Wednesday, February 23, 2005

Could the US have bought its way out of the Civil War?

Brian Gongol (who deserves kudos for what he's contributed to facilitating the Carnival of the Capitalists) has an interesting post (available through this week's CotC) speculating that everyone would have been better off if back before the Civil War the slavery issue had been resolved by the federal government simply buying the freedom of all slaves at market price.

I'll do his interesting and informative presentation a disservice by boiling it down to its gist:

The logic, in brief, takes the average market price of a slave at the time, multiplies by the number of slaves, and compares the resulting total to the cost of the war. Finding that the war was more costly than that, the conclusion is that things would have been better if the government had just bought all the slaves at market price (or maybe a little higher, to give slave owners an incentive to sell) to end the institution voluntarily without bloodshed.

Well, taking the view of people walking around in 1859 one can think of various practical problems that probably would have made implementing such a proposal impossible (and probably in fact kept it from being proposed on a national scale). Such as: few expected any coming conflict to be anywhere near as costly as it was, so the cost comparison was not visible; and if the South had been made largely whole (or better than whole) by the purchase of its slaves, as would be necessary for it to go along voluntarily, then the entire expense of ending slavery -- comparable to the actual cost of the Civil War -- would have fallen on Northern taxpayers alone, who probably would have been quite reluctant to see somebody else's vice so rewarded at such huge cost to themselves. Among others.

But putting all that aside, I suspect the basic calculation is wrong. The market price for a slave in 1860, like the free market price for anything anytime, was the marginal price at a given level of supply. But once the federal government started buying slaves and removing them from the market, the supply would diminish -- so by standard supply-and-demand the price would go up. And a quick look at the standard textbook supply-demand curve (interactive!) shows that as supply diminished towards zero, price would goes up a lot as the supply curve shifted all the way left.

The thing is that while the scheme reduces the supply of slaves, nothing about it reduces the demand for them -- and when supply steadily diminishes while demand stays the same price goes zoom.

(And this could lead to a complicating problem -- an ever-growing financial incentive to re-supply the market with slaves brought in from the Caribbean, to sell at an ever-increasing premium to the government or whomever as the market price rose. Britain outlawed slavery in its territories in the 1830s, but in 1860 slavery still continued right next door in Cuba, Puerto Rico and other Caribbean areas. Importing slaves to re-sell at profit would of course be illegal, but all it would take to accomplish it would be smuggling and paper-forging -- and how would an 1860s-era federal government stop it? )

Ever-rising price would probably quickly reveal the entire exercise to be futile. That is, assuming it was conducted through voluntary market transactions.

As an alternative, we might imagine (for we are getting far from historical political reality here) the North making a carrot-and-stick offer to the South -- offering to pay $X, the market price of a slave at the time multiplied by the total number of slaves, for all of them -- and threatening to emancipate them by dictate and necessary force if the South did not accept.

The problem with this proposal is that it does not make the Southern slave owners whole -- and probably wouldn't even come close to doing so.

Again, this is because the market price of a slave was the value of the marginal one brought to market at a given time -- many others, worth much more to their owners, wouldn't be brought to market except for a price that was far higher. Thus, an offer from the North to pay only the lower price for all slaves would cause slave owners to in fact suffer a big loss -- and so naturally would be rejected.

If the consequence of rejection was the North following through using the stick by taking steps to end slavery, then we'd be back to where we wound up anyway, at Fort Sumter.

But all this is quite an interesting mental exercise, entirely relevant to various current attempts to resolve social problems by market means today, some examples of which are given by Mr. Gongol.

The Carnival is always full of all sorts of posts that are worth reading, so check it out.