Every example discussed in this section is ironic in the context of free markets. But perhaps none so much as the institution of slavery. For more than three hundred centuries, human beings were forcibly removed from their homes and families in Africa and brought to the United States to become slaves. To make what is obvious perfectly clear, slaves are not, by law, human beings. They are property, with no rights beyond what their masters grant them and no say in their own destiny. They haven't the right to live with, or even know the fate of, their spouses or children. They haven't the right to speak or assemble. They haven't any rights that we take completely for granted. In most of the world, these conditions are considered abhorrent and are policed forcibly.

Yet, the American economy really got underway because of slavery. Productivity gains are defined to be gains in the output of a workforce that outpace the cost of labor. So, essentially free labor, with bare subsistence costs as the only compensation, with tremendous added output is a huge boost to productivity and profitability. These profits are, in turn, be reinvested in the economy in the form of capital investment and increased spending, which results in higher demand for goods, services and employees. This provides a better environment for entrepreneurship, which leads to innovation and further gains. And so on. Estimates of the value of slave labor are staggering. And yet, this value was got for free, and purely by force. Again, the claim of "uncivilized people" was the outward justification of this unconscionable institution, but the fact remains that this practice was one of forcible self-interest. So, what about free markets? Well, in this case again, the branches of government closely protected the rights of the white constituency to accumulate capital and act out of self-interest. What if the same atrocities that were acceptable when performed by slave masters were also deemed acceptable when performed by slaves acting out of the "same" kind of self-interest? History would probably look quite different.

But this is still theoretical. The fact is that in these conditions, the size of the economic pie was not maximized. This is best illustrated by an example from the period. Just after the emancipation of the slaves in America, land allocations were made along the lines of color. Blacks were only offered land characterized by hard, unwieldy clay-soil. While this soil is fine for some crops, corn and cotton, two of the most popular crops in the Post-Bellum South were not among them. Indeed, sandy soil is far more effective for the farming of most southern crops. Not surprisingly, white farmers kept property with this kind of soil for themselves. And yet, during the period just after the Civil War, black farmers were outperforming white farmers in terms of bushels per acre of output. How is this possible? During the Civil War, the Confederate army was made up of ordinary citizens, many of whom were farmers previously. The Confederates were a poor army, and couldn't afford proper supplies for the war, such as good boots or healthy foods. They were fed a steady diet of unhealthy foods and were persistently under-equipped for long stays in the field of battle in harsh conditions. These conditions took their toll on the soldiers, many of whom, when they returned home, were ill with so-called "lazy diseases," which make it hard to work. Black farmers, most of whom did not fight for the confederates and having a healthier diet at the time, were not affected by these diseases in any significant way.

In 1920, however, an eradication program was instituted by a wealthy Northern family that caused the widespread cure of such diseases. What happened thereafter was eye opening. Not surprisingly, white productivity skyrocketed, surpassing that of black farmers. This is expected because of the natural advantages of the land that white farmers typically cultivated. What is extremely surprising is that black farmers' output declined, suddenly and permanently thereafter. While it is impossible to say with complete certainty what caused this mysterious decline in output, it is most likely that the answer lies in the indirect results of the regained health of white farmers. Lazy diseases do not only make it hard to farm. They also make it hard to do anything physically demanding, such as intimidate or terrorize black farmers. When the whites became healthier again, they were much more effective agents of discrimination. The interesting point for the current discussion, though, is that the kinds of discrimination that were rampant in the Post-Bellum South did not encourage the maximization of the economic pie. Remember, black output declined when the whites got healthier. Had this discrimination been appropriately regulated, the total production in the south would have been substantially higher.



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