Slavery helped turn America into a financial colossus. And our economy is still shaped by management practices invented by enslavers and overseers.
Acouple of years before he was convicted of securities fraud, Martin Shkreli was the chief executive of a pharmaceutical company that acquired the rights to Daraprim, a lifesaving antiparasitic drug. Previously the drug cost $13.50 a pill, but in Shkreli’s hands, the price quickly increased by a factor of 56, to $750 a pill. At a health care conference, Shkreli told the audience that he should have raised the price even higher. “No one wants to say it, no one’s proud of it,” he explained. “But this is a capitalist society, a capitalist system and capitalist rules.”
When Americans declare that “we live in a capitalist society” — as a real estate mogul told The Miami Herald last year when explaining his feelings about small-business owners being evicted from their Little Haiti storefronts — what they’re often defending is our nation’s peculiarly brutal economy. “Low-road capitalism,” the University of Wisconsin-Madison sociologist Joel Rogers has called it. In a capitalist society that goes low, wages are depressed as businesses compete over the price, not the quality, of goods; so-called unskilled workers are typically incentivized through punishments, not promotions; inequality reigns and poverty spreads. In the United States, the richest 1 percent of Americans own 40 percent of the country’s wealth, while a larger share of working-age people (18–65) live in poverty than in any other nation belonging to the Organization for Economic Cooperation and Development (O.E.C.D.).
Those searching for reasons the American economy is uniquely severe and unbridled have found answers in many places (religion, politics, culture). But recently, historians have pointed persuasively to the gnatty fields of Georgia and Alabama, to the cotton houses and slave auction blocks, as the birthplace of America’s low-road approach to capitalism.
Slavery was undeniably a font of phenomenal wealth. By the eve of the Civil War, the Mississippi Valley was home to more millionaires per capita than anywhere else in the United States. Cotton grown and picked by enslaved workers was the nation’s most valuable export. The combined value of enslaved people exceeded that of all the railroads and factories in the nation. New Orleans boasted a denser concentration of banking capital than New York City. What made the cotton economy boom in the United States, and not in all the other far-flung parts of the world with climates and soil suitable to the crop, was our nation’s unflinching willingness to use violence on nonwhite people and to exert its will on seemingly endless supplies of land and labor. Given the choice between modernity and barbarism, prosperity and poverty, lawfulness and cruelty, democracy and totalitarianism, America chose all of the above.
Nearly two average American lifetimes (79 years) have passed since the end of slavery, only two. It is not surprising that we can still feel the looming presence of this institution, which helped turn a poor, fledgling nation into a financial colossus. The surprising bit has to do with the many eerily specific ways slavery can still be felt in our economic life. “American slavery is necessarily imprinted on the DNA of American capitalism,” write the historians Sven Beckert and Seth Rockman. The task now, they argue, is “cataloging the dominant and recessive traits” that have been passed down to us, tracing the unsettling and often unrecognized lines of descent by which America’s national sin is now being visited upon the third and fourth generations.
Cotton was to the 19th century what oil was to the 20th: among the world’s most widely traded commodities. Cotton is everywhere, in our clothes, hospitals, soap. But cotton needed land. A field could only tolerate a few straight years of the crop before its soil became depleted. Planters watched as acres that had initially produced 1,000 pounds of cotton yielded only 400 a few seasons later. The thirst for new farmland grew even more intense after the invention of the cotton gin in the early 1790s. Before the gin, enslaved workers grew more cotton than they could clean. The gin broke the bottleneck, making it possible to clean as much cotton as you could grow.
As slave labor camps spread throughout the South, production surged. By 1831, the country was delivering nearly half the world’s raw cotton crop, with 350 million pounds picked that year. Just four years later, it harvested 500 million pounds. Southern white elites grew rich, as did their counterparts in the North, who erected textile mills to form, in the words of the Massachusetts senator Charles Sumner, an “unhallowed alliance between the lords of the lash and the lords of the loom.”
Since the 1977 publication of Alfred Chandler’s classic study, “The Visible Hand,” historians have tended to connect the development of modern business practices to the 19th-century railroad industry, viewing plantation slavery as precapitalistic, even primitive. But management techniques used by 19th-century corporations were implemented during the previous century by plantation owners.
Like today’s titans of industry, planters understood that their profits climbed when they extracted maximum effort out of each worker. So they paid close attention to inputs and outputs by developing precise systems of record-keeping. Meticulous bookkeepers and overseers were just as important to the productivity of a slave-labor camp as field hands. Plantation entrepreneurs developed spreadsheets, like Thomas Affleck’s “Plantation Record and Account Book,” which ran into eight editions circulated until the Civil War. Affleck’s book was a one-stop-shop accounting manual, complete with rows and columns that tracked per-worker productivity.
The uncompromising pursuit of measurement and scientific accounting displayed in slave plantations predates industrialism. Northern factories would not begin adopting these techniques until decades after the Emancipation Proclamation. As the large slave-labor camps grew increasingly efficient, enslaved black people became America’s first modern workers, their productivity increasing at an astonishing pace. During the 60 years leading up to the Civil War, the daily amount of cotton picked per enslaved worker increased 2.3 percent a year. That means that in 1862, the average enslaved fieldworker picked not 25 percent or 50 percent as much but 400 percent as much cotton than his or her counterpart did in 1801.
Today modern technology has facilitated unremitting workplace supervision, particularly in the service sector. But it’s only the technology that’s new. The core impulse behind that technology pervaded plantations, which sought innermost control over the bodies of their enslaved work force.
There is some comfort, I think, in attributing the sheer brutality of slavery to dumb racism. But a good many overseers weren’t allowed to whip at will. Punishments were authorized by the higher-ups. It was not so much the rage of the poor white Southerner but the greed of the rich white planter that drove the lash. The violence was neither arbitrary nor gratuitous. It was rational, capitalistic, all part of the plantation’s design. “Each individual having a stated number of pounds of cotton to pick,” a formerly enslaved worker, Henry Watson, wrote in 1848, “the deficit of which was made up by as many lashes being applied to the poor slave’s back.”
Slavery did supplement white workers with what W.E.B. Du Bois called a “public and psychological wage,” which allowed them to roam freely and feel a sense of entitlement. But this, too, served the interests of money. Slavery pulled down all workers’ wages. Both in the cities and countryside, employers had access to a large and flexible labor pool made up of enslaved and free people. Just as in today’s gig economy, day laborers during slavery’s reign often lived under conditions of scarcity and uncertainty, and jobs meant to be worked for a few months were worked for lifetimes.
This not only created a starkly uneven playing field, dividing workers from themselves; it also made “all nonslavery appear as freedom,” as the economic historian Stanley Engerman has written. Witnessing the horrors of slavery drilled into poor white workers that things could be worse. So they generally accepted their lot, and American freedom became broadly defined as the opposite of bondage.
Inrecent decades, America has experienced the financialization of its economy. In 1980, Congress repealed regulations that had been in place since the 1933 Glass-Steagall Act, allowing banks to merge and charge their customers higher interest rates. Since then, increasingly profits have accrued not by trading and producing goods and services but through financial instruments. Between 1980 and 2008, more than $6.6 trillion was transferred to financial firms.
As it’s usually narrated, the story of the ascendancy of American finance tends to begin in 1980, with the gutting of Glass-Steagall, or in 1944 with Bretton Woods, or perhaps in the reckless speculation of the 1920s. But in reality, the story begins during slavery.
Consider, for example, one of the most popular mainstream financial instruments: the mortgage. Enslaved people were used as collateral for mortgages centuries before the home mortgage became the defining characteristic of middle America. In colonial times, when land was not worth much and banks didn’t exist, most lending was based on human property. In the early 1700s, slaves were the dominant collateral in South Carolina. Many Americans were first exposed to the concept of a mortgage by trafficking in enslaved people, not real estate, and “the extension of mortgages to slave property helped fuel the development of American (and global) capitalism,” the historian Joshua Rothman told me.
As America’s cotton sector expanded, the value of enslaved workers soared. Between 1804 and 1860, the average price of men ages 21 to 38 sold in New Orleans grew to $1,200 from roughly $450. Because they couldn’t expand their cotton empires without more enslaved workers, ambitious planters needed to find a way to raise enough capital to purchase more hands. Enter the banks. The Second Bank of the United States, chartered in 1816, began investing heavily in cotton. In the early 1830s, the slaveholding Southwestern states took almost half the bank’s business. Around the same time, state-chartered banks began multiplying to such a degree that one historian called it an “orgy of bank-creation.”
When seeking loans, planters used enslaved people as collateral. Thomas Jefferson mortgaged 150 of his enslaved workers to build Monticello. People could be sold much more easily than land, and in multiple Southern states, more than eight in 10 mortgage-secured loans used enslaved people as full or partial collateral. As the historian Bonnie Martin has written, “slave owners worked their slaves financially, as well as physically from colonial days until emancipation” by mortgaging people to buy more people. Access to credit grew faster than Mississippi kudzu, leading one 1836 observer to remark that in cotton country “money, or what passed for money, was the only cheap thing to be had.”
Global financial markets got in on the action. When Thomas Jefferson mortgaged his enslaved workers, it was a Dutch firm that put up the money. The Louisiana Purchase, which opened millions of acres to cotton production, was financed by Baring Brothers, the well-heeled British commercial bank. To raise capital, state-chartered banks pooled debt generated by slave mortgages and repackaged it as bonds promising investors annual interest. During slavery’s boom time, banks did swift business in bonds, finding buyers in Hamburg and Amsterdam, in Boston and Philadelphia.
Some historians have claimed that the British abolition of the slave trade was a turning point in modernity, marked by the development of a new kind of moral consciousness when people began considering the suffering of others thousands of miles away. But perhaps all that changed was a growing need to scrub the blood of enslaved workers off American dollars, British pounds and French francs, a need that Western financial markets fast found a way to satisfy through the global trade in bank bonds. Here was a means to profit from slavery without getting your hands dirty.
Banks issued tens of millions of dollars in loans on the assumption that rising cotton prices would go on forever. Speculation reached a fever pitch in the 1830s, as businessmen, planters and lawyers convinced themselves that they could amass real treasure by joining in a risky game that everyone seemed to be playing.
We know how these stories end. The American South rashly overproduced cotton thanks to an abundance of cheap land, labor and credit, consumer demand couldn’t keep up with supply, and prices fell. The value of cotton started to drop as early as 1834 before plunging like a bird winged in midflight, setting off the Panic of 1837. Investors and creditors called in their debts, but plantation owners were underwater. Mississippi planters owed the banks in New Orleans $33 million in a year their crops yielded only $10 million in revenue. When the price of cotton tumbled, it pulled down the value of enslaved workers and land along with it. People bought for $2,000 were now selling for $60. Today, we would say the planters’ debt was “toxic.”
Even academic historians, who from their very first graduate course are taught to shun presentism and accept history on its own terms, haven’t been able to resist drawing parallels between the Panic of 1837 and the 2008 financial crisis. All the ingredients are there: mystifying financial instruments that hide risk while connecting bankers, investors and families around the globe; fantastic profits amassed overnight; the normalization of speculation and breathless risk-taking; stacks of paper money printed on the myth that some institution (cotton, housing) is unshakable; considered and intentional exploitation of black people; and impunity for the profiteers when it all falls apart — the borrowers were bailed out after 1837, the banks after 2008.
During slavery, “Americans built a culture of speculation unique in its abandon,” writes the historian Joshua Rothman in his 2012 book, “Flush Times and Fever Dreams.” That culture would drive cotton production up to the Civil War, and it has been a defining characteristic of American capitalism ever since. It is the culture of acquiring wealth without work, growing at all costs and abusing the powerless. It is the culture that brought us the Panic of 1837, the stock-market crash of 1929 and the recession of 2008. It is the culture that has produced staggering inequality and undignified working conditions. If today America promotes a particular kind of low-road capitalism — a union-busting capitalism of poverty wages, gig jobs and normalized insecurity; a winner-take-all capitalism of stunning disparities not only permitting but awarding financial rule-bending; a racist capitalism that ignores the fact that slavery didn’t just deny black freedom but built white fortunes, originating the black-white wealth gap that annually grows wider — one reason is that American capitalism was founded on the lowest road there is.
All Rights Reserved for Matthew Desmond