Defenders of capitalism – and I count myself among them – often see property rights and the profit motive as essentially positive, essential to progress and prosperity. So it's a challenge to be confronted by a new book by Gene Dattel, a former managing director at Salomon Brothers and Morgan Stanley, with the title Cotton and Race in the Making of America: The Human Costs of Economic Power. It's a sweeping and fact-filled account of the way in which the cotton trade was intertwined with the evil that was slavery in America.
Mr. Dattel makes a strong case that slavery was perpetuated by economic motives, not just racial bias. How else to understand the paradoxical fact that the Confederate constitution banned the importation of slaves into the Confederacy? Explains Mr. Dattel, "Slaveowners simply did not favor an increase in the supply of slaves, which would have reduced the value of their existing workforce."
Nor was the willingness to put profit ahead of freedom limited to Southern slaveholders. Mr. Dattel writes of Northern farmers selling meat to the Confederacy even as their "sons were dying on Southern battlefields," and he recounts how the British elite, including editors of the London Times and a member of parliament who would become prime minister, invested in the South through what were known as Erlanger Bonds, cotton backed-loans named after their inventor, Emile Erlanger.
It wasn't just the London Times whose record, in retrospect, is disappointing. Mr. Dattel casts just as harsh a light on the New York Times, which editorialized, even after Lincoln's election, "We do not believe it is either just or wise to introduce into discussions of the day any schemes for the abolition of Slavery. It must be distinctly understood that we of the North have nothing to do with that subject, that we propose no Congressional action upon it, but that we regard it as exclusively under the distinction and control of the Slaveholding States." After the war, when the Supreme Court struck down the Civil Rights Act that had sought to give blacks equal access to public accommodations, the Times editorialized, "The Court has been serving a useful purpose in thus undoing the work of Congress." The Chicago Tribune, for its part, described black migrants to the North as "lazy, shiftless, ne-re do wells, sure to be a burden on the city."
As for the New York Tribune, its editor, Horace Greeley, guaranteed $25,000 of Jefferson Davis's $100,000 bail for treason and, after the war, attacked the freedmen as "an easy, worthless race, taking no thought for tomorrow." His Tribune took a similar line: "as a race they are idle, ignorant, and vicious."
Mr. Dattel writes this story with an eye for illuminating facts, particularly numbers. The price of cotton went from 8 to 10 cents a pound in 1863 to $1.80 a pound near the war's end. In 1866, 20 percent of all revenues in the Mississippi state budget were spent on artificial limbs for Confederate veterans. With the introduction of the tractor, the American mule population, which had risen to 26 million in 1920, declined to 4 million by 1958.
And he's an even-keeled guide, to the point where, by the end, a careful reader may come away with the notion that while capitalism and slavery could coexist and even reinforce each other, it didn't have to be that way. A government action can be as racially biased as any greedy cotton planter. Mr. Dattel writes, for example, that the creation of Central Park in New York City came at the expense of blacks: "When Seneca Village, the only area of significant black land ownership, was taken over by the city in 1857 as part of Central Park, its residents were poorly compensated and were not able to purchase land elsewhere." Shades of Kelo v. New London.
The capitalism of the cotton industry eventually evolved so that, far from being an example of the free market ideal in action, it came to rely on government subsidies of various kinds. The railroads that transported the cotton from the fields were built with vast government land grants: "During Lincoln's administration, 74,395,801 acres were given to Western railroads; 34,001,297 acres were handed out to these same interests during President Johnson's term, and 19,231,121 acres during the grant years. From 1850 to 1923 the states gave away 37,789,169 acres to railroads and 91,239,389 acres to corporations for railway construction." Shades of Warren Buffett.
In the end the federal government stepped in with a program to reduce the supply of cotton and thereby prop up the price. Writes Mr. Dattel: "In 1933 the Agricultural Adjustment Act provided a 'plow-up' campaign that compensated farmers up to $20 an acre for plowing up cotton that had already been planted." He adds, "In a historical irony, the cotton states, America's most conspicuous adherents to the political theory of states' rights, now are able to produce cotton only because of support from the federal government."
Mr. Dattel rejects the idea that interest rates as high as 30% or 100% that merchants charged on loans to cotton farmers were exorbitant. "An accurate measure of profitability in the financial world is the number of competitors who enter a business. If cotton merchants and lenders had been getting rich, Americans would have flocked to these occupations in the South to chase wealth. The numbers increased, but there was no mass movement. The much-maligned merchant was plagued with a steady stream of defaults, indicating that his fees were a reflection of his own risks and borrowing costs."
If there is a bright spot to this sad story it is that the end of the employment of vast numbers of African-Americans as manual laborers in cotton fields (slavery had been replaced with poverty and share-cropping), came as a result of the dynamism and technological progress of private industry. International Harvester Co., competing with John Deere, spent $4.5 million on a 25-year research project to invent a mechanized cotton picker, Mr. Dattel recounts. An herbicide developed by DuPont removed the need for weeding cotton fields by hand.
If, those developments notwithstanding, capitalism has nonetheless failed fully to heal the scars of slavery and its aftermath, so too have the various government programs, from welfare to public housing, where property rights are absent. Capitalism, for all its virtues, is no panacea, and there can be both bad people in capitalism and bad institutions, such as slavery. But the same is true of the alternatives. And if the slave-owners invoked property rights to defend their institution, in the end, as one can't help but realize from Mr. Dattel's detailed and even, at times, moving account, they were neglecting one of the most important property rights of all – the right of persons of any race to the fruits of their own labor.