Stages of Production, Free Market Capitalism, Civil War, King Cotton, Emancipation Proclamation, Southern Democrats and Jim Crow Laws

Posted by PITHOCRATES - July 17th, 2012

History 101

Free Market Capitalism maximizes Wealth Creation with Free Markets, Free Trade and Free Labor 

The whole point to a value added tax (VAT) is that we add value as we go through the stages of production.  Raw materials in the earth have no value.  They begin having value when we extract them.  Raw iron ore gains value when we process the iron out of the rock.  A Great Lakes freighter full of taconite pellets (processed from low-grade iron ore flint-like rock) is worth more than the same weight of the low-grade iron ore flint-like rock.  These taconite pellets gain value when we transform them into steel in a blast furnace.  That steel gains more value when we transform it into steel products (like a truck frame or a refrigerator).  The finished goods we incorporate these steel products into gain even more value.

The VAT tax applies a tax on the increased value at every stage in the stages of production.  It’s a way for government to collect a lot of tax revenue without using something obvious like a sales tax.  Because no one but the government knows all the tax collected on all that value created.  Which is a very important point.  Increasing value increases tax revenue.  And that’s because increasing value increases wealth.  Making economically advanced countries (with a lot of economic activity throughout the stages of production) wealthy countries.  Giving them an advanced industrial base.  An extensive infrastructure.  And a high standard of living.

Free market capitalism maximizes this wealth creation.  Free markets.  Free trade.  And free labor.  Where people can work hard to learn a skill that will give them more value.  And the ability to create more wealth with their labors.  Allowing them to earn a nice paycheck.  That they can use in the market place to buy things.  Contributing to economic activity.  And the wealth creation in the country.  As well as the tax base.  The greater the population the greater the number of people engaging in economic activity.  The greater the number of retail stores.  The greater the wholesale industry.  The greater the manufacturing base.  And the greater amount of raw material extraction.  All of this activity producing an advanced nation.  That can build whatever it needs.

Lincoln’s Emancipation Proclamation made it Impossible for the Europeans to Support the Southern Cause

There were two Americas in the mid 1800s.  An industrial North.  And an agricultural South.  An advanced nation in the north based on free labor.  And medieval economy based on slave labor in the south.  In the north they had factories, shipyards, railroads and everything else a modern industrial nation had.  In the south they had cotton.  In the north they had a growing population of free men.  In the south they had a growing population of slaves.  In 1861 the North had a population of about 22 million.  The South had a population of about 5.5 million free men.  And about 3.5 million slaves.  So the North enjoyed explosive economic activity creating great wealth.  While the South enjoyed great wealth from their cotton.  For the few plantation owners.  The slaves didn’t enjoy any of that wealth.  While the majority of the white population struggled to scratch out a living on small family farms.

When the American Civil War broke out the South was at a distinct disadvantage.  For technology wins wars.  And the North was far more technologically advanced than the South.  As Rhett Butler said in Gone with the Wind, “They’ve got factories, shipyards, coal mines…and a fleet to bottle up our harbors and starve us to death.  All we’ve got is cotton, and slaves and…arrogance.”  Which was true.  But in their arrogance they thought that King Cotton would trump all of the North’s advantages.  By bringing in the British on the South’s side.  Because Britain bought a lot of that southern cotton.  And the South was sure that Britain would support their cause to maintain that cotton flowing to their textile and garment industries.  They thought wrong.

Cotton was a raw material.  And other people could grow it just as well as the southern plantations.  Yes, the self-imposed cotton embargo by the South on Britain hurt the British.  Causing a major interruption to their textile and garment industries.  But it didn’t take long to replace that Southern cotton with Egyptian and Indian cotton.  And in no time the British industries were up and running again as if nothing had happened.  Creating higher orders of wealth than the raw cotton resources of the South.  Which was a problem for the South.  For there was no way for them to break the blockade of their harbors without European help.  But that help would never come.  Because the only thing they had to offer, cotton, was available elsewhere.  Not to mention the fact that Britain had emancipated her slaves.  And was working diligently to interdict the Atlantic slave trade.  So they weren’t coming to the South’s aid.  And if Britain wasn’t going to help then neither were the French.  And Lincoln’s Emancipation Proclamation was just the icing on the cake.  Making it impossible for the Europeans to support the Southern cause.  It then became a matter of time for the technologically advanced north to defeat the medieval South.

The South’s Old World Economy was just no Match for the New World Economy of the North  

Outmanned, out manufactured and with no foreign recognition the South learned the lesson that an economy based on slave-labor was no match for an economy based on free market capitalism.  For the slave-based agricultural economy was little different than the feudalism of the Middle Ages.  A system long since abandoned in Europe but clung on to in the Confederate South.  Concentrating the wealth in a few hands.  The landed aristocracy.  And a small middle class of artisans and business owners primarily to serve the planter class.  While everyone else, whites and slaves, worked hard and barely survived.  The blacks of course suffering more than the whites.  But they both lived in poverty.

The advanced economy of the industrial North built ships, cannon, rifles, bullets, locomotives, track and everything else a modern industrial economy has.  Their ships commanded the rivers and the southern coast.  The South was cut off from the rest of the world.  Their valuable cotton sitting worthless in warehouses because there was no one to sell it to.  Not even in the South.  For while the North had a textile industry the South did not.  With no way to add value to this cotton this cotton lost all value.  And the Southern economy collapsed.  Because cotton was all they had.  Well, that, and arrogance.  But when that cotton became worthless the South had nothing.  And little choice but to surrender.  And they did.  First General Lee to General Grant.  Then General Johnston to General Sherman.  And soon the war was over.

It took some 4 years and about 600,000 dead.  Which is especially sad considering the South never had a chance.  Their Old World economy was just no match for the New World economy of the North.  With the thing they were fighting for, slavery, being the cause for their defeat.  For slavery may have worked in a medieval agricultural-based economy.  Where there were no stages of production.  Just procurement of raw material.  But it was no match for free men working in free market capitalism.  Which is why the North prevailed in the Civil War.  And why the United States went on to be an economic superpower.  And leader of the free world.  Thanks to President Lincoln.  Who freed the slaves.  And the South from its Old World past.  Unleashing human capital everywhere throughout the United States.  And allowing all people to engage in economic activity.  Though the freed slaves would suffer discrimination for decades under the Southern Democrats.  And their Jim Crow Laws (separate but equal).  But the Republicans would eventually usher in civil rights legislation ending that.  Just as they ended slavery.  Allowing all people to live a better life under free market capitalism. 

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Free Labor

Posted by PITHOCRATES - December 5th, 2011

Economics 101

Unlike Slaves Paid-Laborers Worked, Went Home and Fed & Housed their Own Families

Agriculture advances gave us food surpluses.  Food surpluses gave us a division of labor.  The division of labor gave us trade.  Money made that trade more efficient.  Religion and the Rule of Law allowed great gatherings of people to live and work together in urban settings.  Free trade let us maximize this economic output and elevated our standard of living.  And to sustain this economic growth we needed something else.  Free labor.

Slavery as an economic model has serious defects.  For one the labor is not free.  People are restrained against their will.  And only work to minimize their pain and suffering.  They do not think or innovate.  Their human capital is wasted.  Because no one voluntarily thinks and innovates to make a better life for others.  Especially if it  won’t improve their own life.  A slave, then, has little incentive to think or innovate.  Their incentive is to follow orders.  Because that was the proven way to minimize their pain and suffering.

Buying human beings is also less efficient than renting them.  Not everyone in a slave family was in their working prime.  The elderly couldn’t work the fields anymore.  Neither could the infant children.  But they all needed room and board.  Unlike a paid laborer.  Who you paid only for the hours they worked.  You didn’t feed or house them.  They worked and went home.  And fed and housed their own families. This is why George Washington wanted to sell his slaves and replace them with paid laborers.  To increase his profits.  But he found people were only interested in buying slaves in their working prime.  He could sell some.  But not all of them.  Which meant breaking up slave families.  Something he couldn’t do.  So he kept his slaves.  Settled for lower profits.  And kept the slave families together.

The Slave-Economy in the New World was a Step Backward toward Old World Aristocracy

Not everyone was as kind as Washington.  Some people had no problem breaking up families.  Or abusing their slaves.  But they all had to exercise restraint.  Because a maimed or a dead slave couldn’t work.  A problem for slave owners because they bought their slaves.  Often borrowing money for the purchase.  So it was costly to replace them.  As well as to train them.  One skilled in picking cotton may not readily take to harvesting and drying tobacco.  Whereas you could simply advertise for a hired hand who was skilled in harvesting and drying tobacco if you used free labor.

Free labor added to the economy.  Because they had earnings for economic exchange.  Slaves didn’t.  The slave owner provided their room and board.  So they were not only enslaved they were also dependent on others for everything free laborers bought with their earnings.  Economic exchanges in a slave economy, then, were limited to the wealthy landowners.  Making it a system much like European feudalism or Russian serfdom.  Only instead of peasants or serfs there were slaves.  Who were less free.  And even poorer.

Thus the slave-economy in the New World was a step backward toward Old World aristocracy.  (And a little beyond it.)  Where there were a few rich and a lot of poor.  Agricultural reform came with the help of the Black Death.  When the balance of power tipped from the landed aristocracy to the much thinned out labor force.  Who could then demand wages and better conditions.  And then came capitalism.  For those new wage-earners had money for economic exchanges.  Which they made.  Thus producing a prosperous middle class.  Which took root in the New World.  At least, in the parts of the New World that used free labor.

Our Capacity to Think is the Key to Unlocking our Human Capital, Economic Growth and the Quality of Life

The great problem of slavery (other than the moral one) is that it excluded a great part of the population from the economy.  Slavery excluded millions of people from making economic exchanges.  And millions who might have thought and created didn’t.  Their human capital was wasted.  Setting economic development back.  As well as the quality of life.

In a modern capitalistic economy there must be no slavery.  Or dependency.  Because those enslaved or dependent do not create.  Or innovate.  They just exist.  And do not maximize the gift of being human.  Our capacity to think.  Which is the key to unlocking our human capital.  Economic growth.  And the quality of life.

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LESSONS LEARNED #60: “Fool me once shame on you. Fool me twice shame on me. Fool me again shame on public education.” -Old Pithy

Posted by PITHOCRATES - April 8th, 2011

Slaves were Costly and Inefficient

George Washington made a profit on his plantation.  Better than some of his fellow Founding FathersThomas Jefferson couldn’t make a profit and was forever in debt.  But Washington could.  And did.  And would have been more profitable had he split up his slave families.  You see, he wanted to sell his slaves and use paid-laborers instead.  Why?  Because paid-labor was more profitable than slave-labor?  “What?!?” you ask.    Yes, that’s right.  Paid-labor was more profitable than slave-labor.  For a couple of reasons. 

First of all, slaves weren’t free.  People bought them at auction.  And anyone familiar with an auction knows that people sell to the highest bidder.  So there was an initial ‘investment’ in a slave that you didn’t have with a paid-laborer.  Think of this as the difference of buying or renting a house.  If you buy you pay a lot of money to own the house.  And you are responsible for all of the maintenance and upkeep on the house.  It’s different with renting.  You pay just a little bit each month for as long as you stay in the house.  It’s similar with paid-labor.  You rent people for the time they work.  Then they go home and feed and house themselves.  Slaves didn’t go home.  Because they were home.  And planters had to feed and house them.  And attend to their other needs.  These costs added up.  Especially if you had a lot of slaves out of their working prime (old men and young children) that you still had to feed and house.  And these are what Washington had a lot of.  Many generations of non-working slaves that he had to feed and house.  Which is why he wanted to sell them.  But people only wanted the workers.  Not the rest of the family.  But he refused to break up the slaves families.  So he kept them.  Even though it was a poor business decision.

Now Washington was no abolitionist, but he saw the conflict between the institution of slavery and the American ideal.  But his motives were financial at first.  His large crop of tobacco was not a money-maker.  So he wanted to diversify his crops.  And his risks.  Which meant different labor skills for different crops.  And this favored paid-labor.  Because you can always hire skilled laborers to grow these different crops.  Which was the great disadvantage of slave-labor.  Their advantage was in the large, single-crop plantation where a diverse skill-set was not required.  Trained in one skill, they kept repeating that single skill on a grand scale.  It was the best you could hope for from slave-labor.  Where people did the minimum to avoid punishment.  For that was their only incentive.  Paid-laborers, on the other hand, you can fire them.  Or reward them for bumper crops.  So they have an incentive to hone their skills and become the best at what they do.

King Cotton Abdicates

But Washington couldn’t break up the slave families.  And there was no way to give them the many years of farming skills overnight in these new skill areas and turn them into proper paid-laborers.  Who could take care of themselves and their families while integrating them into free society.  Unless he gave up his day job.  So he continued to use slave-labor.  However, his will freed his slaves after his wife passed away.  He and his wife were the last generation to live the old way of life.  His successors were to live the new way of life.  His will further instructed to teach the newly freed slaves trade skills and help them integrate into free society.

Many critics of the United States like to point to the institution of slavery and say that is why we became a great nation.  That we grew rich on slave-labor.  That we reaped huge profits because slaves were free.  Nothing could be further from the truth.  First of all, as noted above, slave-labor was not free labor.  It was costly.  And inefficient.  It was such a bad business model that it had almost died of its own accord.  As many of the Founding Fathers had earnestly wished.  But something happened.  Eli Whitney invented the cotton gin.  Now machines could separate the seeds from the cotton faster than they could pick it.  All of a sudden the large, single-crop, cotton plantations in the south needed to plant, grow and pick more cotton than ever before.  To feed these new, hungry machines.  Cotton was the new high-demand fabric.  The textile markets in Great Britain couldn’t buy enough of it.  And the Southern economy flourished like it had never did before.  Southern planters grew rich.  As did the Southern economy.  King Cotton they called it.  Because cotton was king.

And that is why the South lost the Civil War.  For if cotton was king that meant the South was a monarchy.  And for all intents and purposes, it was.  Most Southerners didn’t own slaves.  Most were poor.  Working on family farms.  The institution of slavery didn’t tarnish them.  No.  The rich planters owned the vast majority of the slaves.  The planter elite.  The planter aristocracy.  And it was an aristocracy in every sense of the word.  Just watch the classic Gone with the Wind and tell me what that world reminds you more of.  America?  Or European feudalism?  That wasn’t America.  America was the poor southerner working the family farm.  And the poor northerner working the family farm.  It was not inherited wealth passed from generation to generation.  Wealth created by labor bonded in servitude attached to the land (serfs in Europe, slaves in America).  No, this was not America.  It was a charmed life for the privileged few.  But only the privileged few.  Because it mattered what your last name was.

Laissez-Faire Capitalism wins the Civil War

The North won the Civil War because it was more laissez-faire capitalism.  The South had the better generals at the beginning of the war.  And the Southern soldier was a formidable foe in combat.  But factories in the North fed Northern shipyards.  Which built a navy that blockaded southern ports.  Making all that cotton worthless.  Great Britain would then turn to India for her cotton needs.  So much for King Cotton. 

The Southern economy was a cotton economy without a market.  They had factories and shipyards, too, buy not like the industrialized North.  The South never had a chance.  Unless she could strike a winning blow early.  Because they could not win a war of attrition.  Which is what the Civil War became.  Especially after the Confederate ‘high water’ mark.  Gettysburg.  The Confederacy shrank as the Union Army advanced.  Fed by a growing network of railroads.  This relentless advance of man and material made possible by the prudent investment of capital by savvy investors.  The genius of entrepreneurs.  And the drive of industrialists.

This miracle of capitalism would tip the scales again in World War I.  And in World War II.  The Arsenal of Democracy.  Laissez-faire capitalism.  Paid-laborers.  Incentive.  And profit.  The best things in life.  They gave us the comforts we now take for granted.  And they took us from a new nation to a superpower in little over one hundred years.

Pliant, Subservient Students grow up to become good Democratic Voters

So that’s history.  But people today still think slavery made us great.  They attack capitalism.  Incentive.  Profits.  And just about everything else that built and made this country great.  Why?  Because they learned somewhere that slavery made us great.  That capitalism is bad and unfair.  That incentive and profits exploit the working class.  Where?  In our public schools.  And our public universities.  Kids in our public institutions learn these things.  Not the things that made us great.  Because these schools indoctrinate.  They don’t educate.  Why?  For the same reason the planter aristocracy fought in the Civil War.  To protect a privileged class.

Today, the liberal Democrats are the descendants of the planter aristocracy.  Not literally.  But figuratively.  Liberal Democrats are not capitalists.  Or industrialists.  They don’t like incentive or profit.  They prefer patronage.  They like rewarding their friends.  And punishing their enemies.  And to have this power they need to have the people vote for them.  So they come across as the champion of the poor and friend of the working man.  Or any other minority or class of people whose vote they need to buy.  But they’re anything but.  For an example just look at one of their favorite cause célèbre.  The black family.  These white liberals want to ease other whites’ guilt over slavery by doing as much as they can for the black family.  To make up for all those years of injustice.  And they dropped a neutron bomb.  Aid to Families with Dependent Children.  AFDC.  A real feel-good thing to do.  But it led to an explosion of single-mother families in the black community.  Because of the incentives of the program.  It encouraged women to have more children.  Stay unmarried.  And not work.  For a young woman with no working skill this was a godsend.  The state would replace the father and provide for her and her children.  But as it turned out, the state was a very poor father figure.  Children need fathers.  We all know this.  That’s why there are big brother programs.  To provide a father figure for these fatherless children.  For they will stray without this strong role model in the family.  And have.  Economist Thomas Sowell blames AFDC for greatly destroying the black family.

But the liberal Democrats don’t look at the destruction they cause.  They look at the political power they’ve gained.  Much like the planter elite.  So they need to tweak history a bit.  To mask their failures.  And accentuate the good they meant to do.  But never did.  And what better way to do that than in our public schools?  So they take care of our teachers.  Pull them into their aristocratic class.  Help them get favorable contracts without allowing the taxpayers a say.  Feed them big salaries.  Some of which is returned to them via their union dues.  Quid pro quo. They live the good life.  The politicians get ‘campaign’ contributions.  And pliant, subservient students grow up to become good Democratic voters.

And thus the lie is sustained.  Those who destroy are portrayed as nurturers.  And those who nurture are portrayed as destroyers.  A political sleight of hand.  That pays dividends in the voting booth.

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