The Half Has Never Been Told: Slavery and the Making of American Capitalism

by Edward E. Baptist

THE LINK BETWEEN THE cotton field and politics can be found in the strange alchemy of banks. Everyone knows that banks take in deposits and lend out money, but they don’t always realize that when banks lend, they actually create money. We call that money credit. As we heard already, that means that money is based on “belief”—the root is the Latin credere, a verb meaning “to believe”—and people have to believe in the money for it to work, because banks lend out more money than they take in through deposits. This money has to be paper money, which in the nineteenth century the state-chartered banks printed themselves, or it can be numbers added to borrowers’ credit accounts on a paper ledger, loans against which the borrowers could write checks. Paper is useful, of course, because it is light. With it you can transfer large sums in an envelope, whereas even medium-sized amounts of specie are cumbersome (recall Georgia-man John Springs’s ride north to Maryland’s Eastern Shore in 1806, in which the gold in his saddlebags beat up the sides of his horse).32 But more importantly, bank-created money has to be paper (or mere numbers on paper) because only then can money be created out of nothing. And thus only paper money can lead to real economic growth. Imagine an economy that uses only gold and silver, also known as “specie.” A bank in such an economy could lend no more than it received in deposits, and that bank would simply be a glorified mattress. It would actually reduce the...

Slavery permitted unchecked dominance and promised unlimited fulfillment of unrestrained desire. That made the behavior of entrepreneurs particularly volatile, risky, profitable, and disastrous. Then, in the 1830s, as white people, especially men, tried to build southwestern empires out of credit and enslaved human beings, they sought out more and more risk. This behavior planted the seeds for a cycle of boom and bust that would shape the course of American history, and one cannot understand it without studying both careful calculation and passionate craving. Although modern economics often assures itself it is a science, assuming that people are perfectly rational actors who choose their actions based on a clear, even quantifiable understanding of their own economic self-interest, that assumption is false. People rarely have sufficient information to measure the consequences of one act or another. More to the point when planters talk about “fever” and “ecstasy”: pure rationality does not always drive people’s actions, even—and sometimes especially—their “economic” ones. This is what the great British economist John Maynard Keynes was trying to explain to his readers when he wrote that “animal spirits”—emotions and desires—drive the ebbing and flowing financial tides. More recently, behavioral economists who run experiments on human test subjects have demonstrated seemingly hardwired connections between sexual desire and risk-taking decisions about buying and selling. When...