Slavery prevented capitalism from becoming more efficient in the south

Karl W. Smith:

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One school of thought argues that slavery in general, and cotton in particular, was the driving force behind the development of America’s distinctive brand of capitalism. (The New York Times’s ambitious 1619 Project contains a good encapsulation of this argument.) But not only has this theory come under fire for inaccuracies, its central narrative is incorrect.

The reality is that cotton played a relatively small role in the long-term growth of the U.S. economy. The economics of slavery were probably detrimental to the rise of U.S. manufacturing and almost certainly toxic to the economy of the South. In short: The U.S. succeeded in spite of slavery, not because of it.
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Still, it might be argued that the growth of a textile industry — in either the U.S. or Great Britain — would not have been possible without mass quantities of U.S. cotton. Unfortunately, this does not appear to be true.

Following the Civil War, the production of cotton in the U.S. continued to increase even without slave labor.

After the onset of the U.S. Civil War, British imports of U.S. cotton collapsed, from 1.2 billion pounds in 1860 to just 28 million in 1862. By 1864, however, the shortage had been largely erased by an enormous increase in imports from India. Even more telling, after the Civil War and the loss of slave labor, U.S. production rapidly recovered. By 1871 the U.S. had exceeded its 1859 levels of cotton exports and was just short of its 1860 record, despite competition from India.

As Stanford economic historian Gavin Wright argues, slavery was a hindrance to U.S. cotton production. Prior to the Revolutionary War the price of slaves in the U.S. had been declining as the arrival of new slaves steadily increased the supply. After 1807, when the slave trade was officially banned, slave prices began their famously rapid climb.

Abundant land and a limited supply of slaves discouraged the South from investing in infrastructure. Planters would locate on the banks of a river, work the soil until it was depleted and then move — or in many cases simply sell their ever-more-valuable slaves — to a new spot down the river. This slash-and-burn economy, dominated by a rent-seeking elite, trapped the South in poverty.

Just before independence, the per capita GDP of the South, adjusted for inflation, was $3,100 per year — compared with just $1,832 in New England. Over the next 60 years Southern per capita GDP actually declined, to $2,521. British demand for cotton helped it to recover to $4,000 per person in 1860, but by then the comparable figure for New England was $5,337.

Slave labor was no match for canals, railroads, steel mills and shipyards. Slavery — and the parochial rent-seeking culture it promoted — inhibited the growth of capitalism in the South. Ultimately, it was Northern industrial might that ended that peculiar institution in the U.S. once and for all.
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Slavery was inherently inefficient because the only incentives for increased production were negative.  A slave got little to no reward for increased production and therefore lacked any incentive to produce more.  This is one of the reasons capitalism in the north eventually eclipsed the GDP of the south and it is also one of the reasons the north was able to produce more weapons and pay more soldiers.  Ultimately, capitalism in the north created more manufacturing than that in the south.

It is also why the GDP grew rapidily after slavery was abolished.