Paid Labor vs. Slave Labor

Posted by PITHOCRATES - July 15th, 2013

Economics 101

Paid-Laborers are Rented as Needed while Slave-Laborers are Owned even when not Needed

There is a common misconception that slave labor was free labor.  The argument goes that the United States got rich because of all their free slave labor.  They’ll say this despite knowing of the immense suffering of African slaves on the slave ships.  Who came to the New World where slave traders auctioned them off.  This was the slave trade.  The key word in this is ‘trade’.  African slave traders sold them to European slave traders.  Who auctioned them off in New World slave markets.  To feed a labor-hungry market.

People bought and sold slaves.  And anything you buy and sell is not free.  So slave labor wasn’t free.  It was a capital cost.  Let’s explain this by comparing leasing and owning.  Businesses can buy buildings.  Or lease them.  If they buy them they own them.  And are responsible for them.  They add a large asset on their balance sheet that they depreciate.  And add new debt that they must service (making premium and/or interest payments).  They also must pay expenses like taxes, insurance, maintenance, supplies, utilities, etc.  Things owners are responsible for.  When they lease a building, though, they don’t add an asset to depreciate.  And they don’t pay any expenses other than a lease payment.  The owner, the lessor, pays all other expenses.  When you lease you pay only for what you use.  When you buy you pay for what you use now.  And what you will use for years to come.  We can make a similar comparison between paid-labor and slave-labor.

Paid vs Slave Labor 1 of 3

For this exercise let’s take a factory today with 125 employees.  We’ll look at the costs of these laborers as paid-laborers versus slave-laborers.  We assume that the total labor cost for everything but health care/insurance is $65,000 per paid-laborer.  And an annual health care expense of $5,000.  Bringing the total annual labor and health care/insurance costs for 125 paid-laborers to $8,750,000.  For the slave laborers we assume 47 working years (from age 18 to 65).  But we don’t multiple 47 years by $65,000.  Because if we buy this labor there are a lot of other costs that we must pay.  Slave traders understand this and discount this price by 50%.  Or $32,500 annually for 47 years.  Which comes to $1,527,500 per slave-laborer.  Bringing the annual total cost for all 125 slave-laborers to $4,062,500.  And, finally, because they own these laborers they don’t have to offer premium health insurance to attract and keep employees.  So we assume health care/insurance expense is only half of what it is for paid-laborers.

Slave-Labor Overhead included Food, Housing, Clothing and Interest on Debt that Financed Slave-Laborers

If we stop here we can see, though not free, slave-laborers are a bargain compared to paid-laborers.  But if they own these people they have to take care of these people.  They have to provide a place for them to live.  They have to feed them.  Clothe them.  As well as pay interest on the money they borrowed to buy them.  And the building to house them.  For if they are not fed and protected from the elements they may not be able to work.

Paid vs Slave Labor 2 of 3 R1

A slave-owner will try to keep these overhead costs as low as possible.  So they won’t be feeding them steaks.  They will feed them something inexpensive that has a high caloric content.  So a little of it can feed a lot of people.  In our exercise we assumed a $1.25 per meal, three meals daily, seven days a week, 52 weeks a year.  For a total of $170,625 annually.  We assumed a $500,000 building to house 125 slave-laborers and their families.  The depreciation expense (over 40 years), taxes, insurance, supplies (soap, toilet paper, laundry detergent, etc.) and utilities come to $24,100 annually.  For clothing we assume a new pair of boots every 5 years.  And 7 inexpensive shirts, pants, tee shirts, underwear and socks each year.  Coming to $10,094 annually.

Then comes one of the largest expense.  The interest on the money borrowed to buy these slave-laborers.  Here we assume they own half of them free and clear.  Leaving $95,468,750 of debt on the book for these slave-laborers.  At a 4.25% annual interest rate the interest expense comes to $4,057,422.  We also assume half of the debt for the housing still on the books.  At a 4.25% annual interest rate the interest expense comes to $10,625.

George Washington was Greatly Bothered by the Contradiction of the Declaration of Independence and American Slavery

These overhead expenses bring the cost of slave-laborers nearly to the cost of paid-laborers.  Almost making it a wash.  With all the other expenses of owning slaves you’d think people would just assume to hire paid-laborers.  Pay them for their workday.  Their health insurance.  And nothing more.  Letting them go home after work to their home.  Where they can take care of their own families.  Provide their own food.  Housing.  And clothing.  Which they pay for out of their paycheck.  Of course, this wasn’t quite possible in the New World.  There weren’t enough Europeans living there to hire.  And the Native Americans in North, Central and South America were more interested in getting rid of these Europeans than working for them.  Which left only African slaves to exploit the natural resources of the New World.  But that slave-labor could grow very costly over time.  Because when you own people you own families.  Including children and elderly adults who can’t work.  By the time of our Founding this was often the case as some slave owners owned generations of slave families.

Paid vs Slave Labor 3 of 3 R1

In our exercise we assume an equal number of men and women working in the factory.  Assumed these men and women married.  And half of these couples had on average 3 young children.  We’ve also assumed the current working generation is a second generation.  So their surviving parents live with them.  We assumed half of all parents are surviving.  These children and the surviving parents cannot work.  But they still must eat.  And require medical attention.  Using the costs for the workers these non-workers add another $845,469 to the annual labor cost.  Brining the cost of the slave-laborers greater than the cost of the paid-laborers.

George Washington was very conscious of history.  Everything he said or did was with an eye to future generations.  And their history books.  One of the things that greatly bothered him was the contradiction of the Declaration of Independence declaring all men equal while the institution of slavery existed.  But to form a new nation they needed the southern states.  And they wouldn’t join without their slaves.  So they tabled the subject for 20 years.  Sure by then that the institution would resolve itself and go away.  Washington believed this because he had many generations of slaves on his plantation.  And desperately wanted to sell them and replace them with paid-laborers.  Because he was feeding so many slaves that they were eating his profits.  But people wanted to buy only those who could work.  Not the children.  Or the elderly.  Unable to break up these families he did what he thought was the honorable thing.  And kept using slaves.  To keep these families together.  Making less money than he could.  Because slave-labor was more costly than paid-labor.  Contrary to the common misconception.

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