Washington warms to the idea of a weaker dollar

The novelty of an interventionist approach gains cross-party traction on Capitol Hill

Brendan Greeley




Washington is beginning to sidle away from its two-decade consensus in favour of a strong dollar.

Donald Trump’s recent complaint that he was not thrilled with “our very strong dollar” because it harmed American companies has found fertile ground among some politicians on both sides of the aisle, and political momentum is building behind the idea that intervention might be necessary.

Republicans are more willing to contemplate interventions in the free market, Democrats have become unmoored from Wall St — which sells dollar-denominated stocks and bonds — and everyone is looking for ways to help domestic manufacturers.

The novelty of the idea is crucial on Capitol Hill; it leaves room for bipartisan experiments.

Last month two senators — one from either side of the aisle — co-sponsored a bill that would oblige the Federal Reserve to prevent the value of the dollar from harming US exports. The bill would give the Fed discretion over a “market access charge” to be levied on foreign investment in America — effectively a form of capital controls, historically regarded by US politicians as a radical economic measure.

Although the legislation has little chance of passing into law, it is an important symbolic moment in the shift away from the longstanding bipartisan consensus on the desirability of a strong dollar.

“Foreign speculators have driven up the dollar by trading in and out of US stocks, bonds and other assets,” said Senator Tammy Baldwin, the Democrat who co-sponsored the bill. “These trends have blown up our trade deficit and led to an uncompetitive American dollar.”

These are words that could have come directly from the president.

The bill would “level the playing field for our farmers and factories”, said Josh Hawley, her Republican colleague and co-sponsor of the bill.

Both Ms Baldwin and Mr Hawley are influenced by the work of Michael Pettis, whose 2013 book The Great Rebalancing championed the idea of weakening the dollar; their staffs have passed around a copy of the book.

Foreigners investing in the US are not contributing the capital that the country needs, Mr Pettis argued — instead the inward capital flows mean that other countries are pushing in capital they cannot use, creating economic distortions which damage homegrown industry.

His argument rests in part on the interest rate on federal debt, which is slowly dropping over time — a sign, he said, of demand for the paper exceeding its supply.

“If Americans were desperate for foreign capital, we wouldn’t get that capital by lowering and lowering interest rates,” he said. “We’d raise it.”

Weakening the dollar could help workers, midsized industry and farmers. Ms Baldwin’s bill originated with the Coalition for a Prosperous America, a trade group run by Dan DiMicco, a former steel executive who sits on the president’s advisory committee for trade.

It is backed by family-owned manufacturers, farming trade groups and representatives from the AFL-CIO and the International Brotherhood of Teamsters, both labour groups. They are all focused on the drag which a strong currency imposes on a nation’s industry and exporters.

Jeff Ferry, the group’s chief economist, argued that to solve the problems of domestic manufacturers, “tackle the capital inflows. You don’t have to deter them all, you just have to deter enough to reduce the pressure on the dollar”.

The strong dollar has been unambiguously good for some, notably people who own and create dollar-denominated assets: financiers, property holders, and companies listed on US stock markets.

But perhaps it has now become a victim of its own success.

An explicit strong dollar policy was first officially endorsed by Robert Rubin, then Treasury secretary, in March 1995. At the time the Fed and other central banks were intervening to support the value of the dollar, the Federal government was paying more than 7 per cent to borrow and industrial production was growing at a pace that has seldom since been matched.

The risk of a dollar crisis — which would cut off the country’s ability to borrow abroad — was small, but it seemed more pressing than the possibility of a decline in manufacturing if the dollar rose too high.

“We were very focused on the dollar as the reserve currency,” Mr Rubin told the FT last week — and he would still make the same decision in 2019.

The strong dollar policy created capital inflows which in turn lowered the cost of capital, making it cheaper for American companies to borrow and raising the value of their stock, he said. The consistency of the strong dollar policy created “a kind of [investor] confidence that one should not sacrifice lightly”.

After a long bull market in stocks and with investment-grade companies borrowing at below 3 per cent, anxiety about the cost of capital seems less compelling. And now there is political appetite for sacrifice.

“Five years ago I would have thought it would take 15 to 20 years before anyone in Congress would understand,” said Mr Pettis. “And now we have a bill already.”

Collapse in Argentine bonds alerts distressed-debt specialists

Decline comes amid market rout that razed stocks and knocked value of peso

Colby Smith in New York


Bargain-hunters are beginning to circle Argentine assets after last week’s savage sell-off, but some investors say they would need prices to drop further before the risk of an Alberto Fernández presidency is fully factored in.

On the heels of a surprise primary election result that raised fears of a return to populism in Argentina, the country’s once-vaunted 100-year bond traded to a record low of 45.76 cents on the dollar. The fall came amid a market rout that razed stocks and bonds, while knocking the value of the peso by more than 20 per cent against the dollar.

The country’s dollar-denominated bond maturing in 2117 has since regained some ground, in line with most of the government’s debt, to just shy of 50 cents on the dollar. Even so, many emerging market bond investors are keeping their eyes trained for the bonds to sink to a range they say is in line with the expected recovery value in the event that Buenos Aires defaults on its debt.

“Argentina dollar bonds in the 40s are good value,” said Paul Greer, a London-based portfolio manager for Fidelity International. “The . . . premium would be appropriate for the risk that you’re taking, and it starts to look interesting.”

Edwin Gutierrez, the head of EM sovereign debt at Aberdeen Asset Management, also sees “decent value” should the bonds remain in the 40s. But to step in, Mr Gutierrez cautioned, he needs “forced sellers to get out” so “the guys interested in buying have enough of a discount to get back in”.

The spectre of default has grown in recent days, with the implied probability of Argentina missing a payment within five years rising to more than 90 per cent, according to credit default swaps pricing. Moreover, Fitch Ratings warned of “increased signs of a probable default”, when it downgraded the country on Friday alongside fellow rating agency Standard & Poor’s.

“If dollar bonds do trend into the 40s, you are all but pricing in the recovery scenarios in line with what the market is expecting,” said Pramol Dhawan, the head of the EM portfolio management team at Pimco, the investment group. “If that is the case, the bonds become a distressed asset.”

Others have estimated recovery values as high as 50-60 cents on the dollar, but caution that there are too many unknowns to get a firm grasp of what is feasible.

“Forty is a historic recovery value and could offer some price support, but that doesn’t mean it’s the floor,” said Siobhan Morden at Amherst Pierpont Securities. “We have to understand the Argentina-specific situation before we can do any serious calculations.”

As such, the lack of clarity about the contours of an economic programme or cabinet appointees from Perónist Alberto Fernández — who is slated to be the next president after the election proper in October — gives Ms Morden pause.

“His lack of sensitivity to financial stress is very worrisome,” she said. “It shows he doesn’t understand that it could reach a point where the situation is ungovernable for him in October.”

Analysts said much depended on what economic tack Mr Fernández would take and what relationship he would seek to maintain with the IMF — which extended the country a record $56bn bailout in 2018 that Mr Fernández said must be renegotiated. But Ricardo Adrogué, the head of global sovereign debt at Barings, said the bigger risk stemmed from his running mate.

“The market isn’t pricing in a scenario where [former president Ms Cristina Fernández de Kirchner] comes into office,” he said. “By weakening [Mauricio] Macri’s ability to win the election, [Mr Fernández] will start his presidency with a very weak level of reserves, no market confidence or access, and having to renegotiate with the IMF from a position of weakness,” he added. “That could pave the way for Cristina.”

Mr Adrogué is now cutting his position, on that basis.

Why 2019 Feels Like 1929 — and What We Can Do to Change Course


“In my darkest moments, I fear that 2019 is looking more like 1929,” writes Wharton Dean Geoffrey Garrett in the following opinion piece. But armed with a sense of realistic optimism, we can navigate—and help to reverse—some worrisome geo-economic and geo-political trends.



Last week, I welcomed the amazing Wharton MBA Class of 2021 to campus. It’s no surprise that the optimism in the room was palpable. I, too, am an optimist by nature. But my message to our students was that we must all be realistic optimists, not naive ones. For me, that means acknowledging that we must all do whatever we can to navigate and reverse three intersecting geo-economic and geo-political trends:

•After four decades of ever-increasing engagement between China and the United States, the world’s two leading powers seem increasingly determined to decouple their economies from each other—making a second Cold War a reality and superpower war more likely.

•Notwithstanding that past technological revolutions have improved both the quality of life and the world of work, the combination of robots and AI threatens to destroy many more jobs than it creates—undermining the foundations of a good life based on a good job.

•While it remains tempting to dismiss the recent rise of anti-establishment politics as an aberration, the roots of populism run much deeper and stronger—weakening the foundations of democracy and increasing the chances of international conflict.

In my darkest moments, I fear that 2019 is looking more like 1929. Ninety years ago, economic inequality was at an all-time high in America and Europe. The seeds of authoritarian nationalism were sprouting in Asia, Europe and Latin America. World War I had destabilized the old global order without creating a new one. Against this backdrop, the stock market crash of October 1929 then ignited the horrendous cascade of depression, fascism and World War II—arguably the worst 15 years in history.

The notion that we could even remotely be near such a global paroxysm may seem unthinkable today.

But I bet that is how everybody living the life of The Great Gatsby and Downton Abbey in the late 1920s felt, too.

The good news today is that while a market correction and a potential recession seem likely sometime, the chances of a crash on the scale of 1929 appear remote. This gives us some time—time to do all we can to reverse the big trends, time to make sure the 2020s are not a replay of the 1930s.

Part of what we must do no doubt requires demanding more of our political leaders—to be more open about the challenges we face and more creative about the potential solutions. But I implored our students to embrace the real difference they can make: that bottom-up actions by the many can change the world as much as, or more than, the actions of even the most effective leaders.

So, my suggestions for change are part policy wonkism, part personal wisdom. Let me start with the wonkish perspective.

China-U.S. Relations

The new big idea today is to “decouple” the world’s two leading economies. I think that is about the worst thing that could happen and not only for the obvious reason that it would destabilize the global economy and increase prices for consumers all over the world. A Brookings report published in February noted, “The U.S.-China economic relationship delivers more benefits to the U.S. than is commonly understood. For example, recent data shows that U.S. exports to China support around 1.8 million jobs in sectors such as services, agriculture and capital goods.”

I have long thought “Cold War” was the wrong description of China-U.S. relations, precisely because of the dense thicket of interconnections that has grown between the two economies over the past 40 years. In part, this is because of trade and investment by multinational companies with global supply chains and distribution networks.

Decoupling would jettison all this economic ballast. With flashpoints like Hong Kong, the South China Sea and Taiwan, tying the hands of each side by binding their economies together is the best way to ensure stability. Decoupling would have the opposite effect.

It is easy today to deride American engagement as having failed to change China. But it has had the massive benefit of reducing the likelihood of superpower conflict. Reversing course now would inevitably make conflict more likely.


The Future of Work

The economists’ glib optimism on technological change—“we don’t know where the jobs will come from, but we know they will be there”—doesn’t comfort anyone worried about the future of work when venerable institutions like McKinsey and Oxford University are predicting that automation might eliminate half of all today’s jobs.

Economists are correct that new technologies are increasing efficiency and safety while making products better rather than cheaper. But no one should hide from the reality that some people will lose jobs in the process and many more will fear they will be next.

Any job that can be automated (routine jobs that require rapid, error-free repetition) will inevitably be automated. But non-routine jobs—not only high-tech jobs for coders and engineers but also personal services jobs like nurses and teachers— are in high and rising demand and they aren’t vulnerable to automation.

What we need is to prepare more people for the world of non-routine work. That means not only more education for more people, but also education that is better targeted to the skills non-routine work requires—skills that are both hard (and technical) and soft (and social). In addition to non-routine jobs, work that requires empathy and emotional intelligence will be tougher to automate. Research from Wharton’s Sigal Barsade has shown that positive emotions exert a powerful influence in the workplace, by contributing to creativity and teamwork. It is hard to imagine robots taking over such work.

Populism

“Leadership” is the clichéd antidote to the nativist, nationalist, anti-immigration, and anti-globalization sentiment that is so prominent today. But providing this leadership is hard, because it means replacing emotive slogans with plain speaking and proposals that are rooted to deep realities.

First, leaders must defend technology and globalization by both explaining how they really work, and how societies the world over have benefited from them. With all the focus on job creation we tend to forget everyone is a consumer, and consumers would lose big time from reversing these megatrends—and not just because of tariffs. For example, having iPhones “made in America” (rather than assembled in China from components made all around the world) would probably increase their cost somewhere between 50% and 100%. Does anyone really want that?
Second, leaders must then not only show real empathy for the people who have been dislocated by technology and globalization (because they have eliminated jobs) but also present compelling plans for extending the benefits to them. Here, education looms very large. Issues of access and affordability are no doubt very important. But so, too, is changing the focus of education to align skills with the new world of work demands.

What Can We All Do?

I acknowledge that all this might feel very distant from our daily lives. But it is not. Indeed, we can all take steps that will make a big difference in the lives of others. Call it “embracing the positive societal externalities of what we do as individuals.”

If that sounds too much like social science jargon, here are four maxims that I try to live by every day, and that I encourage students to live by, too:

•Be an optimist, but be a realistic one. (Don’t live in your bubble; keep your eyes open.)

•Follow your passions, but think about your impact on others. (Do well, but do good, too.)

•Be true to yourself, but try to walk in the shoes of others. (Have empathy and be compassionate.)

•Focus on what matters, but be active members of your communities. (Stand up and be counted.)

We are living in challenging times. But we can, and we must, do all we can to ensure that our best days are ahead of us.


In order to understand the brutality of American capitalism, you have to start on the plantation.

By Matthew Desmond



A couple of years before he was convicted of securities fraud, Martin Shkreli was the chief executive of a pharmaceutical company that acquired the rights to Daraprim, a lifesaving antiparasitic drug. Previously the drug cost $13.50 a pill, but in Shkreli’s hands, the price quickly increased by a factor of 56, to $750 a pill. At a health care conference, Shkreli told the audience that he should have raised the price even higher. “No one wants to say it, no one’s proud of it,” he explained. “But this is a capitalist society, a capitalist system and capitalist rules.”

This is a capitalist society. It’s a fatalistic mantra that seems to get repeated to anyone who questions why America can’t be more fair or equal. But around the world, there are many types of capitalist societies, ranging from liberating to exploitative, protective to abusive, democratic to unregulated. When Americans declare that “we live in a capitalist society” — as a real estate mogul told The Miami Herald last year when explaining his feelings about small-business owners being evicted from their Little Haiti storefronts — what they’re often defending is our nation’s peculiarly brutal economy.

“Low-road capitalism,” the University of Wisconsin-Madison sociologist Joel Rogers has called it. In a capitalist society that goes low, wages are depressed as businesses compete over the price, not the quality, of goods; so-called unskilled workers are typically incentivized through punishments, not promotions; inequality reigns and poverty spreads. In the United States, the richest 1 percent of Americans own 40 percent of the country’s wealth, while a larger share of working-age people (18-65) live in poverty than in any other nation belonging to the Organization for Economic Cooperation and Development (O.E.C.D.).

Or consider worker rights in different capitalist nations. In Iceland, 90 percent of wage and salaried workers belong to trade unions authorized to fight for living wages and fair working conditions. Thirty-four percent of Italian workers are unionized, as are 26 percent of Canadian workers. Only 10 percent of American wage and salaried workers carry union cards.

The O.E.C.D. scores nations along a number of indicators, such as how countries regulate temporary work arrangements. Scores run from 5 (“very strict”) to 1 (“very loose”). Brazil scores 4.1 and Thailand, 3.7, signaling toothy regulations on temp work. Further down the list are Norway (3.4), India (2.5) and Japan (1.3). The United States scored 0.3, tied for second to last place with Malaysia. How easy is it to fire workers? Countries like Indonesia (4.1) and Portugal (3) have strong rules about severance pay and reasons for dismissal. Those rules relax somewhat in places like Denmark (2.1) and Mexico (1.9). They virtually disappear in the United States, ranked dead last out of 71 nations with a score of 0.5.

Those searching for reasons the American economy is uniquely severe and unbridled have found answers in many places (religion, politics, culture). But recently, historians have pointed persuasively to the gnatty fields of Georgia and Alabama, to the cotton houses and slave auction blocks, as the birthplace of America’s low-road approach to capitalism.

Slavery was undeniably a font of phenomenal wealth. By the eve of the Civil War, the Mississippi Valley was home to more millionaires per capita than anywhere else in the United States. Cotton grown and picked by enslaved workers was the nation’s most valuable export.

The combined value of enslaved people exceeded that of all the railroads and factories in the nation. New Orleans boasted a denser concentration of banking capital than New York City.

What made the cotton economy boom in the United States, and not in all the other far-flung parts of the world with climates and soil suitable to the crop, was our nation’s unflinching willingness to use violence on nonwhite people and to exert its will on seemingly endless supplies of land and labor. Given the choice between modernity and barbarism, prosperity and poverty, lawfulness and cruelty, democracy and totalitarianism, America chose all of the above.



Nearly two average American lifetimes (79 years) have passed since the end of slavery, only two. It is not surprising that we can still feel the looming presence of this institution, which helped turn a poor, fledgling nation into a financial colossus. The surprising bit has to do with the many eerily specific ways slavery can still be felt in our economic life.

“American slavery is necessarily imprinted on the DNA of American capitalism,” write the historians Sven Beckert and Seth Rockman. The task now, they argue, is “cataloging the dominant and recessive traits” that have been passed down to us, tracing the unsettling and often unrecognized lines of descent by which America’s national sin is now being visited upon the third and fourth generations.

They picked in long rows, bent bodies shuffling through cotton fields white in bloom. Men, women and children picked, using both hands to hurry the work. Some picked in Negro cloth, their raw product returning to them by way of New England mills. Some picked completely naked. Young children ran water across the humped rows, while overseers peered down from horses.

Enslaved workers placed each cotton boll into a sack slung around their necks. Their haul would be weighed after the sunlight stalked away from the fields and, as the freedman Charles Ball recalled, you couldn’t “distinguish the weeds from the cotton plants.” If the haul came up light, enslaved workers were often whipped. “A short day’s work was always punished,” Ball wrote.

Cotton was to the 19th century what oil was to the 20th: among the world’s most widely traded commodities. Cotton is everywhere, in our clothes, hospitals, soap. Before the industrialization of cotton, people wore expensive clothes made of wool or linen and dressed their beds in furs or straw. Whoever mastered cotton could make a killing. But cotton needed land. A field could only tolerate a few straight years of the crop before its soil became depleted. Planters watched as acres that had initially produced 1,000 pounds of cotton yielded only 400 a few seasons later.

The thirst for new farmland grew even more intense after the invention of the cotton gin in the early 1790s. Before the gin, enslaved workers grew more cotton than they could clean. The gin broke the bottleneck, making it possible to clean as much cotton as you could grow.

The United States solved its land shortage by expropriating millions of acres from Native Americans, often with military force, acquiring Georgia, Alabama, Tennessee and Florida. It then sold that land on the cheap — just $1.25 an acre in the early 1830s ($38 in today’s dollars) — to white settlers. Naturally, the first to cash in were the land speculators. Companies operating in Mississippi flipped land, selling it soon after purchase, commonly for double the price.

Enslaved workers felled trees by ax, burned the underbrush and leveled the earth for planting. “Whole forests were literally dragged out by the roots,” John Parker, an enslaved worker, remembered. A lush, twisted mass of vegetation was replaced by a single crop.

An origin of American money exerting its will on the earth, spoiling the environment for profit, is found in the cotton plantation. Floods became bigger and more common. The lack of biodiversity exhausted the soil and, to quote the historian Walter Johnson, “rendered one of the richest agricultural regions of the earth dependent on upriver trade for food.”

As slave labor camps spread throughout the South, production surged. By 1831, the country was delivering nearly half the world’s raw cotton crop, with 350 million pounds picked that year. Just four years later, it harvested 500 million pounds. Southern white elites grew rich, as did their counterparts in the North, who erected textile mills to form, in the words of the Massachusetts senator Charles Sumner, an “unhallowed alliance between the lords of the lash and the lords of the loom.”

The large-scale cultivation of cotton hastened the invention of the factory, an institution that propelled the Industrial Revolution and changed the course of history. In 1810, there were 87,000 cotton spindles in America. Fifty years later, there were five million. Slavery, wrote one of its defenders in De Bow’s Review, a widely read agricultural magazine, was the “nursing mother of the prosperity of the North.”

Cotton planters, millers and consumers were fashioning a new economy, one that was global in scope and required the movement of capital, labor and products across long distances. In other words, they were fashioning a capitalist economy. “The beating heart of this new system,” Beckert writes, “was slavery.”

Perhaps you’re reading this at work, maybe at a multinational corporation that runs like a soft-purring engine. You report to someone, and someone reports to you. Everything is tracked, recorded and analyzed, via vertical reporting systems, double-entry record-keeping and precise quantification. Data seems to hold sway over every operation. It feels like a cutting-edge approach to management, but many of these techniques that we now take for granted were developed by and for large plantations.



When an accountant depreciates an asset to save on taxes or when a midlevel manager spends an afternoon filling in rows and columns on an Excel spreadsheet, they are repeating business procedures whose roots twist back to slave-labor camps. And yet, despite this, “slavery plays almost no role in histories of management,” notes the historian Caitlin Rosenthal in her book “Accounting for Slavery.”

Since the 1977 publication of Alfred Chandler’s classic study, “The Visible Hand,” historians have tended to connect the development of modern business practices to the 19th-century railroad industry, viewing plantation slavery as precapitalistic, even primitive.

It’s a more comforting origin story, one that protects the idea that America’s economic ascendancy developed not because of, but in spite of, millions of black people toiling on plantations. But management techniques used by 19th-century corporations were implemented during the previous century by plantation owners.

Planters aggressively expanded their operations to capitalize on economies of scale inherent to cotton growing, buying more enslaved workers, investing in large gins and presses and experimenting with different seed varieties. To do so, they developed complicated workplace hierarchies that combined a central office, made up of owners and lawyers in charge of capital allocation and long-term strategy, with several divisional units, responsible for different operations.

Rosenthal writes of one plantation where the owner supervised a top lawyer, who supervised another lawyer, who supervised an overseer, who supervised three bookkeepers, who supervised 16 enslaved head drivers and specialists (like bricklayers), who supervised hundreds of enslaved workers.

Everyone was accountable to someone else, and plantations pumped out not just cotton bales but volumes of data about how each bale was produced. This organizational form was very advanced for its time, displaying a level of hierarchal complexity equaled only by large government structures, like that of the British Royal Navy.

Like today’s titans of industry, planters understood that their profits climbed when they extracted maximum effort out of each worker. So they paid close attention to inputs and outputs by developing precise systems of record-keeping.

Meticulous bookkeepers and overseers were just as important to the productivity of a slave-labor camp as field hands. Plantation entrepreneurs developed spreadsheets, like Thomas Affleck’s “Plantation Record and Account Book,” which ran into eight editions circulated until the Civil War. Affleck’s book was a one-stop-shop accounting manual, complete with rows and columns that tracked per-worker productivity.

This book “was really at the cutting edge of the informational technologies available to businesses during this period,” Rosenthal told me. “I have never found anything remotely as complex as Affleck’s book for free labor.” Enslavers used the book to determine end-of-the-year balances, tallying expenses and revenues and noting the causes of their biggest gains and losses.

They quantified capital costs on their land, tools and enslaved workforces, applying Affleck’s recommended interest rate. Perhaps most remarkable, they also developed ways to calculate depreciation, a breakthrough in modern management procedures, by assessing the market value of enslaved workers over their life spans. Values generally peaked between the prime ages of 20 and 40 but were individually adjusted up or down based on sex, strength and temperament: people reduced to data points.

This level of data analysis also allowed planters to anticipate rebellion. Tools were accounted for on a regular basis to make sure a large number of axes or other potential weapons didn’t suddenly go missing. “Never allow any slave to lock or unlock any door,” advised a Virginia enslaver in 1847.

In this way, new bookkeeping techniques developed to maximize returns also helped to ensure that violence flowed in one direction, allowing a minority of whites to control a much larger group of enslaved black people. American planters never forgot what happened in Saint-Domingue (now Haiti) in 1791, when enslaved workers took up arms and revolted. In fact, many white enslavers overthrown during the Haitian Revolution relocated to the United States and started over.

Overseers recorded each enslaved worker’s yield. Accountings took place not only after nightfall, when cotton baskets were weighed, but throughout the workday. In the words of a North Carolina planter, enslaved workers were to be “followed up from day break until dark.”

Having hands line-pick in rows sometimes longer than five football fields allowed overseers to spot anyone lagging behind. The uniform layout of the land had a logic; a logic designed to dominate. Faster workers were placed at the head of the line, which encouraged those who followed to match the captain’s pace.

When enslaved workers grew ill or old, or became pregnant, they were assigned to lighter tasks. One enslaver established a “sucklers gang” for nursing mothers, as well as a “measles gang,” which at once quarantined those struck by the virus and ensured that they did their part to contribute to the productivity machine. Bodies and tasks were aligned with rigorous exactitude.

In trade magazines, owners swapped advice about the minutiae of planting, including slave diets and clothing as well as the kind of tone a master should use. In 1846, one Alabama planter advised his fellow enslavers to always give orders “in a mild tone, and try to leave the impression on the mind of the negro that what you say is the result of reflection.” The devil (and his profits) were in the details.

The uncompromising pursuit of measurement and scientific accounting displayed in slave plantations predates industrialism. Northern factories would not begin adopting these techniques until decades after the Emancipation Proclamation. As the large slave-labor camps grew increasingly efficient, enslaved black people became America’s first modern workers, their productivity increasing at an astonishing pace.

During the 60 years leading up to the Civil War, the daily amount of cotton picked per enslaved worker increased 2.3 percent a year. That means that in 1862, the average enslaved fieldworker picked not 25 percent or 50 percent as much but 400 percent as much cotton than his or her counterpart did in 1801.

Today modern technology has facilitated unremitting workplace supervision, particularly in the service sector. Companies have developed software that records workers’ keystrokes and mouse clicks, along with randomly capturing screenshots multiple times a day. Modern-day workers are subjected to a wide variety of surveillance strategies, from drug tests and closed-circuit video monitoring to tracking apps and even devices that sense heat and motion.

A 2006 survey found that more than a third of companies with work forces of 1,000 or more had staff members who read through employees’ outbound emails. The technology that accompanies this workplace supervision can make it feel futuristic. But it’s only the technology that’s new. The core impulse behind that technology pervaded plantations, which sought innermost control over the bodies of their enslaved work force.

The cotton plantation was America’s first big business, and the nation’s first corporate Big Brother was the overseer. And behind every cold calculation, every rational fine-tuning of the system, violence lurked. Plantation owners used a combination of incentives and punishments to squeeze as much as possible out of enslaved workers.

Some beaten workers passed out from the pain and woke up vomiting. Some “danced” or “trembled” with every hit. An 1829 first-person account from Alabama recorded an overseer’s shoving the faces of women he thought had picked too slow into their cotton baskets and opening up their backs. To the historian Edward Baptist, before the Civil War, Americans “lived in an economy whose bottom gear was torture.”



There is some comfort, I think, in attributing the sheer brutality of slavery to dumb racism. We imagine pain being inflicted somewhat at random, doled out by the stereotypical white overseer, free but poor. But a good many overseers weren’t allowed to whip at will. Punishments were authorized by the higher-ups. It was not so much the rage of the poor white Southerner but the greed of the rich white planter that drove the lash.

The violence was neither arbitrary nor gratuitous. It was rational, capitalistic, all part of the plantation’s design. “Each individual having a stated number of pounds of cotton to pick,” a formerly enslaved worker, Henry Watson, wrote in 1848, “the deficit of which was made up by as many lashes being applied to the poor slave’s back.” Because overseers closely monitored enslaved workers’ picking abilities, they assigned each worker a unique quota. Falling short of that quota could get you beaten, but overshooting your target could bring misery the next day, because the master might respond by raising your picking rate.

Profits from heightened productivity were harnessed through the anguish of the enslaved. This was why the fastest cotton pickers were often whipped the most. It was why punishments rose and fell with global market fluctuations. Speaking of cotton in 1854, the fugitive slave John Brown remembered, “When the price rises in the English market, the poor slaves immediately feel the effects, for they are harder driven, and the whip is kept more constantly going.”

Unrestrained capitalism holds no monopoly on violence, but in making possible the pursuit of near limitless personal fortunes, often at someone else’s expense, it does put a cash value on our moral commitments.

Slavery did supplement white workers with what W.E.B. Du Bois called a “public and psychological wage,” which allowed them to roam freely and feel a sense of entitlement. But this, too, served the interests of money. Slavery pulled down all workers’ wages. Both in the cities and countryside, employers had access to a large and flexible labor pool made up of enslaved and free people.

Just as in today’s gig economy, day laborers during slavery’s reign often lived under conditions of scarcity and uncertainty, and jobs meant to be worked for a few months were worked for lifetimes. Labor power had little chance when the bosses could choose between buying people, renting them, contracting indentured servants, taking on apprentices or hiring children and prisoners.

This not only created a starkly uneven playing field, dividing workers from themselves; it also made “all nonslavery appear as freedom,” as the economic historian Stanley Engerman has written. Witnessing the horrors of slavery drilled into poor white workers that things could be worse. So they generally accepted their lot, and American freedom became broadly defined as the opposite of bondage. It was a freedom that understood what it was against but not what it was for; a malnourished and mean kind of freedom that kept you out of chains but did not provide bread or shelter. It was a freedom far too easily pleased.

In recent decades, America has experienced the financialization of its economy. In 1980, Congress repealed regulations that had been in place since the 1933 Glass-Steagall Act, allowing banks to merge and charge their customers higher interest rates. Since then, increasingly profits have accrued not by trading and producing goods and services but through financial instruments. Between 1980 and 2008, more than $6.6 trillion was transferred to financial firms.

After witnessing the successes and excesses of Wall Street, even nonfinancial companies began finding ways to make money from financial products and activities. Ever wonder why every major retail store, hotel chain and airline wants to sell you a credit card? This financial turn has trickled down into our everyday lives: It’s there in our pensions, home mortgages, lines of credit and college-savings portfolios. Americans with some means now act like “enterprising subjects,” in the words of the political scientist Robert Aitken.

As it’s usually narrated, the story of the ascendancy of American finance tends to begin in 1980, with the gutting of Glass-Steagall, or in 1944 with Bretton Woods, or perhaps in the reckless speculation of the 1920s. But in reality, the story begins during slavery.

Consider, for example, one of the most popular mainstream financial instruments: the mortgage. Enslaved people were used as collateral for mortgages centuries before the home mortgage became the defining characteristic of middle America. In colonial times, when land was not worth much and banks didn’t exist, most lending was based on human property.

In the early 1700s, slaves were the dominant collateral in South Carolina. Many Americans were first exposed to the concept of a mortgage by trafficking in enslaved people, not real estate, and “the extension of mortgages to slave property helped fuel the development of American (and global) capitalism,” the historian Joshua Rothman told me.

Or consider a Wall Street financial instrument as modern-sounding as collateralized debt obligations (C.D.O.s), those ticking time bombs backed by inflated home prices in the 2000s. C.D.O.s were the grandchildren of mortgage-backed securities based on the inflated value of enslaved people sold in the 1820s and 1830s. Each product created massive fortunes for the few before blowing up the economy.



Enslavers were not the first ones to securitize assets and debts in America. The land companies that thrived during the late 1700s relied on this technique, for instance. But enslavers did make use of securities to such an enormous degree for their time, exposing stakeholders throughout the Western world to enough risk to compromise the world economy, that the historian Edward Baptist told me that this can be viewed as “a new moment in international capitalism, where you are seeing the development of a globalized financial market.”

The novel thing about the 2008 foreclosure crisis was not the concept of foreclosing on a homeowner but foreclosing on millions of them. Similarly, what was new about securitizing enslaved people in the first half of the 19th century was not the concept of securitization itself but the crazed level of rash speculation on cotton that selling slave debt promoted.


As America’s cotton sector expanded, the value of enslaved workers soared. Between 1804 and 1860, the average price of men ages 21 to 38 sold in New Orleans grew to $1,200 from roughly $450. Because they couldn’t expand their cotton empires without more enslaved workers, ambitious planters needed to find a way to raise enough capital to purchase more hands. Enter the banks.

The Second Bank of the United States, chartered in 1816, began investing heavily in cotton. In the early 1830s, the slaveholding Southwestern states took almost half the bank’s business. Around the same time, state-chartered banks began multiplying to such a degree that one historian called it an “orgy of bank-creation.”

When seeking loans, planters used enslaved people as collateral. Thomas Jefferson mortgaged 150 of his enslaved workers to build Monticello. People could be sold much more easily than land, and in multiple Southern states, more than eight in 10 mortgage-secured loans used enslaved people as full or partial collateral.

As the historian Bonnie Martin has written, “slave owners worked their slaves financially, as well as physically from colonial days until emancipation” by mortgaging people to buy more people. Access to credit grew faster than Mississippi kudzu, leading one 1836 observer to remark that in cotton country “money, or what passed for money, was the only cheap thing to be had.”

Planters took on immense amounts of debt to finance their operations. Why wouldn’t they? The math worked out. A cotton plantation in the first decade of the 19th century could leverage their enslaved workers at 8 percent interest and record a return three times that. So leverage they did, sometimes volunteering the same enslaved workers for multiple mortgages.

Banks lent with little restraint. By 1833, Mississippi banks had issued 20 times as much paper money as they had gold in their coffers. In several Southern counties, slave mortgages injected more capital into the economy than sales from the crops harvested by enslaved workers.

Global financial markets got in on the action. When Thomas Jefferson mortgaged his enslaved workers, it was a Dutch firm that put up the money. The Louisiana Purchase, which opened millions of acres to cotton production, was financed by Baring Brothers, the well-heeled British commercial bank. A majority of credit powering the American slave economy came from the London money market.

Years after abolishing the African slave trade in 1807, Britain, and much of Europe along with it, was bankrolling slavery in the United States. To raise capital, state-chartered banks pooled debt generated by slave mortgages and repackaged it as bonds promising investors annual interest. During slavery’s boom time, banks did swift business in bonds, finding buyers in Hamburg and Amsterdam, in Boston and Philadelphia.

Some historians have claimed that the British abolition of the slave trade was a turning point in modernity, marked by the development of a new kind of moral consciousness when people began considering the suffering of others thousands of miles away. But perhaps all that changed was a growing need to scrub the blood of enslaved workers off American dollars, British pounds and French francs, a need that Western financial markets fast found a way to satisfy through the global trade in bank bonds.

Here was a means to profit from slavery without getting your hands dirty. In fact, many investors may not have realized that their money was being used to buy and exploit people, just as many of us who are vested in multinational textile companies today are unaware that our money subsidizes a business that continues to rely on forced labor in countries like Uzbekistan and China and child workers in countries like India and Brazil.

Call it irony, coincidence or maybe cause — historians haven’t settled the matter — but avenues to profit indirectly from slavery grew in popularity as the institution of slavery itself grew more unpopular. “I think they go together,” the historian Calvin Schermerhorn told me. “We care about fellow members of humanity, but what do we do when we want returns on an investment that depends on their bound labor?” he said. “Yes, there is a higher consciousness. But then it comes down to: Where do you get your cotton from?”

Banks issued tens of millions of dollars in loans on the assumption that rising cotton prices would go on forever. Speculation reached a fever pitch in the 1830s, as businessmen, planters and lawyers convinced themselves that they could amass real treasure by joining in a risky game that everyone seemed to be playing. If planters thought themselves invincible, able to bend the laws of finance to their will, it was most likely because they had been granted authority to bend the laws of nature to their will, to do with the land and the people who worked it as they pleased.

Du Bois wrote: “The mere fact that a man could be, under the law, the actual master of the mind and body of human beings had to have disastrous effects. It tended to inflate the ego of most planters beyond all reason; they became arrogant, strutting, quarrelsome kinglets.” What are the laws of economics to those exercising godlike power over an entire people?

We know how these stories end. The American South rashly overproduced cotton thanks to an abundance of cheap land, labor and credit, consumer demand couldn’t keep up with supply, and prices fell. The value of cotton started to drop as early as 1834 before plunging like a bird winged in midflight, setting off the Panic of 1837. Investors and creditors called in their debts, but plantation owners were underwater.

Mississippi planters owed the banks in New Orleans $33 million in a year their crops yielded only $10 million in revenue. They couldn’t simply liquidate their assets to raise the money. When the price of cotton tumbled, it pulled down the value of enslaved workers and land along with it. People bought for $2,000 were now selling for $60. Today, we would say the planters’ debt was “toxic.”


Because enslavers couldn’t repay their loans, the banks couldn’t make interest payments on their bonds. Shouts went up around the Western world, as investors began demanding that states raise taxes to keep their promises.

After all, the bonds were backed by taxpayers. But after a swell of populist outrage, states decided not to squeeze the money out of every Southern family, coin by coin. But neither did they foreclose on defaulting plantation owners. If they tried, planters absconded to Texas (an independent republic at the time) with their treasure and enslaved work force. Furious bondholders mounted lawsuits and cashiers committed suicide, but the bankrupt states refused to pay their debts. Cotton slavery was too big to fail.

The South chose to cut itself out of the global credit market, the hand that had fed cotton expansion, rather than hold planters and their banks accountable for their negligence and avarice.

Even academic historians, who from their very first graduate course are taught to shun presentism and accept history on its own terms, haven’t been able to resist drawing parallels between the Panic of 1837 and the 2008 financial crisis.

All the ingredients are there: mystifying financial instruments that hide risk while connecting bankers, investors and families around the globe; fantastic profits amassed overnight; the normalization of speculation and breathless risk-taking; stacks of paper money printed on the myth that some institution (cotton, housing) is unshakable; considered and intentional exploitation of black people; and impunity for the profiteers when it all falls apart — the borrowers were bailed out after 1837, the banks after 2008.

During slavery, “Americans built a culture of speculation unique in its abandon,” writes the historian Joshua Rothman in his 2012 book, “Flush Times and Fever Dreams.” That culture would drive cotton production up to the Civil War, and it has been a defining characteristic of American capitalism ever since.

It is the culture of acquiring wealth without work, growing at all costs and abusing the powerless. It is the culture that brought us the Panic of 1837, the stock-market crash of 1929 and the recession of 2008. It is the culture that has produced staggering inequality and undignified working conditions.

If today America promotes a particular kind of low-road capitalism — a union-busting capitalism of poverty wages, gig jobs and normalized insecurity; a winner-take-all capitalism of stunning disparities not only permitting but awarding financial rule-bending; a racist capitalism that ignores the fact that slavery didn’t just deny black freedom but built white fortunes, originating the black-white wealth gap that annually grows wider — one reason is that American capitalism was founded on the lowest road there is.


Matthew Desmond is a professor of sociology at Princeton University and a contributing writer for the magazine. He last wrote a feature about the benefits of a living wage. Lyle Ashton Harris is an artist who works in photography, collage and performance. He currently has works in two group exhibitions at the Guggenheim in New York. Mehrsa Baradaran is a professor at U.C. Irvine School of Law and author of “The Color of Money” and “How the Other Half Banks.” Tiya Miles is a professor in the history department at Harvard and the author, most recently, of “The Dawn of Detroit: A Chronicle of Slavery and Freedom in the City of the Straits.”