Jeffrey Hummel on Slavery as Economic “Deadweight Loss”
Jeffrey Hummel (Ph.D., University of Texas, Austin) is an economics professor at San Jose State University, California. He is the author of Emancipating Slaves, Enslaving Free Men (1996) and the here introduced Deadweight Loss and the American Civil War (2012).
Southerners called slavery their “peculiar institution.” Yet slavery is as old as history and was a presence in all civilizations—and a major one in most. Only recently has free labor become the norm, so perhaps it is the “peculiar institution.” An understanding of the economic facts and principles at work can help us better understand how freedom defeated slavery.
Was slavery economically profitable? One view—that of Adam Smith, for
example—has been that slavery was unprofitable because it was economically
inefficient. A more recent position, argued by Nobel-Prize-winning economist Robert Fogel and co-author Stanley Engerman, is that since slavery was profitable it must have been efficient. Hummel argues: “Both positions are partly wrong (as well as partly right).”
Hummel’s key thesis is that slavery was a “deadweight loss,” that is, a transfer of
wealth in which losses exceed gains, making everyone poorer on average. Consider a thief who breaks your window to steal your stereo: “The stereo is a loss to you and a gain to the thief, but the broken window is just a loss.”
Slavery allowed slave-owners to transfer wealth from slaves to themselves, thus benefitting themselves at the slaves’ expense, but “antebellum slavery also imposed significant deadweight loss on the southern economy” (p. 15).
Further, Hummel argues, since the overall economic losses exceeded that gains, to continue in existence “the system depended upon subsidies from governments at all levels: local, state, and national” (p. 16) Employers of free labor, for example, do not fear that their workers will run away, but slaveholders do fear their slaves will, so the additional expense—in the case of Fugitive Slave Laws, borne by the government—of returning runaway slaves, is a significant additional cost and a subsidy to slaveholders.
In measuring the overall inefficiency of slavery, a strong contrast between “the relative productivity of slave plantations versus free farms, North and South” is significant. Part of the difference is motivational, given that free farmers with property rights choose their crops, hours, and methods, and get to keep all of the proceeds. Slaves neither choose nor gain profits. Yet overall efficiency differences are variable and depend in part on the specific products and available technologies.
Lack of innovation, especially in technology, also makes slave economies less efficient. For example, a slaveholder’s capital is invested in his slaves, which means he does not have that capital available to invest in innovation and technology. In a wider world of free investment in technological innovation, slavery would become "economically doomed.”
Read Hummel’s Deadweight Loss and the American Civil War here. Summary by Stephen Hicks, 2020.