editione1.0.2
Updated February 11, 2023Following the economic downturn, state governments could have raised taxes to redeem the bonds, but their constituents voted against it, and the governments listened. They could have taken possession of the plantations, effectively ending the cotton industry. However, because the cotton industry held everything together, foreclosing on it was equivalent to foreclosing on the entire economy. So they opted for inaction, largely because the cotton industry was “too big to fail.”
Eight states, including Florida, defaulted on their debts, and as a result, Southern planters became dependent on Northern credit despite having three million slaves as capital. Northern capital journeyed south to purchase cotton, thereby establishing a new system. The Lehman Brothers (bankrupt in 2008) began as “factors,” lending money to slave-owners for future crops and slave mortgages. The term factory has its origins in the Portuguese word feitoria, the term used from the 15th century to designate a trading post on the coast of Africa. In the context of the transatlantic slave trade of the 19th century, a factory commissioned a locale that “produced” enslaved people and was managed by a “factor.”
Brown Brothers, a London-based bank, extended credit to these factors. Numerous household names in the financial services industry began their existence in this manner. The significance of cotton grown by West Indian slaves to the Lancashire textile industry led to the emergence of Liverpool cotton brokers who later rose to prominence in the US cotton broking industry. Slavery was inextricably intertwined with cotton production and cotton trade, spawning numerous parallel business streams.*
In 2019, sociologist Matthew Desmond said that “the enslaved workforce in America was where the country’s wealth resided.”* He was speaking explicitly about the US, however the same was equally true of the UK.
Comparing and contrasting the EIC and cotton bailouts, worrying trends can be identified. Mystifying financial instruments—which conceal risk and connect people all over the world—are used to fuel growth. Scores of paper money are printed on the myth that some institution—cotton, housing, Indian wares, slavery—is unbreakable. Add to this, the intentional exploitation of Black and Brown people. Finally there is impunity for the profiteers when the bubble bursts. The EIC directors were bailed out and faced no penalties in 1772. Similarly, borrowers were bailed out after 1837. Identical similarities can then be noted when the banks were bailed out after 2008.
Capitalism, and indeed the foundations of venture capitalism, began in brutality. Exploitation, plundering, and slavery enabled Britain and the fledgling US to become the powerhouses in the global economy they are today.
Slavery and industrialization fed each other. Many slave traders, planters, and merchants diversified into manufacturing, agriculture, and infrastructure, or kept their money in banks and finance houses that loaned to the developing capitalist economy. Some slave profits were spent on conspicuous consumption, yet, even this helped to boost the market economy. As the slave economy grew, credit, banking, and insurance became ever more important.*
As Robin Einhorn has argued, tax codes also reflected the exceptional wealth stored in enslaved people, with virtually every Southern legislature choosing to discount human property assessments that would otherwise dwarf all other taxable assets in value.* There are several other examples of how practices developed to systemize and maximize profitability during slavery have flowed through to modern venturing. When a CFO depreciates assets for tax purposes, and when work rates are tracked, recorded, and data analyzed for optimal performance rates, it may feel as though we are managing metrics for scale with forward-thinking management approaches, when in fact, many of these operations were developed by enslavers to optimize their plantations. Andrew Carnegie, founder of a company that eventually became part of U.S. Steel, is famed for embodying similar rationality. Carnegie was particularly famous for his industrial activities’ “vertical integration.” By investing in iron ore and coal mines and railroads to transport the ore and coal to his steel mills, he dramatically reduced the cost of the final product and won market share from competitors.*