Slavery and Austrian Economics

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    So, I went out on a bit of a limb in an argument. I took an economic argument rather than a moral one against slavery. My knowledge of slavery is pretty much non existent, but I figured that praxiology is universal in human action.

    I’m sure my argument was pretty flawed, am I wrong? Here is what I wrote:

    ” In terms of slavery, the effect on wage costs(going up) is pretty flawed, for a few reasons. Firstly the slave master is actually paying his slaves, in that they need food, clothes, tools, rest, etc. so his profit is cut short by that. If you argue that his workers are farmers or textiles so produce their own food cloths or whatever, those items are still diverted from his profit margin as he cannot sell them. Secondly, releasing of slaves would then give a flush of new workers into the market, to be rehired by the slaver who now pays wages instead of upkeep, or go into competition for work, lowering wage thresholds due roam over demand. A motivated worker is a more productive worker. The higher the rate of production, the cheaper the goods get. This actually leads to an increase in profits (contrary to what common sense would say) take a look at Henry Ford. Wages are increased to attract skill/motivated workers who also help to grow the business; see Costco vs Walmart.”

    I forgot to mention rental for housing and leisure activities (bars, etc) which can also now be provided to take advantage of any disposable income that the now free men and women may have. Also is there any historical evidence backing up my argument?

    Thanks for your time 🙂


    There is a vast literature on the economics of slavery. I would suggest you take a look at Gordon Tullock’s short article. It’s not definitive, but it raises essential points of economics. For example, slaves had capital value which had to be included in any accounting of the profitability of slavery. The dynamic of the market tends to direct investment into different lines of production so that there is a tendency toward the same rate of return in every line of production. In other words, slavery is no more profitable than any other line. Another example: Tullock points out that southern slave owners received a huge subsidy in the form of government mandated slave patrols. He also discuses the economics of manumission.


    Professor Herbener,

    ” The dynamic of the market tends to direct investment into different lines of production so that there is a tendency toward the same rate of return in every line of production ”

    Why is there a tendency toward the same rate of return in every line of production? I don’t understand that. Aren’t some lines of production not more profitable than other lines of production?


    Thanks Jeff, I will take a look 🙂


    There is a basic rate of return (i.e., the pure rate of interest) that tends to be the same in all production processes. It is the return to time preference. If it were 10% in one line and 5% in another, then investors would abandon the lower rate line and flood the higher rate line causing the former to rise and the latter to fall. This arbitrage would cease when the rates were roughly the same.

    Profit is not a return, but a residual that is earned by entrepreneurs for their superior foresight. Entrepreneurs who anticipate more accurately the demands of consumers will earn profit and those who anticipate them less accurately will not.

    The Net Income earned by an enterprise has four sources:

    1. Interest from the investment by capitalists
    2. Profit from the foresight of entrepreneurs
    3. Wages from the labor of entrepreneurs
    4. Quasi-wages from the leadership of entrepreneurs

    So some lines of production earn more net income than other lines of production, but all lines tend to earn the same rate of return, i.e., pure rate of interest.

    Take a look at the lectures on Economic Calculation and the Time Market for more details.


    Professor Herbener,

    I have thought about it. So time preference decide the pure rate of interest ( basic rate of return ) and every line of production has the same rate of return otherwise there would be arbitrage.

    So if the pure rate of interest is 5% than an investment in a line of production is also 5%, but within a line of production there are different returns on investments. So within a line of production there can be lower, same or higher rate of return.

    So slavery is not less or more profitable than any other line of production at that time.

    Is this right?


    Every exchange of present money for future money commands the pure rate of interest. Whether its a consumer loan, the a corporate bond, or the buying of inputs to produce outputs.

    An entrepreneur’s Net Income, which is the difference between the cost of buying his inputs and the revenue from selling his outputs includes (but is not limited to) a rate of return that conforms to the rate of interest. The capitalist earns the same rate of interest for lending his present money regardless of what use the borrower has for the funds, e.g., buy a house, build a factory, purchase inputs. This is no different than a steel producer who gets the same price for steel regardless of the use the buyer has for it, e.g., building a building, making a car, producing precision medical instruments. Now there are different prices for different types and qualities of steel, but each unit of a particular type that has a particular quality sells for the same price. Likewise, each unit of present money for the same maturity and same uncertainty (e.g., the uncertainty concerning the likelihood of the payoff) will receive the same rate of interest.

    Suppose the production of cotton in America in 1830 is in a maturity and uncertainty class of investments that earns a rate of return of 7%. Also, different land areas (e.g., Louisiana, South Carolina) and different organizational structures (e.g., large plantations with slaves, small farms without slaves) have different physical productivity. If one alternative earned 10% and another 5%, then capitalists would shift their investment funds to the 10% return alternatives and out of the 5% return alternatives. By doing so, they would push up the prices of inputs (in particular, land) in the higher return areas and push down the prices of inputs in the lower return areas. They would continue to shift their investments until the rate of return was a uniform 7% of all investments in that class.

    But just as credit card interest rates are permanently above mortgage rates, the rate of return on some investments in production will be higher than the rate of return on other investments. This occurs because investors do not find it advantageous to arbitrage across this difference. They don’t find it advantageous because there are different classes of investments, some with investments have longer time horizons and greater uncertainty than others.

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