaves to free states, before manumission, in order to ensure the freedom of their slaves.

While these statutes date back to the mid-eighteenth century, a significant relaxation occurred after the American Revolution. During this time, a large number of slaves were freed both in slave states as well as in states that had newly prohibited slavery. However, a growing free black population, an increased threat of slave revolts, and an increasingly vocal abolitionist movement led the Southern states to reenact severe slave code statutes relating to manumission and slave patrols.65

The obvious implications of these statutes was a reduced growth rate in the free black population. If owners could not manumit their slaves then the free black population could not grow as it otherwise might have. Slave patrols reduced the possibility of successful escape as well as the number of escape attempts.66 The patrols therefore also contained the free black population by reducing escape attempts and the percentage of successful escapes.

Another obvious impact of the patrol statutes was the shift of the cost of guarding slaves and escape prevention from the slave owner onto the general population, as white males who owned no slaves were required to participate in the patrols. This socialization of police costs improved the profitability of slave ownership and reduced the supply of free labor by acting as a tax on it.67

The interaction effect of the two codes also affected the costs and profitability of slavery. If slaves could not be manumitted, then most blacks were slaves, thereby making the task of the slave patrols easier. The ability to detect and identify possible runaways was further strengthened by statutes that required all manumitted slaves to emigrate the state or county, prohibited the immigration of free blacks into a state, and placed fines or prohibited the existence of any free black in residence. Reduced likelihood of escape also increased the slaves’ capital value.

The literature on the emancipation of American slaves pays little attention to the use of private manumission. There are several reasons for this neglect. First, in the decade prior to the Civil War only 20,000 slaves were officially manumitted out of a slave population of several million.68 Second, it is rejected as a viable option for those who feel it is ethically preposterous that slaves and non-slave-holders should pay to break the bonds of involuntary servitude. There is also the question of time. Given the population growth of slaves, even an aggressive rate of private manumissions might never eliminate slavery entirely.

Other alternatives seem equally problematic. Support for general manumission at the state level was highly unlikely in states with large slave populations. Slaveholders were not only economically powerful, they were politically powerful in their legislatures in southern states. The market value of the entire slave population prior to the Civil War has been estimated at $2.7 billion, and plantation owners were convinced that slave labor was the only basis for large scale plantation agriculture in the semi-tropical south. While some have suggested that such a scheme would have been less costly than the Civil War, there was apparently no viable political mechanism to undertake such a massive transfer. Radical abolitionist sentiment was probably never more than a small minority of the population. The inability to solve the problem of slavery is generally attributed to the growth of sectionalism, party system breakdown, secession, and at least indirectly, the Civil War.

The low rate of private manumissions was not due to a lack of interest, but rather to prohibitions and restrictions on manumission in the slave states. In the absence of these government interventions, a higher rate of manumission could have dramatically increased the size of the free black population and decreased the size of the slave population. An increased free black population would have also undermined the effectiveness of slave hunters and slave patrols. The free black as free worker would have put increased pressure (geographically) on slavery. A decreased slave population and lower slave prices would have increased the likelihood of the enactment of general manumission, especially in the border states.

What we do know is that by 1830 most slave states had enacted extremely stringent laws to maintain slavery.69 Most slaves were effectively confined on the plantation, most owners were prohibited from legally freeing their slaves, and life for the free black in the slave states was tenuous at best, illegal at worst. The complexity of the slave codes and slave economy makes it extremely difficult to determine what would have happened in the absence of these state codes. However, if slaveowners had really had the “absolute power and authority over his negro slaves” and their own lives, history would have been radically different.70

Free black population in the slave states increased throughout the antebellum period, with the greatest growth in the early decades and in the Upper South. As state statutes were enacted in the early 1800s against manumission and immigration of free blacks, the rate of increase in the free black population slowed rapidly. In the final decades of the antebellum period the rate of increase in the free black population fell below the rate of increase of the slave population. These population figures clearly indicate the effect of laws against manumission.

Between the 1790 and 1800 census, the free black population of America increased by over 82 percent and in the South Atlantic states by over 97 percent. Between 1800 and 1810 the free black population in the South Atlantic states increased by over 61 percent. The total free population increased from 8.5 percent to almost 16 percent of the total black population between 1790 and 1810.71 As states enacted statutes against manumission and immigration, and requiring slave patrols, the growth of the free black population decreased, fell below the rate of growth in the slave population, and was reduced to a trickle in the decade prior to the Civil War.72

If the free black population in the South Atlantic states had grown at the same rate between 1800 and 1860 as it did between 1790 and 1800, every slave in the South Atlantic states would have been freed twice by 1860, the equivalent of virtually every slave in the country.73 Using the slower growth rate between 1790 and 1810 (88 percent), every slave in the region would have been freed 1.5 times. While this is clearly a hypothetical calculation, it does indicate that in the absence of slave codes the slave population would have been a small fraction of its actual size and in a range where general emancipations would have been possible.74

While economists (as economists) will no doubt appreciate the apparent cost-effectiveness of this approach, the notion of a gradual market-based emancipation will no doubt be morally objectionable to extreme abolitionists.75 However, it must be remembered that historical experience of government-style emancipations, such as the Civil War, indicates that they are very costly, and in most cases, hardly effective in uplifting the former slaves. It was just this historical experience that led John Cairnes to suggest that gradual abolition of slavery was the most effective in promoting the interests of the slaves.76

Summary and Conclusion

This paper maintains that slavery is always and everywhere a political rather than a market institution. The historical record of slavery is examined for the suggested exceptions to this rule. This study only confirms the logical necessity of government’s role in slavery.

The profitability-of-slavery thesis is incorrect where relevant and irrelevant where correct. John Cairnes, who identified the problem in The Slave Power, found that antebellum slavery survived under “a democracy, an uncontrolled despotism, wielded by a compact oligarchy.” The historical record strongly suggests that the state statutes that prohibited the private manumission of slaves and mandated slave patrols are the reasons why slavery survived as long as it did in the American South.

It could be argued that these codes were part of the “peculiar institution” and were unlikely to be repealed. However, failing properly to identify the causes of slavery’s survival would be like complaining that “business” is doing little to alleviate high teenage unemployment without mentioning the minimum wage law. Not only is the “free market” exonerated from the evil of slavery, but the full blame for slavery and even the Civil War is placed back on government.

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Mark Thornton is O.P. Alford III assistant professor at Auburn University and the Ludwig von Mises Institute.

The author would like to thank the Institute for Humane Studies at George Mason University and the Ludwig von Mises Institute for financial support of this research. Audrey Davidson, Robert Ekelund, Gerald Gunderson, David Laband, Randall Parker, Llewellyn H. Rockwell, Jr., Richard Steckel, and Keith Watson provided useful comments and suggestions. Special thanks to Eugene Genovese, Robert Higgs, Murray Rothbard, and three anonymous referees for their comments.

The Review of Austrian Economics Vol. 7, No. 2 (1994): 21–47

ISSN: 0889–3047

1Historical Statistics of the United States, part 1 (Washington, D.C.: 1975), series D-86 for unemployment rates and series F-32 for gross national product. Throughout this article, the standard data series for unemployment rates are used, with recognition that there has been a challenge to the validity of those data during the Great Depression years. See Michael R. Darby, “Three-and-a-Half Million U.S. Employees Have been Mislaid: Or An Explanation of Unemployment, 1934–1941,” Journal of Political Economy 84, 1976.
2A.C. Pigou, Industrial Fluctuations, 1st ed. (London: Macmillan, 1927), p. 176.
3A.C. Pigou, Theory of Unemployment (London: Macmillan, 1933), p. 252. Pigou makes his arguments in a variety of other places. For example, see his “Real and Money Wage Rates in Relation to Unemployment,” Economic Journal 47, 1937, and “Money Wages in Relation to Unemployment,” Economic Journal 48, 1938.
4It is perhaps something of an exaggeration to ascribe this position entirely to Pigou. A number of other economists espoused similar views. Recognizing that the list is incomplete, we cite a few, beginning with Jacob Viner, Balanced Deflation, Inflation, or more Depression (Minneapolis, Minn.: University of Minnesota Press, 1933), especially pp. 12–13. See also W.H. Beveridge, Causes and Cures of Unemployment (London: Longmans, Green and Co., 1931), p. 25, and Unemployment, A Problem of Industry (London: Longmans, Green and Co., 1930), chapter 16; Wilford I. King, The Causes of Economic Fluctuations (New York: Ronald Press Co., 1938), chapter 8; and Lionel Robbins, The Great Depression (New York: Macmillan, 1934).
5John A. Hobson, The Economics of Unemployment (New York: Macmillan, 1923), p. 84.
6W.T. Foster and W. Catchings, Profits (Boston: Houghton Mifflin, 1925) and Business Without a Buyer (Boston: Houghton Mifflin, 1927); and C.H. Douglas, Credit-Power and Democracy (London: C. Palmer, 1920) and Warning Democracy (London: C.M. Grieve, 1931). A more recent interpretation of the Great Depression with underconsumptionist overtones in John Kenneth Galbraith, The Great Crash, 1929 (Boston: Houghton Mifflin, 1976).
7Murray N. Rothbard, America’s Great Depression (Princeton, N.J.: Van Nostrand, 1963), p. 45.
8Henry Ford, The New York Times, November 22, 1929, p. 2.
9The New York Times, November 22, 1929, p. 1. It is interesting to note that Hoover’s inclinations toward underconsumptionism were recognized and, of course, approved, by trade unionists. Witness a statement by the AFL’s John P. Frey in 1929 relating to a public works scheme of Hoover’s. In effect, Frey argued that the president was in agreement with the AFL’s position that depressions were the result of underconsumption and low wages. See Joseph Dorfman, The Economic Mind in American Civilization (New York: Viking Press, 1959), vol. 4, pp. 349–50. See also Ronald Radosh, “The Development of the Corporate Ideology of American Labor Leaders, 1914–1933” (doctoral dissertation in history, University of Wisconsin, 1967).
10Rothbard, America’s Great Depression, chapter 8. Not to be ignored is the fact that ideas such as those that enamored Hoover were not as unorthodox among professional economists as sometimes claimed. See J. Ronnie Davis, The New Economists and the Old Economists (Ames, Iowa: Iowa State University Press, 1971). Davis presents an interesting array of statements by economists and other academics relating to the issue of the impact of wage reductions on the economy (pp. 94–99).
11John M. Keynes, The General Theory of Employment, Interest and Money (London: Macmillan, 1936).
12Abba P. Lerner, “Mr. Keynes’ ‘General Theory of Employment, Interest and Money,’” International Labor Review 34, 1936. See also W.B. Reddaway, “The General Theory of Employment, Interest and Money,” Economic Record 12, 1936. A systematic description of the thought of this time is contained in Lawrence R. Klein, The Keynesian Revolution (New York: Macmillan, 1947). For a taxonomic description of the various views of the aggregate demand schedule for labor, see Sidney Weintraub, “A Macroeconomic Approach to the Theory of Wages,” American Economic Review 46, 1956.
13Paul M. Sweezy, personal letter to John B. Shelley, dated February 11, 1977, cited in Dana C. Hewins and John B. Shelley, “Sweezy’s Kink: Macro Foundations of a Micro Theory,” Economic Inquiry 17, 1979.
14For a description of the various dimensions of the Keynesian critique of classical economics, see Alvin H. Hansen, A Guide to Keynes (New York: McGraw-Hill, 1953). More recent appraisals and restatements of the total thrust of Keynesianism are Abba P. Lerner, “From ‘The Treatise on Money’ to ‘The General Theory,’” Journal of Economic Literature 12, 1974; and Hyman P. Minsky, John Maynard Keynes (New York: Columbia University Press, 1975).
15Peter Temin, Did Monetary Forces Cause the Great Depression? (New York: Norton, 1976), p. 140. Temin also attempts to demonstrate that the Great Depression was brought on by an autonomous shift in the consumption function. That view has been challenged (successfully, we think) by Thomas Mayer, “Consumption in the Great Depression,” Journal of Political Economy 86, 1978.
16Keynes, The General Theory. In chapter 2, Keynes is very explicit. In reference to the principle that real wages and employment are systematically related, he says, “I am not disputing this vital fact which the classical economists have (rightly) asserted as indefeasible.”
17Ludwig von Mises, The Theory of Money and Credit (New Haven, Conn.: Yale University Press, 1953). Permission granted by Mrs. Margit von Mises. Quotes from 1981 Liberty Classics, Indianapolis, edition.
18Milton Friedman, “The Role of Monetary Policy,” American Economic Review 58, 1968.
19In particular, see Jerome Stein, Monetarist, Keynesian, and New Classical Economics (Cambridge, United Kingdom: B. Blackwell, 1982).
20The key assumptions are constant returns to scale and neutral disembodied technical progress.
21The underlying statistical models are moderately complex. They are described briefly in the statistical appendix. The logic and structure of the models are more fully developed in Lowell Gallaway and Richard Vedder, The “Natural” Rate of Unemployment, staff study, Subcommittee on Monetary and Fiscal Policy, Joint Economic Committee, Congress of the United States (Washington, D.C.: 1982).
22Federal Reserve Bulletin, various issues.
23Historical Statistics, series D-86.
24The productivity-adjusted real wage rate on a quarterly basis is calculated by dividing the manufacturing wage bill by the product of Federal Reserve Board (not the wage bill) and the index of average labor productivity (not total output) should be used. However, converting the wage bill and the index of industrial production to wage rate and productivity measures involves dividing both of them by the same quantity of labor (L). Since L appears in both the numerator and denominator of the expression for the adjusted real wage rate, it cancels out and can be ignored.
25As calculated from Historical Statistics, series D-688.
26Ibid,, series D-683 and D-688.
27Ibid., series D-724 and Paul A. David and Peter Solar, “A Bicentenary Contribution to the History of the Cost of Living in America” in Paul Uselding, ed., Research in Economic History, vol. 2 (Greenwich, Conn.: JAI Press, 1977), pp. 59–60.
28Broadus Mitchell, Depression Decade, vol. 9, The Economic History of the United States (New York: Rinehart, 1947), p. 84; and Arthur Schlesinger, Jr., The Age of Roosevelt: The Crisis of the Old Order, 1919–1933 (Boston: Houghton Mifflin, 1957), p. 249. Interestingly, though, some observers of the period disagree with this assessment. For example, Leo Wolman, Wages in Relation to Economic Recovery (Chicago: 1931) notes, “[I]t is indeed impossible to recall any past depression of similar intensity and duration in which the wages of prosperity were maintained as long as they have been during the depression of 1930–1931.” Similarly, Don Lescohier, “Working Conditions,” vol. 3, History of Labor in the United States, 1896–1932, John R. Commons and Associates, eds. (New York: Macmillan, 1935) states:
29Historic Statistics, series D-802, D-813, D-818, and D-824, respectively.
30Robbins, The Great Depression, p. 224.
31Geoffrey H. Moore, ed., Business Cycle Indicators, vol. 2, Basic Data on Cyclical Indicators (Princeton: Princeton University Press, 1961), p. 129.
32Benjamin M. Anderson, Economics and the Public Welfare (New York: Van Nostrand, 1949), p. 72.
33Historical Statistics, series D-839.
34Anderson, Economics, p. 220.
35Without the productivity adjustment, real wages in manufacturing (in 1923 prices) rose from 58.9 cents an hour in December 1929 to 62.5 cents an hour in December 1930. After that, they continued to rise to 66.3 cents an hour in January 1932. Wilford I. King, Causes of Fluctuations, pp. 182–83. See also Sol Shaviro, “Wages and Payroll in the Depression, 1929–1933” (unpublished M.A. essay, Columbia University, 1947).
36Milton Friedman and Anna J. Schwartz, A Monetary History of the United States, 1867–1960 (Princeton, N.J.: Princeton University Press, 1963).
37U.S. Bureau of the Census, National Income and Product Accounts of the United States, 1929–1976 (Washington, D.C., Department of Commerce, Bureau of Economic Analysis, 1981), p. 308.
38Moore, Business Cycle Indicators, p. 106.
39Harold Barger, Outlay and Income in the United States, 1921–1938 (New York: National Bureau of Economic Research, 1942), appendix B, table 28. A smaller profit decline is reported in a less comprehensive survey conducted by the Federal Reserve Bank of New York. See Irving Fisher, Booms and Depressions: Some First Principles (New York: Adelphi, 1932), p. 98.
40Robbins, The Great Depression, p. 205. The data were originally published in Commercial and Financial Chronicle.
41This is based on the Standard and Poor’s index, which fell 32.9 percent from September to November 1929. The second decline actually began in April 1930. A similar pattern is observed using the Dow-Jones index, which fell 39.7 percent from April to December 1930, compared to 37.0 percent from September to November 1929. The recovery in stock prices after November 1929 was robust; the April 1930 Dow-Jones index was the eleventh highest recorded in history, exceeded only in the first ten months of 1929. See Moore, Cyclical Indicators, pp. 108–9.
42Ben Bernanke, “Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression,” American Economic Review, June 1983, p. 261.
43Ibid., p. 262.
44Federal debt declined about $700 million in both 1929 and 1930, but rose more than $600 million in 1931. See Historical Statistics, series Y-493.
45If one uses the consumer price index to measure price changes, real interest rates on bank loans in 1929 averaged about 6 percent, rising to about 7.7 percent in 1930, and to about 13 percent in 1931. This is based solely on current year price changes. A real interest rate model using weighted averages of past price changes would show a smaller rise. Interest rate data are based on Federal Reserve System reports. See Moore, Cyclical Indicators, p. 154.
46Historical Statistics, series F-54.
47Friedman and Schwartz, A Monetary History, table A-1, pp. 712–13.
48Ibid., table B-3, p. 803.
49Ibid. The deposit/currency ratio fell from 11.57 in October 1929, to 4.44 in March 1933, a decline of 7.13 points, with 3.87 points (54 percent) of that decline occurring between October 1930 and October 1931.
50Ibid., pp. 308–13.
51The price would fall to $750 only for a consol, a bond with no maturity. Short-term bonds would sell at a small discount from face value because the owner of the bond would receive the face value at maturity.
52Historic Statistics, series X-581.
53Capital accounts were $10,372 million. Ibid., series X-587.
54Most nominal interest rate series show little change in the early years of the Great Depression, and, indeed, many show some decline. This masks two phenomena, however. First, declining commodity prices during the period led to rising real interest rates over time. Second, most interest rate series report actual transactions, probably ignoring a growing number of customers who were crowded out because of sharply rising risk premiums. It is possible that interest rates demanded of some average potential borrower rose, even though actual interest rates reflected in transactions did not rise.
55Data from U.S. Bureau of Economic Analysis, Fixed Residential Business Capital in the United States, 1929–1973 (Washington, D.C.: Department of Commerce, 1974), reported in Historical Statistics. The exact data series employed is F-484 for producers’ equipment valued at 1958 prices. This series falls from a 1929 level of $74.1 billion to $59.2 billion in 1933. Simon Kuznets, Capital in the American Economy (Princeton, N.J.: Princeton University Press, 1961), table R-5, p. 492, concludes that net capital formation was almost zero in 1931, and decidedly negative in the years 1932–34.
56Use of the consumer price index yields lower-bound measures of the extent of wage disequilibrium. This index fell substantially less than did the wholesale price index during the Great Depression. Consumer prices (Historical Statistics, series E-135) fell 24.3 percent, while wholesale prices (Ibid., series E-23) declined by 30.8 percent.
57The codes in question were the blanket codes introduced pending the development of the specific industry codes. See David A. Shannon, Between the Wars: America, 1919–1941 (Boston: Houghton Mifflin, 1965), pp. 154–55. See also Michael M. Weinstein, “Some Macroeconomic Impacts of the National Industrial Recovery Act, 1933–1935,” chapter 14, pp. 262–81, in Karl Brunner, ed., The Great Depression Revisited (Boston: Kluwer/Nijhoff, 1981) and Recovery and Redistribution under the NIRA (Amsterdam: North-Holland Publication Company, 1980).
58Historical Statistics, series D-802.
59Section 7(a) of the National Industrial Recovery Act was added to allay the fears of labor leaders that industry would act cooperatively against labor. It required that every industry code developed under the act include provisions guaranteeing the right of employees to organize and bargain collectively and that employees could not be required as a condition of employment to either join a company union or refrain from joining a union of their choice.
60After the National Industrial Recovery Act was declared unconstitutional by the Supreme Court, the provisions of section 7(a) were reenacted in a more detailed fashion, including the establishment of an administrative machinery to police the law, in the National Labor Relations Act of 1935.
61Probably the best known study of this question is H. Gregg Lewis, Unionism and Relative Wages in the United States (Chicago: University of Chicago Press, 1963). Also worth noting are John Maher, “Union, Non-Union Wage Differentials,” American Economic Review 46, 1956; and Adrian W. Throop, “The Union-Non-Union Wage Differential and Cost-Push Inflation,” American Economic Review 58, 1968.
62The basic data employed in these calculations are taken from Lowell E. Gallaway, “Trade Unionism, Inflation, and Unemployment” in George Horwich, ed., Monetary Process and Policy: A Symposium (Homewood, Ill.: R.D. Irwin, 1967), pp. 60–66. At first blush, the indication of a significant change in what we call the union/nonunion wage differential appears to conflict with Lewis’s findings in Unionism and Relative Wages, which suggest a stable union/nonunion differential over time. However, we have defined our differential in terms of traditionally organized industries compared to traditionally unorganized ones. Actually, there are substantial numbers of nonunion members in the work force of what we have called the unionized industries. For example, in 1920, when trade union membership peaked at over five million, only about one-fourth of the work force in our unionized industries were union members. See Leo Wolman, Ebb and Flow in Trade Unionism (New York: National Bureau of Economic Research, 1936). They made up about 90 percent of union membership, though. By contrast, on the eve of World War II, when union membership had recovered to over ten million (compared to its 1933 low of less than three million), union workers were approaching accounting for one-half the work force in our unionized industries. In fact, what our wage differential measure attempts to capture is the impact of the changing volume of unionism on the interindustry wage structure and, ultimately, on the average wage rate. Actually, we feel that we may have underestimated the union impact by employing a relative wage differential measure rather than focusing on the absolute differential (in real terms) between the unionized and nonunionized areas. For a theoretical discussion of why the relative wage criterion may not be appropriate, see Gallaway, “Trade Unionism.” If we had used the absolute differential for purposes of this evaluation, the effect of increases in union membership on the interindustry wage structure would have been even more dramatic.
63The detailed statistical analysis is described in the statistical appendix to this article.
64This is done by estimating the impact of growth in union membership on wage levels and then translating the unionization-induced wage shifts into changes in unemployment.
65Total supplements are from Historical Statistics, series D-893. Average annual earnings from ibid., series D-722. See also Albert Rees, New Measures of Wage-Earner Compensation in Manufacturing, 1914–1957, occasional paper 75 (Princeton, N.J.: National Bureau of Economic Research, 1960).
66Detailed supplement data are from Historical Statistics, series D-907 and D-908. The percent increase in the total wage bill attributable to the increase in a particular supplement is calculated and the impact of such an increase on unemployment is estimated using the statistical relationships reported in the statistical appendix to this article.
67The strongest proponents of a monetary explanation for the recession of 1937–38 are Friedman and Schwartz, A Monetary History.
68There is an abundance of literature that suggests a fiscal policy explanation for the downturn in 1938. See E. Cary Brown, “Fiscal Policy in the ‘Thirties’: A Reappraisal,” American Economic Review 46, 1956; Alvin H. Hansen, Fiscal Policy and Business Cycles (New York: W.W. Norton, 1941); Arthur Smithies, “The American Economy in the Thirties,” American Economic Review 36, 1946; and Kenneth D. Roose, “The Role of Net Government Contribution to Income in the Recession and Revival of 1937–1938 ” Journal of Finance, 6, 1951. Roose’s views are also stated in his Economics of Recession and Revival (New Haven, Conn.: Yale University Press, 1954).
69Interestingly, Roose, Economics of Recession, also expresses views that are consistent with our findings. He comments, “Most important of all, however, was the reduced profitability of investment, beginning in the first quarter or 1937. This resulted from increases in costs, in which labor played a prominent part.” (pp. 238–39).
70This estimate is based on calculations made using the statistical model of unemployment cited earlier.
71It is interesting to note that the statistical model of unemployment that we present systematically underpredicts the level of unemployment during the period in which the growth in wage supplements is most pronounced, namely 1936–38. Since the supplements are not included in the wage measure used to predict unemployment, this may account for the underpredictions in these years.
72King, Causes of Fluctuations, pp. 80–81, noted this phenomenon rather early, remarking that, “all through the depression, those who were fortunate enough to have jobs were, on the average, earning more money per hour than they were in 1929.”
73The total dismissal of the importance of the money wage rate adjustment mechanism became complete during World War II. In Britain, for example, Sir William Beveridge, cited earlier as supporting the classical view of the world, swung full circle and embraced the aggregate demand notions, especially the idea that government spending could produce full employment. In his “The Government’s Employment Policy,” Economic Journal, June-September 1944, pp. 161–62 (a commentary on the government’s White Paper of May 26, 1944), he refers to a statement from Winston Churchill’s 1929 budget speech as chancellor of the exchequer, to wit: “It is the orthodox Treasury dogma steadfastly held that, whatever might be the political and social advantages, very little additional employment and no permanent additional employment can, in fact, and as a general rule, be created by State borrowing and State expenditure,” by commenting, “By the renewed experience of full employment the dogma has been consumed by the fires of war, and the White Paper may be regarded as a ceremonial scattering of its ashes.”
74The rate was 9.7 percent in 1927, while the median annual rate for the years 1921–29 was 11.05 percent. On unemployment statistics, see Department of Employment and Productivity, British Labour Statistics: Historical Abstract 1886–1968 (London: H.M. Stationery Off., 1971).
75Real output rose 2.75 percent a year from 1921 to 1929, and even 1.66 percent annually from the boom year of 1920 to relatively depressed 1930; by contrast, real growth per annum from 1900 to 1913 was only 1.65 percent. These calculations are derived from C.H. Feinstein, National Income, Expenditure and Output of the United Kingdom, 1855–1965 (Cambridge, U.K.: Cambridge, University Press, 1972).
76Daniel K. Benjamin and Levis A. Kolchin, “Searching for an Explanation of Unemployment in Interwar Britain,” Journal of Political Economy, June 1979.