Slavery and Empire as Malevolent Proto-Keynesianism
Yes, slavery and empire were economically significant
(I’m Henry Snow, and you’re reading Another Way.)
The British economist John Maynard Keynes once said, “Anything we can actually do, we can afford.” Markets alone do not maximally employ labor or resources, and when the government embarks on bold public spending programs it can achieve things the free market would not. Thus the limits on what a nation can do are based in real factors– how many people it has, what materials are available– and not the profits and prices of the market. When Keynes was speaking in the 1940s, Britain could not afford to build a space elevator, but it could afford to develop a public healthcare apparatus.
While this understanding of money is far from common sense, it is not radical. Keynes was no socialist– he was a prominent defender of managed capitalism. In the decades since he died, Keynes’s ideas have been debated, evolved, and put into practice across the world: we have Keynesian, anti-Keynesian, post-Keynesian (this is where I’d plant myself), and Keynesianism-within-the-neoclassical-synthesis approaches to macroeconomics. But Keynes’s basic insight is useful for understanding both the past and the present.
Here I want to apply that insight to a recent report by a right-wing British think tank, the Institute for Economic Affairs, on the history of slavery and empire. Both Britain and the United States have recently witnessed increasing interest in the material legacies of slavery. As the IEA report puts it “we have seen a revival of the idea that the wealth of the Western world – and Britain’s in particular – was originally built on slavery and colonial exploitation.” The report’s author, IEA economist Kristian Niemietz, takes umbrage with this, as has the trans-Atlantic right more broadly.
Actual quantitative analysis of slavery’s economic cost is complicated, and ethically this is a subject that must be approached with care given its significance. Maxine Berg and Pat Hudson’s recent Slavery, Capitalism, and the Industrial Revolution, which Niemietz quotes at length, offers this (and these are in fact quotes he uses in the report): “We do not argue that slavery caused the industrial revolution. . . What we do say is that the role of slavery in the process of industrialization and transformation . . . has been generally underestimated by historians.” Causal implications are difficult. We cannot know exactly what a world without slavery and colonialism would have looked like, and Berg and Hudston rightly point out that “many aspects of the impact of slavery are not measurable in quantitative terms.” Moreover, slavery would be a world-historical evil, one that demands a just reckoning, even if it had also been a net economic harm to imperial nations.
Still, the stakes here are high. If slavery and colonialism were economically insignificant or counterproductive, they can be seen as, in Niemietz’s words, “lamentable aberrations from an otherwise positive national story.” This would be a flawed narrative even if slavery’s economic significance were limited– slavery and empire are clearly politically and culturally important in that ‘national story.’ But defenders of capitalism in particular cannot allow its birth to be sullied by charges of slavery and genocide.
Libertarian myth legitimizes capitalism as a series of ‘voluntary transactions’-- even if the result is unequal or cruel, a result arrived at by free choice is just. While market transactions in general are compelled by hunger and need– the reason you sell your labor to someone else who steals some of its value as profit is because you will die if you don’t– tying capitalism to the least voluntary transactions of all offers a uniquely powerful counter-narrative. Understanding slavery and colonialism as foundations of modernity means rethinking the world in which we live. This is intolerable for a free market think tank that decries any attempt to imagine a world beyond capitalism.
The IEA’s report wades into this important and difficult historiographical problem with sophomoric debate-club methodology and reactionary “anti-woke” intent. The mere fact that the report proper starts with an unprompted defense of George Floyd’s murderer Derek Chauvin (“the eventual case against Chauvin did not indicate a racist motive,” Niemietz claims) is telling. Last month, Kristian Niemietz tweeted the following AI-generated image while claiming “this is every bookstore in Britain”:
Heartening as this news is given I’ll have a book out in the UK and US in the not-too-distant-future that does indeed proclaim neoliberalism bad (though I’ve not yet written about NEOILIBEALISM— maybe in the third book), Niemietz seems quite angry about this development. A book review on the IEA’s website, which is related to the report– both are authored by Niemietz, and they share arguments– is captioned with what appears to be an AI generated image of screaming students pulling a statue down. The review accuses those who pulled down Bristol’s monument to slave trader Edward Colston in June 2020 of “mindless vandalism.” Niemietz characterizes growing historical awareness of, and protests related to, Britain’s legacy of slavery as American-imported “BLM-mania.” This is just elite-backed rageposting disguised as scholarship. It is not worth taking seriously–
-except insofar as doing so might be useful to us. Amidst this AI-generated slop, racist resentment, and right-wing money, the IEA has at least done us the favor of being wrong in a useful way. Unpacking their report on the economics of slavery and empire is an opportunity to reflect on the nature of the economy, money, and the state.
The report begins with two pages of bulleted summary. Of the numerous points that follow, three in particular are central: first, that empires are expensive, which comes with a tax burden. Second, the report claims that “the economic benefits of empires are often overstated.” And third, it claims that any such benefits were dwarfed by domestically-driven economic growth (an old hat argument, pushed among others by economic historian Neil McKendrick in the 1960s). Each of these could handle a book-length counterargument— before I say anything else I want to emphasize that Niemietz’s analysis seems to seriously downplay the wealth produced by plantations and empire, in both absolute and relative terms.
But what I want to focus on here is the “cost-benefit analysis” in the IEA report, specifically as it concerns Britain’s government and economy. The report claims that empires were not profitable–
the only major counterexample, i.e. a colony that was almost certainly profitable for the colonizer, is the Belgian Congo. But this is also a highly unusual example: a colony that was run like a private for-profit company, which the Belgian parliament stubbornly refused to subsidise.
The language of profitability is telling. While it was certainly a bonanza for Belgium, the Belgian Congo appears uniquely profitable in this analysis because its corporation-like structure makes economic gains visible, not because that structure was actually the only way to profitably exploit colonies. This is a matter of accounting, not economic reality. Individuals and corporations have profits– but states and especially economies do not.
The state is not a business, nor is it a household. If I spend less money this year than I did last year, I get to save more– my employer will not cut my income because of this. But if the United States government spends less money, it also takes in less money: government spending produces significant economic activity. If next year the US government cut its spending in half, an economic calamity would result. This would tank tax revenue– so it would be a loss merely from the perspective of the state– and if our focus is the economy rather than the government, the costs would be far higher.
Understanding this requires us to understand the dual character of money. For individuals, money is a resource. But for the state and at the level of the economy, money is a resource allocation mechanism. Consider what money does in the economy itself. Money provides “exchanginess” in an economy-- the ability to trade things for other things. It is possible for an economy to suffer from having too little money in total, even if it has enough real resources. If individuals want to engage in beneficial economic activity that could drive growth, a lack of money– not just as individuals, but an economy-wide shortage of money– can prevent them from doing so. Right-wing economist Milton Friedman argued this was a cause of the Great Depression.
In today’s “fiat money” world, the supply of money is controlled by central banks and governments rather than by how much gold or silver we have. Imperial Britain operated in a different monetary environment than we do– the pound sterling was actually silver, meaning the state could not simply “print money”– but plenty of money was still moving around in the form of credit, IOUs, banknotes, etc. rather than silver. Indeed, one of empire’s economic benefits was increasing demand for credit and thus encouraging new financial technologies to meet it. In a pre-fiat economy, one certainly would prefer silver to an IOU, but when goods are traveling across continents, one has to take IOUs more often. Insurance, accounting, and various financial instruments advanced significantly in this era.
Furthermore, imperial spending created additional money. 17th-century imperial powers invented fractional reserve banking, in which a bank lends out more than its reserves. You put in 10 pounds and the bank loans out 100– this creates money. The Bank of England itself, notably, issued banknotes that did this. Moreover, imperial activities in Africa, the Americas, and Asia brought back significant quantities of gold and silver, directly meeting demand for money and thus enabling further economic activity. All in all, while quantitative analysis here is beyond my immediate capabilities, slavery and empire benefited Britain simply by reshaping the monetary environment.
Beyond that though, Niemietz fails to properly consider where tax money spent on the empire actually went. Consider Britain’s Royal Dockyards, which in the late 1700s were the largest workplaces in the world, employing thousands of skilled workers. Pounds spent on ship maintenance did not simply vanish into the ether– they went into the pockets of shipbuilders and from there into tavern operators, bakers, loan sharks (the Navy paid its workers late, forcing them to make use of informal credit which turned state IOUs into cash– think check cashing shops today but worse). Empire was not profitable because the state is not a firm. But it was economically stimulating. The resulting wealth did not by any means reach every British subject, but “Britain as a whole,” to use Niemietz’s scale, certainly benefited.
The IEA report gestures at this argument in its chapter on slavery, where they take issue with Maxine Berg and Pat Hudson’s book. IEA quotes Berg and Hudson saying that military spending “stimulated the economy” and created “demand for munitions, ships, ships’ provisions, and uniforms.” The report responds with irritation. “If an activity has no real costs, but only benefits, it must logically be profitable,” the report huffs, attempting to dismiss Keynesian understanding of public spending as tautological accounting. This, Niemietz says, is “uber-Keynesianism, in which the state cannot waste resources.”
Berg and Hudson’s argument requires no such assumption– only the recognition that any spending can be valuable. As they put it,
Were the returns from the Caribbean colonies worth the high costs of their defence and administration? Adam Smith thought not, as did a number of economic historians of the 1960s and 1970s. But this misses the point because as long as high net private returns were made, the potential was there for the proceeds to flow into the industrializing economy.
Niemietz responds,
It does not ‘miss the point’ at all. If those private returns were offset by losses elsewhere in the economy, then yes, the former may well have flown into the industrialising economy – but at the same time, the latter must have flown out of the industrialising economy.
Flown out to where though? The key line here is “if those private returns were offset by losses.” Niemietz here specifically means the relevant tax burden. But the empire frequently borrowed money rather than increase taxes, and interest payments on those loans were a further stimulus to the wealthy. Consider a concrete spending program that Berg and Hudson, and the IEA, discuss: the compensation program that paid enslavers for the loss of their property upon emancipation in 1833. Niemietz calls this “pure zero-sum redistribution from non-slaveowners to slaveowners.”
But this is wrong. To the extent it was paid for by any immediate taxes, what this compensation did was transfer wealth upward to slaveowners, who were more likely to save and thus invest, and away from common people who might simply spend. But the compensation program was paid for by a loan, and because governments are not households, loans are not some looming burden that must always be paid. So long as the economy grows faster than the debt burden in the long term, debt is worth taking on. And again, the interest payments on that loan went to the same elites who were investing in industrialization.
The compensation program was an unjust, cruel, brutal economic stimulus. It wasn’t an optimal stimulus– a public spending program directed for the public good and by effective planners, or really almost anyone but plantation owners, would likely have produced more growth via better investment. But macroeconomically the compensation program probably did simultaneously grow Britain’s economic pie and direct more of it to the wealthy, including to industrial projects. In this case as in other forms of imperial and slavery-related spending, money did not ‘flow out’ of the industrializing economy. The state effectively created new funding, enabling more exchange and more investment. All of this is true even without getting into the non-economic benefits that the particular forms of imperial spending brought to Britain, including those relevant to the industrial revolution– shipyards were important sites of technological development, for example.
The emancipation compensation also illustrates the political significance of slavery and empire as impetus for spending. If the British government official in the 18th or early-to-mid 19th century suddenly discovered Keynesian ideas and proposed a massive stimulus program– say, a New Deal-style jobs program– it would never have passed. Parliamentarians, bankers, political economists of the day– none would have approved of such a program. Partly this is because it would disproportionately help common people: though “the pie” would grow, it would grow more for those who actually needed such a stimulus program.
The left has at times criticized US economic policy as “military Keynesianism”-- a policy of demand-creation through military spending. Whether or not this is a fair characterization of the United States today or during the Cold War, it fits imperial Britain well enough. Imperial spending served achieved a proto-Keynesian function, justified by the political logic of empire and the economic structure of slavery, which directed wealth upward.
It may seem counterintuitive to suggest that basically any spending is a potential macroeconomic benefit, but up until the point that it causes serious inflation, it is (and while inflation in the Napoleonic Wars was bad– I’ve written about it– I’d tentatively argue much of that came down to grain prices rather than monetary inflation; the wise response, and the one commoners themselves pushed for, would be strategic price controls, not spending cuts). Remember, money is a resource allocation mechanism, not a resource.
Some spending is better than others, and how you spend influences who benefits from it, but government spending is generally a plus macroeconomically. Moreover, it is worth noting that a massive expansion of British subjects (as with the conquest of India) and the bureaucratic state also meant an increase in state capacity to do things. Obviously. The intuitive fact that a state with more people, more agents, more ships, more stuff can do more things is relevant; no amount of tortured accounting can dismiss the obvious ill-gotten wealth that came from taxing and draining one of the most populated regions of the world (India) or forcing people to work until their labor killed them.
—
Niemietz misses all of this because of contemporary right-wing views on public spending. His think tank was originally founded by fishing magnate Anthony Fisher, who encountered Keynes’s neoliberal rival Friedrich Hayek’s The Road to Serfdom in 1945, abbreviated in the right-leaning Reader’s Digest magazine. Hayek– who gave Fisher the suggestion to create a research institute– cast government action as ‘political’ encroachment upon the free market. Even basic social democracy could lead down the titular ‘Road to Serfdom.’ This perspective was part of a broader postwar right-wing economic nexus that viewed inflation as a stealth tax and the “Welfare State” as theft. In the report itself, Niemietz cites an important entry in that nexus’s literature– the public choice theory of right-wing economist James Buchanan– to argue for the wastefulness of government spending.
More recently, hostility to public spending has defined the recovery, and lack thereof, from the Great Recession. After the 2008 financial crisis, British Chancellor George Osborne and Prime Minister David Cameron pushed a spending-cuts doctrine that came to be known as austerity. If individual citizens are tightening their belts, why should government get to keep spending? This had a certain punish-the-bad-guys appeal to it, as did hostility to bank bailouts in the US, and austerity became policy in a number of other nations as well.
But the government is not a household, and spending cuts were exactly the wrong response to the recession. Austerity hollowed out Britain, undermining the National Health Service, schools, transit, and more. Life expectancy in Britain actually dropped by several months between 2010 and 2019. British elites nonetheless fulminate against public spending because it threatens their power. The IEA is merely one arm of a broader ideological apparatus dedicated to the false premise that government spending is zero-sum.
While economically beneficial, public spending is hard, not because the government is a corporation with a limited balance sheet but because politics is hard, and because real resource trade-offs exist. Money might not be a scarce resource, but labor, time, grain, etc. certainly are. One reason the British Empire’s malevolent proto-Keynesianism was politically possible was that the people on the wrong end of its trade-offs were defined as outside the political community– a massive homebuilding campaign today would anger homeowners within the nation, whereas capturing millions of Africans and forcing them to work in the Caribbean prompted resistance far from London, and by people whom the political system does not recognize as people.
If we want to capture the benefits of public spending for the masses instead of the wealthy, we will have to find projects and goals that enrich rather than exploit. Housing is an obvious one. The green energy transition is another. Both of those causes have powerful natural political opponents based in real trade-offs– many homeowners resist any drop in housing prices, and energy companies bitterly contest any attempt to transition away from fossil fuels. But unlike in imperial Britain, today’s world has powerful (if ailing) democratic structures through which we can direct public effort toward a common good instead of private interest. The brutal lesson of Britain’s imperial public spending is that a nation that can get behind serious public spending can achieve world-changing things. Those achievements can be a curse, like British imperium, or a miracle, like the New Deal. If we can afford anything we can do, then we must choose wisely what we do.