I really enjoyed Princeton professor Matthew Desmond’s big piece in the New York Times on the impact American slavery has on our capitalist system today. What I found particularly interesting is his explanation of what led up to the financial crisis of 1837 and how similar it was to the housing crisis of 2007-2008.
In short, cotton-producing slaveholders developed a system of finance very much like the one that led to the housing bubble. Slaves were used for loan collateral, but in a way that grossly exaggerated their true financial worth. Collateralized debt instruments were invented to pool the risk from these loans, meaning that many investors were unaware that they were profiting from slavery or that the soundness of their investments was tied to an unrealistic expectation that the price of cotton would go up forever.
Then, when it all collapsed and the planters couldn’t repay they mortgages, they largely escaped the consequences, with many fleeing to the independent state of Texas with their slaves to avoid foreclosure.
You should read the whole thing, but here is the conclusion to the article:
Furious bondholders mounted lawsuits and cashiers committed suicide, but the bankrupt states refused to pay their debts. Cotton slavery was too big to fail. The South chose to cut itself out of the global credit market, the hand that had fed cotton expansion, rather than hold planters and their banks accountable for their negligence and avarice.
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.
One important theme to the piece is that American capitalism is particularly harsh when compared to other capitalist systems, especially to wage workers, and this is a straight-line legacy of slavery which drove down wages for everyone and relied on a legal construct that was very light on regulation and worker’s rights. The other main theme is that many important innovations they were adopted by businesses during the Industrial Revolution were first developed on plantations to keep track of and control workers, and to improve their productivity.
This is must reading.
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