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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LESSONS LEARNED #51: “The longer you wait to balance your books the harder it will be to balance them.” -Old Pithy

Posted by PITHOCRATES - February 3rd, 2011

Almost half of a Plantation’s Value was its Slaves

Slave labor wasn’t cheap.  First there was the capital expenditure to purchase the slaves.  Then you had to feed them, clothe them, house them, etc.  It took money.  But that money made money.  Mostly on the big plantations.  Where the division of labor was minimal.  And large labor gangs could work a single crop profitably.

The more slaves on a plantation the more land they could work.  So the more slaves on a plantation the more valuable the plantation was.  Like a dairy farm with many dairy cows is worth more than one with fewer cows.  A productive dairy farm makes money.  And it can borrow money to grow.  Ditto for a cotton plantation. 

Now suppose we free dairy cows everywhere.  They’re free to walk off of their farms and pursue their own lives.  What will become of the dairy farm?  It won’t make money.  It won’t be able to pay back its loans.  The farm will lose value.  Because no one will buy it without the cows to make milk.  Dairy farmers everywhere will go broke.  And they will lose their farms.   

If not for the Civil War, Abolition would have been the Greatest of all Bailouts

When we discuss slavery, we focus more on issues of morality.  But the reason we had it for so long is partly due to the economics.  There was a large price tag attached to abolition.  And the question was who was going to pay?  Slavery, though immoral, was legal.  The plantations grew.  They purchased more slaves.  Worked more land.  Incurred debts to grow further.  All based on the collateral of their plantation.  Much of which was their slaveholdings.

Based on the 1790 census, there were just fewer than 700,000 slaves in America.  At the time, the nation’s finances were in a mess.  We were begging Europe to loan us money.  There was no money available to reimburse the slave owners.  And the North didn’t want to pay for this ‘southern’ problem.  There was no easy way to free the slaves without a huge financial hit.  For someone.  So we tabled the issue.  For another generation to consider.  And resolve.

But we didn’t.  By 1860, the slave population topped 3.8 million.  That’s over 5 times the number from the 1790 census.  The cost to reimburse these slave holders had grown to over $3 billion dollars.  That was almost 70% of the 1860 GDP.  In comparison, the total budget of George W. Bush reached as high as 69% of GDP.  Clearly, the cost of freeing the slaves was huge.  It dwarfed all other federal spending.  And this is one of the reasons that it took a war to finally resolve.  And it was our nation’s bloodiest conflict.  More died in the American Civil War than did in WWI and WWII combined.  And the war devastated the southern economy.  Besides the direct war damage, the South was impoverished.  And easy pickings for northern carpetbaggers.

The issue of slavery was less costly to resolve sooner than later.  But the price was always so great that the institution continued on because no one was willing to bear the costs at any time.  This only guaranteed that the final reckoning would be greater.  Which it was.  The final cost was so great it nearly destroyed the nation.  And bitter feelings linger to this day.

Never Let a Good Crisis Go to Waste

Woodrow Wilson and his fellow Progressives were going to change the world.  But that didn’t work so well.  In fact, a lot of their meddling just crashed the economy.  Secretary of the Treasury Andrew Mellon helped President Warren Harding fix the economy.  And we got the Roaring Twenties.

But the Progressives kept tinkering.  And Republican Herbert Hoover was even a bit of a Progressive himself.  Anyway, some government mismanagement (and inept Federal Reserve actions) gave us the Great Depression.  Our nation’s greatest crisis.   Which Franklin Delano Roosevelt (FDR) would exploit to transform the nation with his New Deal.

FDR’s economic policies failed.  Only capitalism re-unfettered for the war effort brought the nation back.  Even though he failed he is still remembered fondly by most Americans.  He stood fast with our allies and defeated Nazi Germany.  And he gave us Social Security.  Which, financially speaking, will cost the nation more than defeating the Nazis did.

The Great Ponzi Scheme Social Security

Social Security was originally intended to help poor widows who had struggled through the Great Depression.  It has subsequently grown to cover retirement and disabilities.  Not a big deal then.  The actuaries crunched their numbers.  They took into account immigration, birthrates, life spans, death rates and other important stuff.  Like actuaries are wont to do.  And they figured it would work.  Because we had a growing population.  With a lot more younger people entering the workforce than there were old people retiring and collecting benefits.

So, like a Ponzi scheme, Social Security was as sound as a pound.  As long as their assumptions held.  But they didn’t.  Immigration slowed.  Our life spans increased.  And worse, we just weren’t having as many babies as we once did.  Now we had more people retiring and collecting benefits.  And fewer entering the workforce to pay for these retirees.  The pyramid inverted itself.  The base was smaller than the tip.  And that just ain’t good for a Ponzi scheme.

Everyone predicts Social Security will go bankrupt.  They’ve been trying to fix it through the years.  To extend the solvency.  By reducing benefits.  Raising taxes.  And raising the retirement age (to decrease the years retirees collect benefits).  These ‘fixes’ have pushed insolvency out a few more years.  But it hasn’t addresses the elephant in the room.  Old people.  They’re living longer than the actuaries ever imagined.  Worse, because they’re living so long, they’re getting all kinds of medical problems that are costing Medicare and Medicaid a lot of money.  And, you guessed it, they’re going bankrupt, too.

Why Fix something Today that we can Leave for Future Generations?

Because there are so many seniors in these programs no politician wants to touch them.  They’re the ‘third rails’ of politics.  Seniors vote.  And if you cut their benefits, they’re probably not going to vote for you.  Every politician knows this well.  So, like slavery, they table the issue for a later generation to address.  But every day that passes, more seniors join the ranks of the retired and begin collecting benefits.  While fewer people enter the workforce to pay for their retirement.  Which guarantees that the cost to fix these problems will grow ever larger.

The day of reckoning will arrive.  It always does.  For the issue of slavery it was civil war.  Over in Europe as they struggle to control their out of control spending they’re having riots.  Which sometimes happens when you take away stuff from large numbers of people.  Let’s hope it doesn’t come to that here.  But one thing that we can be pretty certain about.  Fixing this problem is going to hurt someone in the wallet.  And the longer we wait, the greater that someone will hurt.

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