Qin Hui, "Tariffs and Systems"

The Battle of Tariffs and Systems in the “North-South” Relationship in the Antebellum United States[1]

Qin Hui
 
Translation and Introduction by David Ownby
 
Qin Hui’s analysis of the pre-Civil War United States economy is part of a new book by Qin that we hope to publish in English-language translation over the coming months as part of the Palgrave Global Outreach Series of Palgrave-Macmillan publishers (we are currently finalizing contract details).  Entitled From Globalization to the New Cold War?  A Study in Comparative Economic History, the book ranges widely in time and space, addressing such issues as the trade balance question in the ancient history of foreign trade, China as seen from South Africa, and the contrast of two types of “state-market” economies, among many others.  The book is an expanded treatment the themes already addressed in Qin’s “Dilemmas of Twenty-First Century Globalization: Reasons and Solutions, With a Critique of Piketty’s Twenty-First Century Capitalism,” available on this website.   Those unfamiliar with Qin and his work can see the introduction to Qin’s “Dilemmas” for further information.
 
Qin’s analysis of the antebellum American economy is of a piece with his discussion of China’s “comparative low human rights advantage” in “Dilemmas.”  By virtue of being part of a national economy (a free economy that encouraged innovation and consumption) as well as a global economy (providing a market for its cotton exports), the Southern slave economy overcame the supposed inefficiencies of systems of unfree labor and flourished.  Qin provocatively argues that the Northern victory over the south was not inevitable in economic terms, and that Northern capital could have moved south to exploit unfree labor in a manufacturing context, a Pyrrhic “victory” which would ultimately have led to the collapse of the system in the absence of adequate consumption.  His point is less to revisit the debates surrounding the American Civil War than to suggest that China, as a free rider in the globalized world economy, exploiting its comparative low human rights advantage, is achieving a similar Pyrrhic victory at the expense of the world as a whole.
 
I hope to share more of Qin Hui’s work on our site as the project moves forward.
 
 
Translation

​Deficits and Surpluses in the History of American Foreign Trade
 
From a historical perspective, the United States ran commercial deficits in foreign trade throughout its nation-building period, from the colonial era through 1840.  This is because American economic development, particularly from the perspective of foreign trade, faced conditions that were much inferior to those of Latin America.
 
Everyone knows that Latin America is the continent of gold and silver, among other precious metals.  The Spanish conquered Latin America to plunder their gold and silver, and even today, Mexico and the Andean countries remain major producers of silver.  Of course, later on South Africa surpassed Latin America in terms of gold production, but during the colonial period, gold deposits were extensive.  By contrast, North America had little or no gold, and even the California Gold Rush of the 1850s occurred late in the development process; during much of the early period of American nation-building, California was not even a part of the United States, and during that period, gold had not been discovered.
 
Moreover, as a tropical climate, Latin America was a natural complement to the cooler Europe in terms of agricultural production, and many distinctive products from Latin America early on became important value-added agricultural products in Europe, including cocoa, coffee, sugar cane, and tobacco, among others.  These were exported through the labor of many plantations, and were extremely profitable.  Yet at the time, the United States had none of this.  As everyone knows, the original thirteen states were situated in the relatively cold northern regions of the North Atlantic.  Climatic conditions were very similar to those in Europe, which meant little complementarity in terms of agriculture.  
 
Most Americans during this period were farmers, and produced the same things as did European farmers, and for the most part were self-sufficient.  Of course as new immigrants they had more space to develop and more freedom, but in commercial terms they had nothing much to sell.  Yet they were free people, with a great sense of autonomy, and for their reason they had a hunger to consume, which meant that during America’s nation-building period, from the colonial era through the 1840s, the United States basically ran a consistent trade deficit, buying much and selling little.
 
Deficits require hard currency to finance the purchases, and at the time, the US dollar was not recognized as such.  Hard currency meant precious metals, which America did not produce at the time.  With hard currency lacking, and a deficit to be financed, the United States found itself in difficult straights for a long time.  Yes, the United States had a market economy and free markets with no government interference and free exchange between the people.  Yet the absence of hard currency and cash made life harder, and barter played an important role in the American economy for a relatively long period.
 
Indeed, for a long time the United States collected taxes in kind and people reimbursed loans in the same way.  Even at Harvard University, salaries and tuition were paid in things like wood and pork. (This reminds us of a line from the Confucian Analects:  “From those who offer only a bundle of dried sausages on up, I have never refused to teach.”[2])  Because no one had any cash, and because there was little gold, the little they had went to pay for the commercial deficit, which meant that the problem of the deficit was quite acute.  This only began to change in the 1840s.
 
Beginning in the early nineteenth century, the American South built an export-oriented economy that produced foreign exchange.  As everyone knows, this was the slave economy.  Of course, slaves had been there all along, but it was truly at this time that the South began to take advantage of increases in “globalization” and “efficiency.”  The South made use of its climate and the “low human rights advantage” of slave labor to develop huge plantations, exporting large quantities of cotton on the world market.  America at the time was the largest cotton-exporting country in the world.  As the Southern economy because an export-oriented economy, the overall American economy shifted from a trade deficit to a trade surplus between the 1840s and the 1870s, achieving a basic commercial balance.
 
Yet there remained huge differences between the Northern and Southern economic systems.  In overall socioeconomic terms, the North was more developed than the South, and most of American industry and commerce, all of American inventions and (contemporary) high tech came from the North.  Yet the Northern economy ran a trade deficit, just as it always had.  Consumption was strong in the North, but American manufacturing was not particularly strong, which meant that there were not many manufactured exports.  But the South produced a huge trade surplus, because its massive cotton exports were highly competitive.  At the same time, much of the Southern population was made up of African-American slaves, which meant that the overall level of social consumption was rather weak.  As the American economic historian Robert Fogel (1926-2013) later explained, even if the life of the slaves was not as bad as we perhaps had imagined, there is no doubt that they consumed few imported items.  This contributed to the huge Southern commercial surplus.
 
 “Tariff Peace” and “Tariff War” in North-South Relations
 
This state of affairs severely affected the relationship between North and South, and as everyone knows, relations between the two began to deteriorate from roughly 1840 onward.  There were two basic reasons for this deterioration.  One was the debate on slavery, between those wanted to abolish the institution of slavery and those who defended it.  The other was the debate over federal power and states’ rights.  Even today, Americans continue to argue about which of these was the primary debate.  Some people say that the Civil War was not really about slavery but was instead about defending federalism, while others insist that it was a war to abolish slavery.  Whatever the truth of the matter, it has long been clear that the tariff was an important question that had been negotiated prior to the outbreak of hostilities.
 
The Southern economy ran a large surplus, so the South advocated free markets, while the North, which ran serious deficits, wanted tariff barriers and high tariffs—a policy of trade protectionism.  This debate had a huge impact on relations between the North and South, to the point that the American economist Douglas A. Irwin (b. 1962) wrote a book[3] arguing the relationship between North and South in the decades preceding the Civil War could be reduced to the story of “tariff peace” and “tariff wars.”  To simplify things a bit, if the North and South could not agree on the tariff question, then their relationships deteriorated, which could lead to war.  And if they could come to an agreement on the question, then war could be avoided.  This is because if they reached agreement on this front then their other relations could be normal, while if they didn’t, then disagreement on other issues was very likely.
 
At first glance, this appears to be a quarrel over tariffs, because not only is there a difference in terms of surplus and deficit between North and South in the context of foreign trade, but also the same difference in trade between North and South, in that the South exported a great deal to the North but imported little.  This is because the textile industry was in its early stages of development in the United States, and the South exported most of its cotton to England.  The South did export some cotton to the North, and the textile industry there was in the mainstream of the first wave of American industrial development.  So the South sold a great deal to the North and bought relatively little.  Machine-woven fabric was always quite hard to sell widely in low-consumption areas.  In another context, we have often mentioned that prior to the Opium War, English was always trying to sell fabric to the Chinese, but that machine-woven fabric was hard to sell.  This has led a number of economists to conclude that China’s economy at the time was not bad, that even if China’s textile industry was not industrialized or mechanized, it was still highly efficient.  Actually, England had a hard time selling cotton cloth anywhere in the world at this time.  This was true for Russia and the American South as well as in China.  If the inability to sell cotton textiles meant that their textiles were not competitive, then British cotton cloth was the most uncompetitive in the world.  Were all those backward countries in the world thus more competitive than Britain?
 
I don’t think so.  In this context I once invented a term—“consumption disadvantage”—which has to do with the level of consumption in an economy.  In any event, the situation at the time was that the South was an export-oriented economy with a surplus, and demanded free trade.  The North was a deficit economy, and wanted protected trade.  This led to a great conflict on the question of tariffs, which on the surface appears to be a conflict related to foreign trade policy, but which in fact is related to the underlying nature of their economies.  In simple terms, it is a conflict between a free system and a slave system, and traditional arguments on this question have insisted that the slave system was not efficient, and that if it had  been, then slave systems in history would not have collapsed.
 
The Institutional Conflict Behind the Foreign Trade Conflict
 
Everyone knows that there were slave systems and serf systems, but these evolved into other things in the late Middle Ages.  Serfdom in Europe was the earliest to be replaced by something else.  Some people have argued that serf labor was inefficient, that serfs didn’t want to work hard because they were working for someone else, which would mean that they were not competitive with free labor.  If that is the case—and many people still think that it is—then why was the South so eager to split with the North in the period prior to the Civil War?  Was it because under conditions of free and fair competition, the South could not compete with the North, and hence wanted to leave?  In fact, from today’s perspective, what stands out is that while the institutional differences between North and South were substantial, they were also complementary within the boundaries of a single economy.  There was no notion of “globalization” at this time, but there is no doubt that the American economy was a single unit.  What I mean is that the Northern free economy and the Southern slave economy functioned within a single unified American economy.  This unified economy possessed strong powers to push each side to evolve in similar directions.  In simple terms, within a system like this, each side could influence the other.  So the Northern free economy influenced the South, which is something that we have talked a great deal about.  We’re used to hearing stories about how Northern abolitionism affected the South, stories like those of Uncle Tom’s Cabin, and the “underground railroad” that was constructed in the decades leading up to the Civil War.  Of course the “railroad” wasn’t a railroad, but a network of routes to transport African-American slaves toward the North.  With the help of Northern abolitionists, hundreds of thousands of Southern slaves apparently escaped to freedom in the North.  This naturally reflects the appeal of the Northern free economy to the South.
 
Influence that went in the other direction is less often discussed, because after the Civil War, criticizing the slave system came to be a part of contemporary “political correctness,” so that if someone said that the slave economy had been efficient, this was seen as a grave error.  So no one said it for a long time.  But in the 1960s, people began to notice that there are historical moments in which, if a slave or serf economy is integrated into a more developed market with greater purchasing power and innovative capacities, the slave or serf economy seems to be more competitive and more efficient than free labor.  Of course, if is slave or serf economy is cut off, without access to such a unified market, then it will be like the model serf system of the Middle Ages, or like apartheid in South Africa, and will not achieve such efficiencies.
 
This leads us to the Domar hypothesis concerning how a slave system could be efficient.
 
On “Second Degree Enslavement” and the Export-Oriented Economy
 
This research in economic history started with E. D. Domar (1914-1997).  Professor Domar was a Russian-American scholar of economics, whose name was originally Domashevitsky, a Slavic name that he changed to Domar after coming to America.  He was a very influential economist in the 1960s, and served as president of the American Association for Comparative Economics, the vice-president of the American Society of Economic History, as well as working for the Rand Corporation, the Ford Foundation, the Brookings Institute and the National Science Foundation.
 
In 1969, Domar published a famous essay entitled The Causes of Slavery:  A Hypothesis.[4]  As a Russian, Domar cared about the economic history of his native country.  He noticed that the Russian economy and the Russian serf system had been universally condemned in the past, not only for being inhumane, but also for being inefficient.  Domar found, however, that Russia had originally had no serf system and that the serf system in fact developed late in Russian history.  According to the present state of knowledge, until the sixteenth century, most Russian peasants were in fact free peasants, but in the seventeenth century, the Russian serf system became stronger and stronger, and serfs gradually replaced free peasants.  What brought about this change in the Russian economy?  What role did the Russian economy play in the world economy at the time?
 
This was the period when the Western economy began to modernize, creating a very large market, and the Russian economy increasingly evolved toward an export-oriented economy that exported large quantities of agricultural products to the wealthier West.  This meant that at this point, in order to achieve such large agricultural exports, they needed to develop export-oriented estates, or plantations.
 
If you do this with free peasants, efficiencies are hard to achieve.  In contrast, doing it with estates manned by serfs is very profitable, and as a result, serfs gradually replaced free peasants.  Such developments were not confined to Russia; scholars subsequently discovered that all of Eastern Europe, together with a part of Central Europe, became export-oriented agricultural regions, all of which replaced their free peasants with serfs, a process we have traditionally called “second-level enslavement” or  “re-enslavement.”  When we talk about “first-level enslavement” or “original enslavement” we are referring to the usual period of enslavement in the Middle Ages.  The serf system of the late Middle Ages clearly lacked efficiency, and by the late fourteenth century had evolved into something else.  The point I want to make here is that in the past, many Chinese scholars, under the influence of ideas about the “reform of the serf system in Russia” or about the American Civil War, came to believe that the serf system in Europe was abolished in a great movement (reform or revolution).  This is not true at all.  As early as England’s Glorious Revolution, which occurred hundreds of years before the great French Revolution, serfdom had already disappeared in France and England.  Both of these revolutions were related to questions of constitutional rule in politics, and had little to do with getting rid of the serf system.
 
The problem is that, later on, in the export-oriented countries of Central and Eastern Europe, serfdom appears to have been more efficient than a free economy, and assumed a growing place in those regions.  This led to Domar’s  hypothesis, which later historians of economic thought have called “Domar’s hypothesis on the slave system.”  By “slave” we mean any kind of unfree labor or labor with low human rights, including serfs and slaves.  And his argument concerned the conditions under which those two systems could flourish, and his hypothesis was that slavery and serfdom are more efficient than free small farmers and freelance workers in an export-oriented economy that leads to demand for cheap labor.  In 1982, Domar wrote a book devoted exclusively to this subject, called On the Probability of Russian Serfdom,[5] in which he took his argument further.
 
The historian Jin Yan 金雁 (b. 1954, also Qin Hui’s wife) has worked on the economic history of the Soviet Union and Eastern Europe agrees with Domar.  In fact, the situation still existed in the twentieth century, and even had an impact on Soviet policy.  As everyone knows, after the reform of the serf system in 1861, the original serf system on the Russian plain was transformed either into villages of free peasants, or into “labor service” estates.  What are “labor service” estates?  It was the same serfs (now considered wage laborers) who remained on the estates to perform large-scale commodity production for the export market.  There were some serfs who did not want to work on the estates, and freely went to farm their own land (now allotted to villages instead of to serfs), and these were free small peasants.  Most scholars believe that the “labor service” preserved more of the former serf system, and that those working in the labor service enjoyed lower human rights.  But later during the Russian land reform, many people argued that if a landlord’s land was rented out, it should be handed over to the peasants while land on the labor service estates should not be reallocated.  Why is this?  Because the labor service estates were the most efficient part of Russian agriculture.  This was true all the way down to the October Revolution, and after the Bolsheviks took power, they transformed the labor service estates into state farms and did not redistribute the land.  It is often noted that once they were transformed into state farms they were no longer efficient, but this was because the Russian export market had already shrunk, so the issue was not one of state versus private management, but instead that the entire Russian economic structure experienced a huge change.  After World War I, the original Russian export market no longer existed. 
 
In sum, following the end of serfdom, the serfs had two choices.  One was to work for themselves and becomes small peasants.  The other was to remain on the estates, retaining a half-serf status.  The result, according to those working in the field of Russian economic history, was that the latter mode was more efficient.  And this created a clear characteristic that marked the entire era of serfdom and even the “post-serf period,” which is that for a long period, Russia was the best known foreign trade surplus country in Europe, as well as a country that was known to import capital by seeking investment from outside.
 
All the way down to 1909, Russia’s foreign trade surplus was the largest in Europe, while the most developed European countries, or the countries that were more developed than Russia, such as England, France, and Germany, all ran foreign trade deficits.  Russia’s surplus continued for a long period.  Russia was far less developed than England, France, or Germany, but its speed of development was respectable, and in my terms, Russia was a model in using a “low human rights advantage” on the international market to develop an export-oriented economy and catch up with Western Europe.  This led Domar to argue that one had to acknowledge the earning power of the Russian serf estates.  When Domar was writing, he talked less of “efficiency,” and rather insisted that the serf system was “competitive” no matter from what angle it was viewed.
 
From Domar to Fogel:  The “Efficiency” of the Slave System in the Overall American Market
 
Another of Domar’s contributions was the training of excellent students, one of whom came even to exceed the abilities of his teacher, becoming even more influential in the field of economic history, and eventually winning the Nobel Prize in Economics in 1993.  This is Robert Fogel, who has visited China, and has had considerable influence in China.
 
Fogel was Domar’s doctoral student, and had an interesting personal history.  As a young person, Fogel was a Communist Party member, and although he later on left the party, he always saw himself as left wing (of course not “left-wing” in the Chinese sense).  He married an African-American, and was always known for criticizing racial prejudice and supporting the rights of African-Americans.  Domar had a great influence on him, and while Domar’s main research area was the Russian serf system, Fogel worked on the American slave system prior to the Civil War.  And yet this “African-American loving left-winger,” building on Domar’s research, argued all the more forcefully that the slave system of the American South was more efficient that the free labor economy of the North in the period he studied.  Of course the efficiency was conditional on the integration of the Northern and Southern markets, which gave the Southern slave system access to advanced technology and facilitated high levels of exports, thus creating a greater efficiency than the Northern free labor system.  
 
Fogel differed from Domar in that Domar had chiefly built his argument out of the logic of cause and effect, which is why he termed his arguments a “hypothesis.”  By contrast, Fogel’s arguments were based on massive data, and fully constructed on the basis of quantitative economics, which made his work all the more believable.  By the 1990s, as the number of people who accepted his work continued to grow, his viewpoint began to be included in many textbooks.  He himself argued that he had ended a debate of many years, that the issue was decided, and that his view had become “received wisdom.”  Clearly he exaggerated; in America everything is up for debate, and Fogel’s work is no exception.  But he produced two pieces of scholarship that truly surprised people and generated great debates, and which earned him the Nobel Prize in Economics.  One of his arguments was that railroads had had a negative impact on the growth of the American economy, and that if America had from the outset instead invested in shipping and highways, the American economy would be better off.[6]  This argument was shocking, and seems to be connected to the later American disdain for railroads.  But Fogel proved his argument through a variety of scholarly strategies.
 
Even more shocking was his 1970 publication of Time on the Cross:  The Economics of American Negro Slavery,[7] and the Without Consent or Contract:  The Rise and Fall of American Slavery,[8] among many other works.  In these books he argued that at the time, the Southern slave economy was more efficient that the North, and in the absence of the war, the slave system would not have collapsed.  This suggested that in fact the free economy might have disappeared because of the great efficiency of the slave economy.
 
Of course, many people condemned him for this, saying that he was defending slavery!  He denied it, saying that he opposed slavery more than anyone. He insisted that he put forth this theory not only because this is the story that the data told, but also because it further highlighted the necessity of the Civil War, because the slave system had to be abolished no matter what.  No matter how efficient it was, one cannot trade human freedom for efficiency.  He argued that if the slave system had been inefficient, then the Civil War would not have been necessary, and peaceful competition would have eliminated it.  But his research had illustrated that such was not the case.  This meant that the Civil War was worth fighting.  Domar had said that freedom is without price, and Fogel was of course extremely sympathetic to African-Americans, the proof being that he had married one and his family had been the object of racial discrimination.  So even if the slave system was efficient, it was inhumane and had to be abolished.  And in fact, his marriage to an African-American woman was all the more reason make his argument. 
 
In any event, these were his arguments, which at the time provoked very strong reactions.  Yet over the course the decades since Fogel first published his theses in the 1970s, his view of the Southern slave economy has become one of the mainstream views, accepted by more and more people.
 
Of course, accepting Fogel’s theory does not mean believing that slavery is a good thing.  First, one cannot evaluate the good and bad of the system solely on the basis of economic efficiency, because even if it is efficient it is inhumane, and cannot be allowed.  Second, and in my view more important, is the fact that the efficiency of the slave system has preconditions:  serfdom in the Middle Ages was inefficient; African slavery was inefficient.  We know that the West did not invent black slavery.  There had always been black slaves in Africa, and in fact the earliest black slaves that came to American had been captured by Africans and sold to white people.  Before selling them to white men, many had been sold to Arabs, to Indians, and even to Chinese.  There are descriptions of “Kunlun slaves 昆仑奴” in Tang dynasty poems, who were in fact black slaves from Africa.
 
The African content has always had slavery, which never became efficient.  Why is this?
 
If the American North and South had not interacted within a single common market, and instead went about their business independently, then Southern slave system could not have been efficient.  Why is this?
 
Because what is the advantage of free markets?  The advantage of free markets is not that it makes everyone work hard.  The greatest advantage of free markets is that they possess incomparable creative capacities, and can invent any number of new things.  This is something that the slave system, or the Southern economy, did not have.  During the entire period of the Southern slave economy, all of their technology came from the North.  Yet given one precondition, the slave system can make people work extremely hard: in the language used above, this is to force slaves to “work hard and accept a lower standard of living.”  This is something that the free economy cannot do. 
 
So there you have it.  The advantage of the Northern economy was in innovation, and that of the South what we might call the efficiency of low human rights.  The problem was that while the South might imitate the creativity of the North, the North could not imitate the blood and sweat system of the South.  But with the integration of the two economies, the South could absorb advanced technology, and also have access to an external market hungry for imports.  In the absence of this external market, what would the South have done with all of that cotton?  If it merely produced for its own needs, there would have been no efficiency.  The efficiency came from world demand for cotton, which fetched a good price.
 
In a closed country, a slave system is not efficient.  The North Korean economy is inefficient, and the same is true for China before reform and opening.  This is very clear in the case of the United States, because everyone knows that the basic techniques necessary to develop the Southern slave economy all appeared in the North before being quickly transferred to the South.  The first technique was the steam ship, which was invented in the North in 1809 and put into commercial use, yet already in 1811 we see their adoption in the South, and in 1819, the South was the first to use steam ships for trans-Atlantic routes.  The South was the first to do this because of cotton markets.  The South had to export cotton to England so as to import machines.  Of course trans-Atlantic trade already existed, using sailing ships, but the South was the first to push for steam ships.
 
Railways were also very important. The railway was put into commercial operation in the North in 1825, but soon, in 1828, a railway network began to develop in the South.  The extent of the network was never as great in the South as in the North, and in terms of industry and commerce, the North was more developed, but in per capita terms use of the railways in the South was on a rough par with the North.  In the absence of this inexpensive transport, there would have been no way for an export-oriented economy to be profitable.  Without these techniques and this external market—in other words without economic integration—the slave economy of the South would not have been efficient.  But from another perspective, in the process of this economic integration, the North sought to transform the South by peaceful means.  Simply put, the North constantly preached abolitionism, and urged the slaves to flee.  But did the South have no influence on the North?  My feeling is that the decisive factor here is whether slave labor is also efficient in manufacturing.
 
Slave Labor in Manufacturing:  Can Bad Currency Drive Out Good?
 
To my mind, the most controversial and surprising finding in Fogel’s research is his proof that slave labor in manufacturing is also efficient, given the conditions I mentioned above.  Many people have a hard time accepting this because it clashes with their value systems, but if slave labor is efficient in agriculture, then logically speaking, it should also be efficient in manufacturing.  Why is this?  As everyone knows, a main argument in economics explaining the existence of family farming is that agriculture production is unusual, in that supervision and quality control are difficult, meaning that a Fordist system cannot be applied to agriculture.  Agricultural production is not like an assembly line. It is difficult to carry out quantitative controls. Agriculture harvests are unstable, and it is also difficult to conduct labor performance assessments and implement piece-rate wages. Therefore, large-scale employment of hired laborers in agricultural production is often no more profitable than family farms.  I should add something in the context of modern Chinese agriculture:  We now say that the “household responsibility system” led to “individual farming,” but in fact when people brought up the notion of the household responsibility system, the idea was that it would be implemented only as a labor performance appraisal system within the “collective economy.”  The original proposal was invest responsibility for production in the individual family, who would receive extra payment for over-fulfillment of the quota.  In other words, farmers received work points for reaching their quotas, and received extra work points for exceeding their quotas.  This was all it was.  This is the same logic for the management of labor quotas in the factories; labor quotas did not mean dissolving the factories, and the household responsibility system did not mean disbanding the people’s communes.  The problem was that the management of quotas in agriculture is extremely difficult.  How can you fix quotas given the variation between years of good harvest and years of bad harvest? 
 
In sum, agriculture is an industry in which the benefits of large-scale labor organization are hard to realize.  So if slavery could solve this problem in the context of cotton cultivation, then why would it not be even easier for manufacturing?  In other words, following the reasoning outlined above, agriculture is the least appropriate system for slavery, but if, nonetheless, it can be made to work in agriculture, then it would be even easier in manufacturing.  In his second book (Time on the Cross), Fogel insisted that slavery was also very efficient in Southern manufacturing. 
 
Some people have raised the following question:  Northern whites would obviously not go to the South to serve as slaves, but why did Northern capitalists not go south to become slave owners?  If it was only in cotton cultivation that slavery manifested its efficiency, then this would make sense, because Northern industrialists might not want to go grow cotton.  But if slave manufacturing was efficient as well, then why did Northern capital not pour into the South to take advantage of this, which would have led to a great transformation of Northern manufacturing?  Would this not have led to a great crisis in the Northern economy?   Think about it:  with Northern capital fleeing to the South, the economic state of the North would have declined, hollowing out, and the free population of the North would have faced massive unemployment.  How could free labor have competed with the “efficient” slave labor of the South?  This would have posed a serious problem for the North, possibly even a case of “bad money driving out good.”
 
Was the Civil War Inevitable?
 
But Fogel’s arguments stopped suddenly, and he did not discuss the counterfactuals I just brought up, and instead turned to a study of the Civil War, saying that everything changed after the war.  My question is:  What would have happened had the war not been fought?  What might have occurred?  Fogel did not address this question.
 
Of course, I am not an expert in American history.  In my view, if we can’t refute Fogel, and yet the Northern collapse that would have led to “bad money chasing out good” did not happen, we need an explanation for that.  One explanation would be that Northerners at the time were arrogant, and did not want to move to the South to be slave owners.  Or that they preferred to remain in the free economy of the North and hire workers there.  Is there evidence of such arrogance (maybe prejudice would be better)?  But from a logical standpoint, the Southern slave economy was a threat to the North.  Whether or not in fact the South managed to industrialize, the possibility that the Southern slave system might “transform” the North was no less than the threat that Northern abolitionism might “transform” the South.  As for as I can tell, there was no frontier between North and South, and the economy was unified.  And as a matter of fact, no matter how much Southern slaves desired freedom, and no matter how well the “underground railroad” came to function, the flight of Southern slaves toward the North was always going to be harder than the movement of Northern free capital toward the South, right?  As a free investor in the North, there was no restriction on my investing in the South, but the flight of slaves toward the North was dangerous.  So why didn’t Northern capital move south?  If this was indeed the case, it seems hard to explain.
 
To put it more bluntly, if we put aside value judgements and dismiss questions of freedom in the name of “efficiency” then why is it not a good thing for “bad money to chase out good?”  If the “efficient” slave economy defeats the free economy, can we say that we have sacrificed freedom at the expense of increasing the efficiency of the overall economy?  The answer to this is not difficult:  according to the logic explored above, the slave system in and of itself is not efficient, but only manifests its “efficiency” when it is part of a free economy, when it absorbs the innovations created by a free economy, and exploits the huge market created by a free economy.  But this kind of “efficiency” can backfire on the free economy, because if the slave economy uses its “low human rights advantage” so that “bad money chases good” and the free economy collapses, then the American slave economy would have become the Apartheid system of South Africa, where there was neither efficiency nor freedom.  Isn’t this a lose-lose situation?
 
Fogel didn’t address this set of questions.  But he made a number of points.  First, of course slavery is a bad thing, but the slave system in the context of the unified Northern and Southern economy was “competitive,” and counting on market integration to “peacefully transform” the slave system is less probable that the slave system succeeding in “chasing out good money with bad.”  Second, according to Fogel’s calculations, in the decades leading up to the Civil War, and particularly in the 1840-1860 period, the Southern economy “grew more quickly that other of other parts of the Union.”  Slave owners had every reason to be optimistic about the future, and there is no reason to believe that their “confidence in the system” was declining.
 
Hence the outbreak of the Civil War.  Fogel did not argue that the Northern war on the South was motivated by morality, in other words that the goal was to abolish the slave system.  But from his arguments we can deduce that the game that the Northern free economy and the Southern slave economy were playing in a unified “all-American” market could not continue.  If good money did not drive out the bad, then bad money would drive out the good.  If it was unacceptable that the South transform the North (and as I pointed out above, from the Southern perspective this would eventually have been a lose-lose outcome), then the South would have to transform itself gradually, by eventually abandoning slavery.  If this proved impossible, the development of serious conflicts between North and South would be inevitable.  This may or may not have been the subjective motivation behind the North’s decision to go to war, but from an objective perspective, ultimately the solution to the problem required the abolition of slavery.
 
Fogel skipped over these interim logical steps, and concluded directly that the slave system was “efficient” but nonetheless undesirable, which meant that the Civil War was necessary.  In fact, we know that the result of the war led to eleven consecutive years of important deficits in US foreign trade, as the Southern “low human rights/surplus economy” was severely damaged, which had a serious effect on American foreign trade.  But at the conclusion of this process in 1874, the American economy eliminated the possibility of “bad money driving out good,” and efficiency increased throughout the economy as both North and South entered a long period of growth:  a win-win situation from a long-term point of view.  Subsequently, the place of the America in the world economy continued to rise.  In terms of foreign trade, beginning in 1874, and following the rise of economic competitiveness, America entered a century-long period of important surpluses.  This was also the period of America’s gradual rise, leading to its position as the world’s economic superpower.
 
Of course, the price people paid for this was extremely heavy.  If the South had chosen to reform at the time, surely the price could have been avoided?

Notes

[1] 秦晖,美国内战前“南北关系”中的关税之争与制度之争.  A version of this text is available online at http://www.eeo.com.cn/gcj/2019/0121/346110.shtml .
 
[2] Translator’s note:  http://www.indiana.edu/~p374/Analects_of_Confucius_(Eno-2015).pdf , p. 30.

[3] Translator’s note:  Clashing over Commerce:  A History of U.S. Trade Policy (Chicago:  University of Chicago Press, 2017).

[4] Translator’s note:  Cambridge, MA:  MIT Press, 1969.

[5] Translator’s note:  Cambridge, MA:  MIT Press, 1982.

[6] Translator’s note:  Railroads and American Economic Growth: Essays in Econometric History (Baltimore:  Johns Hopkins Press, 1964).

[7] Translator’s note:  co-written with Stanley L. Engerman (Boston:  Little, Brown and Company, 1970).

​[8] Translator’s note:  (New York:  W. W. Norton, 1989).