The news media and blogosphere are all abuzz about Republican Rand Paul’s opposition to the Civil Rights Act of 1964, which prohibited businesses from discriminating against customers based on race or national origins. I confess to having conflicting reactions to Dr. Paul’s principled opposition to big government.
On the one hand, there is a very persuasive theoretical argument that free markets will punish irrational discrimination. Thomas Sowell’s Markets and Minorities (1981) makes the case that if Business “A” refuses to do business with 10% of its customer base, it is reducing its sales and profits; A’s competitors will benefit from having 10% more customers. Over time, A will suffer economically for irrational behavior, while its competitors will benefit.
Along with the economic costs and benefits, public accommodation laws like CRA64 also protected bigots from the economic consequences of their decisions. At least when A put out the sign “No Negroes served here,” you knew who the enemy was – and not to put money into A’s pocket. The “don’t buy where you can’t work” boycott campaigns of the 1920s through 1940s forced Northern department stores to hire black workers, at a time when governmental action was unthinkable. CRA64 drove such overt discrimination underground — making such a boycott strategy far harder to implement.
There is also plenty of real-world evidence that free markets were an enemy of racism. Especially in the South, state governments did not simply allow businesses to discriminate — they often required discrimination. The landmark decision Plessy v. Ferguson (1896), which ruled that “separate but equal” was constitutional, involved a Louisiana law that punished railroad companies if they did not segregate their passengers. There were similar laws into the 1960s in many Southern states requiring segregation of interstate bus customers — hence, the Freedom Rider campaign, in which blacks used the whites-only lunch counter at the Greyhound station.
One could make the case that CRA64 was necessary to break a longstanding government policy of encouraging – even requiring – racial discrimination. It wasn’t just state governments, either. The federal government, starting with President Woodrow Wilson, segregated government offices and stopped accepting blacks into the Navy except in menial roles. In the 1930s and into the 1940s, the Federal Housing Authority, which subsidized the growth of suburban housing, strongly encouraged developers to add racially restrictive covenants to deeds – keeping some neighborhoods all-white by law.
Would free markets have been enough to break this long history of governmental force in support of racism? I would like to think so – but I also know that the libertarian solution requires a population of rational actors prepared to look out for their own economic interests. You let me know when you find a species that fits that model.