BC’s weekend reads

  1. Understanding Trump’s trade mistakes
  2. Empiricism and humility
  3. Epistemological modesty and unintended consequences
  4. Immigrants and slaves
  5. 5 takeaways from the Dutch election

On Capitalism and Slavery : Pêle-Mêle Comments

Last week, a debate was initiated via an article in the Chronicle of Higher Education that relates to the clash between historians and economists over the topic of slavery. The debate seems acrimonious given the article and at the reading of a special issue of the Journal of Economic History regarding the Half has never been told by Edward Baptist, its hard to conclude otherwise. Pseudoerasmus published comments on the issue in a series of posts and a Trumpian twitterstorm (although the quality is far from being Trumpian). I find myself largely in agreement with him in response to the historians, but there are some pêle-mêle points that I felt I needed to add.

On Historians Versus Economists

To be honest, when I took my first classes in economic history, it seemed clear that there were important points that were agreed upon in the literature on slavery. The first was that the accounting profitability of slavery was not the same as the economic profitability (think opportunity cost here) of slavery. Thus, it was possible that (concentrating on the US here) the peculiar institution could more or less thrive regardless of the social costs it imposed (i.e. slavery is a tax on leisure which also increases the expropriation rate from slaves, and non-slaveowners often had to shoulder the cost of enforcing the institution). This argument is not at all new; in fact it is basically a public choice argument that Gordon Tullock and Anne Krueger could have signed on to without skipping a heartbeat (see Sheilagh Ogilvie – one of my favorite economist who does history in equality with Jane Humphries). The second point of agreement is that no one agreed on how to measure the productivity of slavery in the United States and the distribution of its costs and gains. The second point has been a very deep methodological debate which related to the method of measuring productivity (CES vs Translog TFP – stuff that would make your head blow and which also lead to the self-invitation of the Cambridge Capital Controversy to the debate). The quality of the data has been at the centre-stage as well, and datasets on slave prices, attributes, tasks and many other variables are still being collected (see notably the breathtaking work of Rhode and Olmsted here and here).

Thus, I will admit to being unimpressed by the use of oral histories to contest that literature. In addition, the absence of theory in Baptist’s work yields an underwhelming argument. Oral histories are super-duper important. The work of Jane Humphries on child labor is a case in point of the need to use oral histories. She very carefully used the tales told by children who worked during the industrial revolution to document how labor markets for children worked. The story she told was nuanced, carefully argued and supported by other primary evidence. This is economic history at its best – a merger of cliometrician and historian. In fact, while this is an evaluation that is subjective, the best economists are also historians and vice-versa. The reason for that is the mix of theory with multiple forms of evidence. But they key is to have a theory to guide the analysis.

Unexpectedly for some, the best exposition of this argument comes from Ludwig von Mises in his unknown book Theory and HistoryI was made aware of that book in a discussion with Chris Coyne of George Mason University and I proceeded to reading it. I was surprised how many similarities there were between the Mises who wrote that book and the Douglass Norths and the Robert Fogels of this world. The core argument of Theory and History is that axiomatic statements can be applied to historical events. The goal of historians and economic historians is to sort which theory applies. For example, the theory of signaling and the theory of asymmetric information are both axiomatically true. Without the need for evidence, we know that they must exist. The question of an economic historian becomes to ask “did it matter”? Both theories can compete to offset each other: if signaling is cheap, then asymmetric information can be solved; if it is not, asymmetric information is a problem. Or both may be irrelevant to a given historical development. To explain which two axiomatic statements apply to the event (and in what dosage), you need data (quantitative and qualitative). Thus, Theory and History actually proposes the use of econometrics and statistical methods because it does not try to predict as much as it tries to a) sort which axiomatic statements applied; b) the relative strengths of competing forces; c) the counterfactual scenario.

Without theory, all you have is Baptist’s descriptions which tell us very little and can, incidentally, be distorted by he who recounts the tales he read.

On the Culture of Peasants/Slaves/Slaveowners

When I started my PhD dissertation Canadian economic history, the most annoying thing I saw was the claim that the French-Canadians had “different mentalities” or “more conservative outlooks”. This was basically the way of calling them stupid. This has recently evolved to say that they “maximized goals other than wealth”. Regardless, this was basically: the French-Canadian was not culturally suited for economic development.

But culture is not a fixed variable, it is not an exogenous variable. Culture is basically the coherent framework built by individuals who share certain features to “cut out” the noise. Everyday, we are bombarded with tons of pieces of information and there is no way that the human brain can process them all. Thus, we have a framework – culture (ideology does the same thing) – which tells us what is relevant and what is irrelevant and what interpretation to give to relevant information.

People can cling to old beliefs for a long time, but only if there is no cost to them. I can persist in terrible farming practices if I am not made aware of the proper valuation of the opportunity I am foregoing. For example, British farmers who arrived in Quebec in the 19th century tended to use oxen as they did in England for tilling the soil. They had probably been taught to do that by their parents who learnt it from their grandparents because it was part of the farming culture of England. The behavior was culturally inherited. However, when they saw that the French-Canadians were using horses and that horses – in the Canadian hinterland – got the job done better, they shifted. The culture changed at the sight of how important was the foregone opportunity by continuing to use oxen. Where the British and the French co-existed, both were equally good farmers. Where they could not observe each other, they were all sub-optimal farmers. Seeing the other methods forced changes in culture.

The same applies to slaveowners and slaves! Slaveowners were a more or less tightly knit group that frequented similar circles and were constantly on the lookout to increase productivity. If some master had noticed that he could increase production by whipping more slaves, why would he not adopt this method? Why would he leave 100$ bill on the street? Why did the masters growing cotton in South Carolina not adopt the method of whipping adopted by growers in Louisiana? Without a theory of how culture changes (and what purposes it serves beyond the simplistic Marxist power structure argument), there is no answer to this question. With the work of Rhode and Olmstead, there is an answer: the type of cotton that had higher yields was not suited for growing everywhere! In this case, we are applying my comment from the section above on Historians versus Economists. There are competing theories of explaining increasing output: either some slave masters were unable to observe the other slave masters and adopt the torture methods they had (which would need to be the case for Baptist to be right) or there were biological limitations to growing the better crops in some areas (Rhode and Olmstead).

Two competing theories (they are not mutually exclusive though) that can be tested with data and they set a counterfactual. That is why you need theory to make good history.

One last thing: slave owners were not capitalists

This is probably the most childish thing to come out of works like those of Baptist: to assert that because slaves were capital assets, that the owners were capitalists. That is true if you want to adhere to the inconsistent (and self-contradicting) Marxist approach to capital. In fact, as Phil Magness pointed out to me, slave owners were not free market types. They were very much anti-capitalists. Slavery apologists like Fitzhugh and Carlyle were even more anti-capitalists than that. It’s not because you own capital that you are a capitalist unless you adhere to Marxist theory.

But, capital is just a production input. Its value depends on what it can produce. As Jeffrey Hummel pointed out, there is a deadweight loss from slavery: enforcement costs, the overproduction of cotton because slavery is basically a tax on leisure and the implicit taxation of the output produced by slaves. All three of these factors would have slowed down economic growth in the south. Thus, as capital assets, slaves were relatively inefficient.

Socialism is just a new form of slavery

When Fidel Castro died he was totally alone. It doesn’t matter if relatives or friends were standing beside him: in the end, we are all alone. We experience the world through our sense of perception. Of the things themselves we have no experience. On the other hand, all humans have perception of themselves. We just know that we are. This self awareness is a fundamental aspect of what it is to be human. Castro’s death already received a lot of attention, but I believe it is a moment really worthy of reflection. Under his half-century regime millions died or suffered, and it’s always important to remember that we are talking about a little country, an island in the Caribbean. Cuba was one of the most prosperous nations in the Americas, and today it is one of the most miserable.

It is really sad to see that most of my colleagues are unable to call evil by its name. In the mid-nineteenth century Karl Marx predicted that capitalism was going to collapse because of its internal contradictions. He was not saying that he wanted capitalism to collapse. He was saying that this was a scientific fact, as sure as the next eclipse predicted by an astronomer. Capitalism, of course, didn’t collapse. Marx’s economic theory was simply nonsensical, and was contradicted by logic and facts. But Marxists couldn’t admit it. Instead they replaced economics with culture, and the working class with Others as the oppressed. Blacks, women, Native Americans, underdeveloped countries and many others became the new oppressed class. Fidel Castro fit beautifully in the Marxism of the New Left. He was the charismatic dictator of the charming island nation of Cuba. The US, ruled by leftists in the 1960s and 1970s, was unable to give a consistent answer to it. Latin America, ruled by dictatorships that the left called “right” (no one wants to take their dictators home), was also not in place to contrast the evils of the Castro regime. A perfect storm.

Castro, for all we know, died with no regrets for the evils he committed in life. Political commentators say that history will judge him. But this is a lie. History can’t judge anyone. Only people can judge people. And it is fundamental that political commentators today judge Castro for all the evil he has done. Castro didn’t kill people in Cuba only. He supported, in one way or another, brutal regimes all over the world, mostly in Latin America. To this day he is partly responsible for the evils of Foro de São Paulo. But many political commentators insist in the lie that in Cuba there’s true freedom: they have enough to eat, universal healthcare and universal education. Why would they want freedom?

Freedom is the fundamental state of human beings. We are, in the end, all alone. Of what goes in our hearts, only we are aware of. Sometimes not even us. All of us make choices based on knowledge that’s unique. Circumstances of time and space shape the choices that we make. And life is made of choices. Marxism, socialism, and all forms of statism go against these fundamental truths.

People in Cuba are not free. They are all slaves to the Castro family. Some people want to have life in a cage, as long as they receive food every day. Of course this is a lie. In order to live in a cage you need to have someone outside the cage bringing the food. Someone has to be free. This person becomes your slave as well, and this constitutes a fundamental contradiction of socialism: Alexis de Tocqueville mentioned that socialism is just a new form of slavery. In slavery someone is forced to work for somebody else under the threat of physical violence. Under socialism everybody is forced to work for everybody else. Let’s hope that Castro’s death may help put socialism in the past, where slavery is, and that Latin America may finally see the light of freedom.

Brazil: the country of slavery yesterday is the country of socialism today

Although President Dilma Rousseff was impeached, and the PT (the Worker’s Party) suffered great losses in the municipal elections some weeks ago, it is still clear that PT in particular and socialism at large still has strong support among the population, especially in intellectual, cultural, and political circles. The Brazilian political spectrum often intrigues observers both from inside and outside the country: among the 35 registered political parties, almost none presents itself consistently as liberal or conservative. The only one to do so is the newly created Partido Novo (literally New Party). Other parties present themselves as socialist, social democrats, or don’t talk about this at all. To use the infamous left-to-right political spectrum, all political parties present themselves either as left or center. To present itself as right is still taboo for Brazilian political parties. Things surely seem to be changing as the already mentioned Partido Novo enters the scene and some individual politicians, such as Jair Bolsonaro, present themselves openly as right-wing. Also, social movements such as Movimento Brasil Livre and think tanks such as and Instituto Von Mises Brasil help create momentum for a new right in the country. It is possible that in future elections conservative and liberal candidates will gain seats, especially in the legislative chamber, but as parties are concerned, the right is still mostly a wasteland in Brazil. But why is that so?

Many analysts blame two factors for the lack of party representation for the Brazilian right. First, there’s the military government, from 1964 to 1985. Although statist both in political and economical terms (as it would be expected in a military government), this period was consistently identified as “right.” Therefore, to identify someone as right is still usually understood as to identify as a supporter of the military regime. Second, there is the successful work of the left, especially in the propaganda arena. The main reason for the 1964 coup was the threat of a communist revolution, such as in Cuba. The military was successful in fighting the communist guerrilla insurgency in the countryside, but were mostly unaware of the intellectual struggle in schools, universities, and other places (despite much talk of censorship to this day). Related to that or not, the fact is that the right is still underrepresented in intellectual and cultural spheres.

I’m not saying that either of the above explanations is wrong, but I’d like to suggest an alternative that goes much further in the past: Brazil is the country of socialism today because it was the country of slavery yesterday. When slavery was abolished in 1888, Brazil was the last country in the Western world to do so. An estimated four million slaves had been imported from Africa to Brazil, 40% of the total number of slaves brought to the Americas. This is ten times as many as were trafficked to North America and far more than the total number of Africans who were transported to all of the Caribbean and North America combined. According to the only national census accomplished during the monarchy, in 1872, Brazil had a population of about 10 million people. 15.24% were slaves, and 84.8% were free. It is most likely that this census doesn’t reflect the reality of the whole monarchical period, as successive laws against slavery, immigration, and other factors moved these percentages over time.

José Bonifácio de Andrada e Silva, a major figure in Brazilian politics of the time, praised freedom in his writings, but kept slavery in place, even with British pressure to abolish it and subsequent promises to help. He did that because he needed the slave owners’ money and thought that abolition wasn’t politically wise. Bernardo Pereira de Vasconcelos, founder of the Conservative Party, was a slave owner and even rented his slaves for public works. Many subsequent leaders of the Conservative Party, such as Paulino José Soares de Sousa, were part of the Fluminense slave-owning aristocracy either by birth or by marriage. Anyway, the Conservative Party wasn’t in a hurry to abolish slavery. The lack of revenue and the political implications were matters of much greater concern than the humanitarian cause. When they finally passed the gradual laws for abolition (and ironically they passed them all) it was to appease the liberal opposition, not for the sake of the cause. Conservatives were also unwilling to employ the Africans as free workers or to treat immigrants as free individuals: their plan was to gradually abolish slavery and to substitute it with a cheap immigrant labor force in large estates through laws restricting access to land. To their surprise, this plan never succeeded. Their last effort, to bring supposedly naïve Chinese in to substitute slaves, was barred by the liberals.

The legacy is that the country of slavery yesterday is the country of socialism today. As Herbert Spencer once said, “All socialism involves slavery.” Even better, Alexis de Tocqueville said that “Socialism is a new form of slavery.” Both share the same thought: slavery is forced labor of one individual to another. Socialism is forced labor of everyone to everyone else. When “rights” abound, it’s worth asking how they will be paid. Brazil is a country of rights, but not of duties or responsibilities. Just as it was the right of the elites of the past to have the slaves working for them, it’s the right of people today to receive social benefits from everyone else. People can (maybe naïvely) defend socialism as much as people in the past defended slavery, but to treat adults as infants is neither moral nor wise. Sure, Brazil still has a population that suffers from the mistakes of the past. But two wrongs don’t make a right.

Confederate Flag Hysteria

So the Stars and Bars is coming down from the South Carolina statehouse to the accompaniment of whooping and hollering by breast-beating politicians. If you have the stomach, you can watch some of it here. Now, sure as clockwork, politicians are tripping all over each other to get on the bandwagon. Flags are coming down all throughout the South. You can no longer buy them on Amazon or at Walmart, although at this writing they’re still seen on eBay. Statues of Confederate heroes are in danger of being ground up for use as concrete aggregate.

What’s the meaning of the Confederate flag, anyway? It depends whom you ask. It means nothing to me. To some white Southerners, it’s a reminder of their brave forbears’ fight for their honor. To many blacks, perhaps most, it’s a symbol of hate. Who’s right? All of the above; none of the above—it’s whatever you want to make of it. What’s disturbing is the widespread ignorance of what the Civil War was about. It was about secession, first and foremost, and only secondarily about slavery. Lincoln freed the slaves as a tactical matter, and only in the re-conquered Southern states, and not until two years into the war. Before the war he made it quite clear that his goal was to preserve the union, and if freeing the slaves would further that goal, he would free them, and if not, not.

It is the height of oversimplification to cast the rebels as bad guys and the yankees as good guys. There were many acts of kindness between whites and blacks on both sides of the line and of course, many atrocities on both sides. This doesn’t justify slavery the least little bit. But the war was the wrong way to end it. If the South had been allowed to go its way, 600,000 lives plus uncounted misery and destruction would have been averted. Slavery would not have lasted much longer in the South for economic and moral reasons. One economic reason is that the best slaves would have escaped to the North where they would no longer fear being deported. The gradual mechanization of farms is another. On the moral front, although ideas moved more slowly in those days, thoughtful Southerners would gradually come to see slavery as abominable and indefensible. (Highly recommended: Jeff Hummel’s groundbreaking revisionist treatment of the war, “Freeing the Slaves, Enslaving Free Men.”)

I take their word for it that blacks see the flag as a symbol of oppression. Given that, I would have to agree with the action in South Carolina notwithstanding the insult to Southern pride. But I’m not so naïve as to believe race relations will improve as a result. In fact, I fear they’ll get worse. If the flag wasn’t a symbol of racial animosity before, it is now. Positions will be hardened. White Southern conservatives, having recently taken a beating on gay marriage, will be further marginalized and polarized. The “progressives,” having smelled blood, will be on the warpath (oops—is that word racially insensitive?). They’ll be out on search-and-destroy missions, hunting down vestiges of Southernism.

My humble suggestion: let’s not get so worked up about symbols, whether they’re flags, crosses, Mohammed cartoons, or even the dollar sign on the last page of Atlas Shrugged.

Ferguson: the Problem is Collectivism

We Austrians emphasize the fact that only individuals act.  This may sound like a dry academic pronouncement, but sometimes events bring its meaning dramatically to the fore.  The Ferguson story is one such event.

While lunching in Palo Alto recently, I looked outside to see the street briefly blocked by demonstrators chanting and carrying signs with slogans like “black lives matter.”  I wished I could confront one of them with a few facts, but then again, facts matter little to such folk, even in trendy Palo Alto.

The racially mixed grand jury took seventy hours of testimony.  That’s a lot.  They know what happened better than you or I or anyone besides the officer involved.  The shooting was justifiable.  Another fact that seems to have gotten buried: Michael Brown was a criminal, just having completed a robbery when he was shot.  It’s too bad that he died, but hey, criminal activity is risky.

In light of these simple facts, how can people propound such irrationality as the demonstrators exhibited?  The answer lies in the fallacy of collective guilt, a sub-species of collective action.  Because white police officers sometimes shoot innocent black citizens, the fallacy implies that any white police officer who shoots a black civilian is necessarily guilty.

Now I want to extend this piece to the idea of reparations for slavery, a grotesque bit of nonsense that pops up from time to time, most recently, sad to say, in a piece by our own Brandon Christensen, albeit in passing.

Let me get this out of the way: slavery was a vicious, horrible institution.  The idea of reparations or restitution has some rationality on the face of it.  In general, people should be compensated, where possible, for violations of their rights, and what could be a more vicious form of rights violation than slavery?

From an individualist point of view, the idea of reparations is preposterous.  I for one know pretty well who my ancestors were, and I’m quite sure none of them held slaves.  But suppose I did have such an ancestor.  The next question is how much benefit I might have received from his slaveholding.  To answer that, we have to examine the counterfactual situation in which my ancestor did not hold slaves.  How much bigger was the bequest that he passed on (if any) versus what it would have been without slaves?  How much of that bequest filtered down to me, among possibly dozens of his descendents.  Clearly this is a preposterous undertaking, especially at this late date.

Well then, why not force all white people to pay something to all black people?  This of course is the idea of collective guilt, an idea nearly as repulsive as slavery itself.  But let’s carry on with it anyway.  Now we have to decide who is a white person and who is black.  Does Barack Obama count, being half white and half black?  Is one quarter black enough?  One eighth?

Carrying on, where will the loot come from?  White people will have to reduce their consumption and/or savings.This will exacerbate unemployment, at least temporarily, and reduce future productivity.  What would black people do with the money?  Some would judiciously save and invest it but most would not.  I say this because studies have shown that the majority of the winners of large lottery prizes blow the money, unaccustomed as most of them are to saving and investing.  Most blacks, I contend, would blow their reparations windfall on short-term consumption and possibly, like many lottery winners, end up in debt to boot.

Let’s keep things in perspective.  Racism is a minor problem in our society compared to the crushing burden of the welfare-warfare state that we all bear.

Slavery and the footnotes

I came across this old essay on slavery by economist Gordon Tullock (h/t Tyler Cowen) and what struck me (aside from an excellent presentation of the economics of slavery) was this footnote on the inevitable dissolution of Marxism (this paper was written in 1967):

It may be that the dissolution is not the first step toward the total elimination of this powerful religion, but merely a breaking away of the talmudic encrustation of the true scribes and pharisees of the Second and Third Internationals. Such a development is not uncommon in the history of other religions. My personal opinion is that the disintegration which we now see is more fundamental, however, and I doubt that Marxism will survive the century as a living faith.

In my own experience in the classrooms of powerful and plebeian universities alike, Marxism has indeed disintegrated into virtually nothing. Marxism has, rather, become a sort of an embarrassing older uncle that professors chuckle about in a manner that is more reminiscing than bitter. They all realize that Marxism led to very bad things, but they are unable to acknowledge that capitalism – Marxism’s Other – has brought about peace and prosperity for untold billions.

It would be wise for us, therefore, to continue to focus on this dead religion. Deep-seated beliefs are hard to let go of, even after these beliefs have been shown – theoretically and empirically – to lead to horrors of the worst kind. “Yes,” the embarrassed former adherents grudgingly admit, “communism has failed miserably, but socialism has not. It has not even been tried, and besides, it is capitalism that is responsible for the world’s ills today.”

This is not obstinance. This is deceit, plain and simple.

So how do we go about combating obvious deceit (rather than the sophisticated theories of 20th century Marxists)?

I think the answer is to just debunk their examples on a case by case basis, in as public as a forum as you can muster. Famines in east and central Africa, for example, have often been attributed to capitalism because of the policies of the World Bank and IMF. Libertarians ought to agree with most of this, and then simply point out that the World Bank and the IMF are central planning agencies designed, created, and supported by governments in the West. Once this fact -which is not quite as simple as it appears – is acknowledged, you can go from there and take a public choice route, an Austrian route, or even a populist libertarian route to explain why capitalism is not responsible for famines.

Wars, genocides, ethnic cleansing campaigns, etc., can all be explained (and eliminated) if libertarians focus on the role of the State in all of these ills rather than on the theoretical or empirical weaknesses of socialist explanations and proposals.