What Does Hornbeck & Logan's $1.44 Billion "Aggregate Economic Gain" from Emancipation Really Mean?
For those who won’t read the underlying paper (which you should!), Matthew Yglesias
has a nice explication of and rumination on Rick Hornbeck & Trevon Logan: One Giant Leap: Emancipation and Aggregate Economic Gains <https://bfi.uchicago.edu/wp-content/uploads/2023/10/BFI_WP_2023-134.pdf>.
My principal takeaway from Hornbeck & Logan? Emancipation was a net economic boost to the people of the slave states of a year’s worth of their total economic product—and a bigger boost to ex-slaves’ well-being, for the net boost is comprised of the gross boost to ex-slaves’ well-being minus the present and future income that ex-slaveholders lost. A more than doubling. Line 1 in Table 1:
There is one point, however, that I think Matt gets very wrong. So I want to pick at him for it.
With respect to such calculations, Matt Yglesias writes:
It’s not obvious exactly how to quantify… but that’s what economics PhDs are for...
In actual fact, over the course of my career, and earlier, figuring out how to quantify such welfare calculations has primarily been what most economics Ph.D. have been not for but against.
When one starts micro theory, one is told that Economics as a discipline is very embarrassed by its utilitarian origins—by Benthamite assertions that the proper business of an economist is to figure out how to maximize social welfare.
“Social welfare”, you see, is constructed by looking into each individual’s soul, assessing their individual “utility”, and then adding all those utilities up. But who is an economist to be a dictator, looking inside each individual and saying “your utility would be maximized if we arranged society so that you were more-or-less forced to do this”!? And who is an economist to be a judge, trading-off a benefit to one and saying it is worth imposing a cost on another. Much better to distribute rights of control over resources and rights to benefit from the use of resources to individuals, and then let them voluntarily make deals with one another.
Then you could watch what deals and bargains people made and what production and exchange relationships they entered into. You could then calculate up the value of what was produced at the society’s market prices, and use that as a very rough guide to average well-being. You could also see people reveal their preferences. From these revealed preferences you could then construct a picture of their utility, rather than arrogating to yourself the power to be a dictator. It was true that the utility you could construct was primarily ordinal rather than cardinal—you could say that someone preferred this to that, but not by how much they preferred it. But you did not really want to be asserting that you knew the intensity of preferences, because if you did you would be strongly tempted to infringe on people’s liberty of contract by taking their property and giving it to others whom you thought desired it more intensely.
There remained the problem of “where does the distribution of control over resources and of rights to benefit from the use of resources come from”? And in response to that there were a number of counters:
That distribution is a political question—go ask the political scientists.
That is not economists’ concern, for it represents the distribution of political and social power in a society; economists who are mere technicians are all about how to make the system run more smoothly and efficiently, and do not have either standing to call for or the ability to work to upset and overturn the distribution of political and social power.
Ideally, people should either, via some unanimity rule, set up a constitution that will then have a procedure to decide such things. But we do not live in an ideal world, but one that is already running.
Yes, that distribution has a huge amount of luck in it—even (or especially) the luck involved in choosing the right parents. But the system as a whole is so productive! And that system productivity much more than outweighs the utilitarian inefficiencies created by the fact that some are lucky in the wealth distribution and others are not. Besides: we cannot really calculate how these inefficiencies compare with GDP—that would involve interpersonal comparisons we do not have sound ground for making.
Yes, force and fraud in the past play a role in property distribution. But their effects diminish over time.
Yes, especially those with ancestors who had low rates of time discount will find themselves inheriting lots of resources. But that inheritance is a result of and a reward for their ancestors’ thrift and prudence—which we do want to incentivize.
Yes, wealth distribution should be decided by some more-or-less democratic political process—but it should not be too democratic, because untrammeled one man-one vote is dynamically inconsistent, and leads to excessive taxes on capital that impoverish everyone in the long run.
You get the picture.
My view has always been that we might as well go full Bentham: each person counts for one, with strong assumptions about the declining marginal utility of wealth. Everything else is an attempt to evade the real question.
Now you can get a little bit of the way there using standard tools. There are these theoretical concepts of “compensating variation” and “equivalent variation”. Compare a person in situation A and the same person in (a better) situation B. “Equivalent variation” EV(A→B) is how much extra you would have to pay the person in situation A to make them indifferent between staying where they are in A (with the extra money) or moving to situation B. CV(A→B) is how much you could charge them once they were in situation B to make them indifferent between being where they now are in B (with the less money) or having stayed in A. But once you have looked into people’s souls enough to calculate these, what is the objection to going the whole utilitarian hog?
Thus I find it interesting that Hornbeck and Logan do not go the whole utilitarian hog. I presume they concluded that that was a fight they did not need to have, for they could use the revealed-preference gang-labor work premium and Value of a Statistical Life estimates to demonstrate what they needed to demonstrate. But from my perspective this does lead to a certain conceptual vagueness.
We have an “aggregate economic gain” from Emancipation of $1.44 billion at 1865 prices, which is equal to 99% of one year of slave-state economic product. This is a number that Hornbeck and Logan place very much in the “value of what was produced at the society’s market prices”—the formerly enslaved had extra time because they were no longer overworked and extra control over their lives because they were no longer enslaved, and at the typical valuations of a typical slave-state inhabitant, the value of those things outweighed the reduction in marketed economic product by a substantial sum. Hornbeck and Logan’s case is well-proved. But the beneficiaries were not typical southerners—they were rather, those for whom extra freedom and control were uniquely sweet (and it was only because they were enslaved and poor before the Civil War that they did not succeed in larger numbers in buying their way out of slavery in order to get freedom). And those who lost income were not typical southerners either—they were rich ex-slaveholders, on whom the losses of income and wealth did not bite so harshly, and who were—we all firmly believe, and someone like southern aristocrat Mary Chesnut believed too—better people and thus better off after the Civil War for no longer being self soul-destroying Lords of the Lash.
So what does this $1.44 billion number really mean? It is a measure of how much larger the societal pie was after Emancipation. But what kind of measure, exactly?