By Lambert Strether of Corrente.
I encountered Edward E. Baptist, “Toxic Debt, Liar Loans, and Securitized Human Beings,” on the Ferguson-focused portion of my Twitter list. We’ve been talking about the twin legacies of chattel slavery and the Civil War a lot, lately — appropriately, in view of current events, anniversaries, and the question of whether “debt slavery” is metaphorical or literal — but we rarely talk about the financial aspects of slavery. Baptist’s article illuminates that angle, so I thought I’d post some excerpts from it for the commentariat to discuss, focused on the life of one particular slaver, Jacob Bieller, and the zooming out.
Here we go. It’s long form, scholarly work, but none the worse for that:
Read casually through the pieces of paper that document Jacob Bieller’s life and enterprises, and this planter of Concordia Parish, Louisiana might look like someone who lived not just thousands, but millions of miles away from the center of international financial markets in the 1830s—and his business might seem even more distant in kind from the markets that worry us in our own day. Browse through the letters between Bieller and his son Joseph, the latter writing from the bank of Bayou Macon, thirty miles or so from Jacob’s own place on the Mississippi River. Joseph wrote his father in an untutored orthography, recounting the events of life on a cotton labor camp, or what contemporaries called a plantation: “I shall be short of corn,” or someone has found the body of the father of Enos, Bieller’s overseer, the old man having “drownded in Deer Drink.” The cyclical rhythm of forced agricultural labor thrummed onward—”I send you by Enos fifteen cotton pickers they are all I can spare. We have twelve thousand weight of cotton to pick yet from the appearance of the boals yet to open.” Always the urge to extract more product clashed with the objection of the enslaved to their condition: “I have had a verry sevear time among my negros at home. they have bin swinging my hogs and pigs. Harry & Roberson I caught. I stake Harry and gave him 175 lashes and Roberson 150. since that I found two hogs badly crippled.”
[I]t was the decisions and behavior of thousands of actors like Bieller that created a perfect financial storm [in the panic of 1837]: bringing an end to one kind of capitalist boom; destroying the confidence of the slaveholding class, impoverishing millions of workers and farmers who were linked to the global economy; demolishing the already disrupted lives of hundreds of thousands of people like Harry and Roberson.
In 1837 Bieller was 67 years old. He had grown up in South Carolina, where in the first few years of the nineteenth century he and his father took advantage of that state’s reopening of the African slave trade and speculated in survivors of the Middle Passage. In 1809, little more than a year after Congress closed the legal Atlantic slave trade, Bieller moved west. Driven in part by divorce from his first wife, but drawn by the opportunities for an entrepreneurial slave owner in the new cotton lands opening to the west, Bieller took his son Joseph and 27 enslaved African Americans and settled just up the Mississippi River from Natchez, on the Louisiana side.
The enslaved people that Bieller brought to Concordia Parish became the root of his fortune—as they and a million others like them would become the root of the prosperity of not just the antebellum southwestern states, but of the United States as a whole. And perhaps one could go further than the U.S. By the 1830s, the cotton that enslaved people grew in the new states and territories taken from Native Americans in the early nineteenth century was the most widely traded commodity in the world. Its sale underwrote investments in new forms of enterprise north of slavery. It was also the raw material of the industrial revolution.
When Jacob Bieller put his two dozen slaves to work growing and picking cotton, his whip was also driving the creation of a new, more complex, more dynamic world economy. In the lifetime between the ratification of the Constitution and the secession of the Confederacy, enslavers moved more than a million enslaved African Americans to cotton-growing areas taken by the new nation from their original inhabitants. Forced migrations and stolen labor yielded an astonishing increase in cotton production: from 1.2 million pounds in 1790 to 2.1 billion in 1859, and an incredible dominance over the international market—by the 1830s, 80% of the cotton used by the British textile industry came from the southern U.S.
We live today with the results of the long days that Bieller’s slaves sweated out in the field, but we also live in a world distantly shaped by the financial decisions of cotton entrepreneurs on both sides of the Atlantic—as well as by the forgetfulness of those who have not learned from their lessons of two centuries ago.
And — drumroll, please — here comes the finance part:
The mini-crash of 1824-26, like every financial panic, underlined the problem of systemic risk. The fact that the mid-decade’s outbreak of animal spirits did not end in full-scale economic disaster in the U.S. was a result, some believed, of the expanded ability of to regulate the level of systemic risk in the American economy. Under the direction of Nicholas Biddle the B.U.S. fulfilled many of the functions of a modern central bank. By forcing smaller, state-chartered banks to redeem their own credit in highly convertible currency, like gold dollars, British pounds, or banknotes of the B.U.S. itself, Biddle’s Bank kept a tight rein on those institutions. They could not issue too much credit. By making and by calling in its own loans, the B.U.S. also “curtailed” speculation on the part of private individuals. The B.U.S. ensured a level of systemic stability that in turn enabled individual market participants to devise workable strategies for hedging against individual counterparties. To avoid the possibility that they might be left holding the hot potato if cotton prices dropped suddenly, middlemen began insisting on shipping cotton bales on consignment. This meant that planters still owned their crop and bore much of the risk of a drop in price, up until one of the buyers working for the Manchester textile companies purchased it.
The Bank not only worked to prevent financial panics but to drive steady growth. As the single biggest lender in the economy, it lent directly to individual entrepreneurs—including enslavers like Jacob Bieller, who were always eager to buy more human capital whom they could put to work in the cotton fields of the southwest. “The US Bank and the Planters Bank at this place has thrown a large amt of cash into circulation,” wrote slave trader Isaac Franklin from Natchez in 1832. Franklin was the Sam Walton of the internal slave trade in the U.S., selling hundreds or even thousands of men and women in New Orleans and Natchez in a given year. from the Chesapeake, Kentucky, and North Carolina. Some of the lending was in the form of renewable “accommodation loans” to large-scale planters who were members of, or connected to, the clique of insiders who ran the B.U.S. branch and the series of state banks chartered by the Mississippi government. Even more of the lending was in the form of commercial credit to cotton buyers. This kept the price of cotton steady and, finding its way to the planters themselves, inspired Natchez-area enslavers to buy more of the people that Franklin and others were purchasing in the Chesapeake states and shipping to the Mississippi Valley.
While planters like Jacob Bieller waited for payment, merchants like the Natchez broker Alvarez Fisk, a Massachusetts-born man who funneled bank money to planters and cotton to Liverpool, lent them operating funds. But ultimately the entire structure was bottomed on, founded on, funded by the bodies of enslaved people: on the ability of slaveholders to extract cotton from them, and on the ability of slaveholders (or bankruptcy courts) to sell them to someone else who wanted to extract cotton. And .
Even as cotton markets soared in the 1830s, Jacob Bieller, for instance, plunged into his own personal crash. His daughter by his second marriage eloped with an ambitious young local lawyer named Felix Bosworth. She was only fifteen or so, but it seems likely that Bieller’s wife, Nancy, encouraged the elopement because she quickly left home to join her daughter, and began divorce proceedings—claiming half of Bieller’s property. According to Nancy, not only had Jacob threatened to shoot her in 1827, but for years “he kept a concubine in their common dwelling & elsewhere, publicly and openly.” (The courts of Louisiana declined to rule on either charge when they eventually granted the couple a divorce. Jacob’s last will gave tacit freedom “to my slaves Mary Clarkson and her son Coulson, a boy something more than five years old, both bright mulattoes.”)
In a moment of despair, Jacob wrote on the cover of a family bible that his daughter’s elopement had “destroyed my welfare, family, and prospects.” B (Bieller had recently purchased dozens of additional slaves on credit from Isaac Franklin, paying more than $1,000 each, bringing his total number of captives to over eighty). All he and Nancy had to debate about was the method—he wanted to sell all those determined to be community rather than separate property, and divide the cash. She wanted to divide the men, women, and children up, “scattering them,” she wrote, intentionally. Enslaved people, Nancy said, were “susceptible to a division in kind without injury to us.” Or to a sale, so long as the system was not in crisis and there was a steady market, Jacob could have retorted.
Back when I was living in Philly, my ultimate hedge was my laptop; I could take it to a pawnshop and then go blog at the computers in the public libary, and then get it back when a check came in. How much more convenient it would have been to own a slave!
So, you heard “hedge” and “liquidity” and thought “securitization,” right? You weren’t wrong. And something about what follows seems awfully familiar:
[E]nslavers had already—by the end of the 1820s—created a highly innovative alternative to the existing financial structure. The Consolidated Association of the Planters of Louisiana (despite its name, the “C.A.P.L.” was still a bank) created more leverage for enslavers at less cost, and on longer terms. It did so by , hedging even more effectively against the individual investors’ losses—so long as the financial system itself did not fail. Here is how it worked: potential borrowers mortgaged slaves and cultivated land to the C.A.P.L., which entitled them to borrow up to half of the assessed value of their property from the C.A.P.L. in bank notes. To convince others to accept the notes thus disbursed at face value, the C.A.P.L. convinced the Louisiana legislature to back $2.5 million in bank bonds (due in ten to fifteen years, bearing five percent interest) with the “faith and credit” of the people of the state. The great British merchant bank Baring Brothers agreed to advance the C.A.P.L. the equivalent of $2.5 million in sterling bills, and market the bonds on European securities markets.
, all under their own control, since all borrowers were officially stockholders in the bank. The sale of the bonds created a pool of high-quality credit to be lent back to the planters at a rate significantly lower than the rate of return that they could expect that money to produce. That pool could be used for all sorts of income-generating purposes: buying more slaves (to produce more cotton and sugar and hence more income) or lending to other enslavers. —but in contrast to what Walsh had to promise Nolte in 1824, this type of mortgage gave the enslaver tremendous margins, control, and flexibility. It was hard to imagine that such borrowers would be foreclosed, even if they fell behind on their payments. After all, the borrowers owned the bank.
You can see how “abolition” would threaten all that, and why Congress forbade petitions against slavery to be read into the record, and indeed made slavery unmentionable on the floor of Congress. So then this happens: President Andrew Jackson — check your twenty dollar bill, if you have one — decides to nuke the Bank of the United States (and give the deposits to new banks owned by his buddies):
Between 1831 and 1834, for reasons about which historians have argued long and hard (without, alas, reaching consensus), President Andrew Jackson fought a brutal battle against the Second Bank of the United States. The Bank had pumped millions of dollars of loans into Mississippi and Louisiana in Jackson’s first term—almost half of the Bank’s total balance sheet was there by 1832—but it remained unpopular in the large sections of the southwest. Creditors are not always loved among those to whom they lend. Jackson vetoed the recharter of the B.U.S. in 1832, and won reelection that fall against a pro-Bank opponent. The next year, he ordered the transfer of the government’s deposits out of the Bank. Jackson claimed that by giving the B.U.S. effective control over the financial market, the federal government had made “the rich richer and the potent more powerful.” No doubt it had done so. But he distributed the deposits to a horde of so-called “pet banks”—state-chartered institutions that, at least initially, were run by his political allies—who in turn were often not members of the old cliques that had run the banks that the B.U.S. treated as favorites. In reaction, Biddle called in millions of dollars of loans, provoking a recession that began in late 1833. In early 1834, however, the B.U.S. had to concede and move on to doing business as a still large, but significantly shrunken ordinary bank.
Enter — second drumroll — de-regulation!
After 1832, the securitization, world-wide marketing, and multiple leveraging of enslaved people, pioneered by the C.A.P.L., proliferated. Across the southwest, cotton entrepreneurs created a series of banks, many of them far larger than the C.A.P.L. In 1832, the state of Louisiana chartered the Union Bank of Louisiana, which issued $7 million in state bonds. … And on and on, until, by 1836, New Orleans was, per resident, the U.S. city with the greatest density of bank capital—$64 million in all. Other states and territories in the area, self-consciously copying Louisiana, began to create new banks of their own, each one exploiting the loopholes of the now-unregulated system with innovative financial devices.
Armed with repeated infusions of new cash lent by banks who handed it out with little concern for whether or not mortgaged slaves had already been “ [!!] —assigned to someone else as a hedge against loans—. Some of the purchasers were long-time residents in states like Louisiana, Alabama, and Mississippi. Some were new migrants fired by the “spirit of emigration,” the belief that “there is scarcely any other portion of the globe” that could permit “the slave holder or merchant of moderate capital” to convert said capital into a fortune. They calculated the money that they would make: . So migrants and longterm residents alike trooped to the banks, mortgaged property (some of which, later critics would charge, did not even exist) and spent the credit they received. Huge amounts of money were shifted around: to slave traders, to the sellers of goods like food and cheap clothing, to slave owners in the Chesapeake who sold people to the southwest, to the banks in Virginia and elsewhere who took their slice of profit as the financiers of the domestic slave traders. There they were set to work: clearing forests from which Native Americans had recently been evicted by Andrew Jackson’s policies; planting cotton seed; tilling it while the harvest neared.
A quarter million people were moved by force, sold, mortgaged, collateralized, securitized, sold again 3,000 miles from where they actually toiled.
And here — second drumroll, please — is the Minsky moment:
Each summer they learned how to pick the fields clean faster, at the end of a whip. From 1831 to 1837, cotton production almost doubled, from 300 million pounds to over 600 million. Too much was reaching Liverpool for Manchester to spin and weave, much less to sell to consumers in the form of cloth. Prices per pound at New Orleans, which had begun the boom in 1834 at eighteen cents, slipped to less than ten by late 1836. “Everybody is in debt neck over ears,” was the word from Alabama, but slave “traders are not discouraged”—many of their buyers believed that cotton prices would begin to climb again. They had no evidence to suggest a return to rising prices. Supply clearly exceeded demand. Yet here was the psychology, the animal spirits of the typical bubble at work, saying: this time is different. But as the slowing prices began to pinch, the Bank of England, alarmed at the outflow of capital to the U.S. in the form of securities purchases, cut its lending in the late summer of 1836. (At the about the same time, Andrew Jackson issued his Specie Circular, which slowed the purchases of public land, but appears to have had little effect on what transpired next in the cotton market.) Merchant firms subsequently began to call in their loans to each other.
In early 1837, a visitor to Florida, which was already—as it has ever been—one of the most bubble-prone and speculative parts of the U.S.—wrote that “there is great risk to the money lender and paper shaver—for the whole land, with very few exceptions, are all in debt for property and a fall in cotton must bring a crash with most tremendous consequences to all trades and pursuits.” Back in Britain, the crash had already begun. Three massive Liverpool and London firms, unable to meet their commercial debt because cotton prices had dropped, collapsed at the end of 1836. The tsunami rushed across the ocean to their trading partners in New Orleans. By late March each of the top ten cotton-buying firms there had collapsed.
All fall down (and it couldn’t happen to a nicer political economy):
Except for planters, who were mostly debtors, almost every market actor—cotton merchants, dry-goods merchants, Southern bankers, Northern bankers—now realized that they were both creditors and debtors. But as they scrambled to collect debts from others so that they could pay off their own, two things were happening. The first was that their individually rational pursuit of liquidity created the collectively irrational outcome of systemic failure. No one was able to pay debts, and so most buying and selling ground to a halt. An attempt to restart the system failed. A second, bigger crash in 1839 finished off many of the survivors of the 1837 panic. During those two years, meanwhile, a second consequence had emerged: the discovery that most of the debt owed by planters and those who dealt with them was “toxic,” to use a recent term. It was unpayable. The planters of Mississippi owed New Orleans banks alone $33 million, estimated one expert, and could not hope to net more than $10 million from their 1837 crop to pay off that debt. Nor could they sell off capital to raise cash because prices for slaves and land, the ultimate collateral in the system, had plummeted as the first wave of bankruptcy-driven sales tapped what little cash there was in the system. This meant that the financial system wasn’t just frozen, but that many creditors’ balance sheets were overwhelmed.
Not a liquidity crisis, but a solvency crisis. The slave banks get the State to bail them out:
After the cotton-brokerage and plantation-supply firms, the next to go were the southwestern banks, whose currency and credit became worthless. They were unable to continue to make coupon payments—interest installments on the bonds they had sold on far-off securities markets. Some might have been able to collect from their debtors by foreclosing mortgages on slaves and land, but, of course, the markets for those two assets had collapsed. Many slave owners had layered multiple mortgages on each slave, meanwhile, and were to protect them from the consequences of their financial over-leverage. The ultimate expression of this practice was the repudiation of the government-backed bonds by the legislatures of several southwestern states and territories, most notably Mississippi and Florida—in effect, they toxified the bonds themselves, emancipating slave-owning debtors from the holders of slave-backed securities.
So, in consequence of the Panic of 1837, slave owners can no longer finance their own banks in their own states, and that social function splits off and moves north, to Wall Street:
But not all debts could be repudiated. And many of the creditors were located in northern states. Their attempts to collect increasingly brought Southern planters to calculate the value of the Union. Nor could Southern entrepreneurs recapitalize their own institutions. After repudiation, outside investors were cautious about lending money to Southern institutions. In the 1830s it was still not clear where the center of gravity of the national financial economy was located—Philadelphia, home of the B.U.S., and New Orleans were both in contention. They sought greater revenues in the only ways that they could. The first was by making more and more cotton. They forced enslaved people to achieve an incredible intensity of labor, developed new kinds of seed, and expanded their acreage, but the increase in cotton production (which rose from 600 million pounds in 1837 to two billion in 1859) was more than the market could absorb. The price remained low in most years in comparison to historic levels.
The second method of enhancing revenues was by seeking new territory, both in order to add to the land under cultivation and with the hope of provoking a new boom. Unleashing the animal spirits of speculation in new territories had almost worked before, so why not try it again by acquiring California, Cuba, Mexico, or Kansas for slavery? The result of the commitment of political capital to that end, of course, was the Civil War, in which the consequences of the long-term financial difficulties of the cotton economy played a major role in Southern defeat.
“And the war came.”
And yet in the end the reverberations set off by the leveraging of slavery’s inequities into further equity for those who exploited them were what brought the structure of real-life slavery crashing down.
So, yeah, of course the Civil War was about slavery. But you’ve got to follow the money to see why.
After I read this piece, it occurred to me — I’m just putting this idea down so that I don’t forget it — that we might think about wage labor as, in a way, “unbundling” slave labor.
Wage laborers don’t live in “labor camps” — er, “plantations” — and their bodies are not under control of their owners. They are, nonetheless, forced to work, not by the lash, but (as MMT teaches) by the requirement to pay taxes in the currency issued by the state, which can only be acquired through wage labor (modulo marginal exceptions like System D, alternative currencies, intentional communities or co-ops, etc.)
And while the wage laborer’s body is not owned, it is nonetheless actually and literally colonized by capital-seeking entities whose products actually and literally flow through the body. See under [sips coffee] cigarettes, high fructose corn syrup, pharmaceuticals, and so on. I don’t want to make too much of this idea, and I’m most definitely not equating human sale with human rental, morally or systemically, but I think there’s some inquiry to be made here, and I’d welcome comments and sources from readers.
 Note lack of agency in that statement. We might note that Lincoln’s Second Inaugural address airbrushes this history away (or at least omits it):
On the occasion corresponding to this four years ago all thoughts were anxiously directed to an impending civil war. All dreaded it, all sought to avert it. While the inaugural address was being delivered from this place, devoted altogether to saving the Union without war, insurgent agents were in the city seeking to destroy it without war–seeking to dissolve the Union and divide effects by negotiation. Both parties deprecated war, but one of them would make war rather than let the nation survive, and the other would accept war rather than let it perish, and the war came.
 Quoting Pohl and Kornbluth’s The Space Merchants:
I’d been paid again, and my debt had increased by eight dollars. I tormented myself by wondering where the money went, but I knew. I came off shift dehydrated, as they wanted me to be. I got a squirt of Popsie from the fountain by punching my combination — twenty five cents checked off my payroll. The squirt wasn’t quite enough so I had another — fifty cents. Dinner was drab as usual; I couldn’t face more than a bite or two of Chicken Little. Later I was hungry and there was the canteen where I got Crunchies on easy credit. The Crunchies kicked off withdrawal symptoms that could be quelled only by another two squirts of Popsie from the fountain. And Popsie kicked off withdrawal symptoms that could only be quelled by smoking Starr Cigarettes, which made you hungry for Crunchies. Had Fowler Schocken [the ad agency] thought of it in these terms when he organized Starrzelius Verily, the first spherical trust? Popsie to Crunchies to Starrs to Popsie?
That “Popsie to Crunchies to Starrs to Popsie” circuit is impressive, no?