Why Was Jim Crow The Law? Because Discrimination Is Costly, As Gary Becker Said


An interesting little historical question is, well, why was Jim Crow the law? If all white Southerners were racists then it wouldn’t be necessary to have a law insisting that blacks be discriminated against. It would be possible to just leave it to the actions of individuals and the discrimination would take place. There must therefore be some reason for the laws.

As it happens no one is going to start claiming that in the absence of the laws there would have been no discrimination at all. None of us are quite silly enough to think that human beings work quite that way. No culture is going to leap from regarding one portion of humanity as chattel goods to entirely equal treatment in just the one leap. But it is true that Jim Crow came after Reconstruction, perhaps when some people observed, with distaste, the lesser discrimination taking place as a result of that absence of laws enforcing it.

A logical explanation – one which owes much to Gary Becker – is that many white Southerners were indeed racists but not all of them. This would mean that simple societal discrimination wouldn’t work. Because such discrimination is costly to those who discriminate (as well, obviously, to those discriminated against) and thus to make it stick it must be applied to all. Otherwise some would escape the cost and the system would fray and eventually fail.

Thus Becker’s work:

Mr. Becker’s work confronts the economic effects of discrimination in the market place because of race, religion, sex, color, social class, personality, or other non-pecuniary considerations. He demonstrates that discrimination in the market place by any group reduces their own real incomes as well as those of the minority.

The original edition of The Economics of Discrimination was warmly received by economists, sociologists, and psychologists alike for focusing the discerning eye of economic analysis upon a vital social problem—discrimination in the market place.

Thus also an earlier observation of mine:

Economic theory has long maintained that employers pay a price for engaging in racial
discrimination. According to Gary Becker’s seminal work on this topic and the rich literature that
followed, racial preferences unrelated to productivity are costly and, in a competitive market, should
drive discriminatory employers out of business. Though a dominant theoretical proposition in the
field of economics, this argument has never before been subjected to direct empirical scrutiny. This
research pairs an experimental audit study of racial discrimination in employment with an employer
database capturing information on establishment survival, examining the relationship between
observed discrimination and firm longevity. Results suggest that employers who engage in hiring
discrimination are less likely to remain in business six years later

That though is in a market where discrimination is not enforced. And that gives us that reason why it is enforced. Jim Crow wasn’t going to last where those who enacted their prejudice went bust. Therefore use that power of the majority in the legislature to insist that all discriminate. Getting rid of the last that insist upon it, killing Jim Crow, doesn’t mean an end to discrimination of course but it does allow those market effects to at least chip away at it.

Via Anti-Dismal another example of the same point:

We study whether antisemitic discrimination in Nazi Germany had economic effects. Specifically, we investigate how the forced removal of Jewish managers affected large German firms. We collect new data from historical sources on the characteristics of senior managers, stock prices, dividends, and returns on assets for firms listed on the Berlin Stock Exchange. After the removal of the Jewish managers, the senior managers at affected firms had fewer university degrees, less experience, and fewer connections to other firms. The loss of Jewish managers significantly and persistently reduced the stock prices of affected firms for at least 10 years after the Nazis came to power. We find particularly strong reductions for firms where the removal of the Jewish managers led to large decreases in managerial connections to other frms and in the number of university-educated managers. Dividend payments and returns on assets also declined. A back-of-the-envelope calculation suggests that the aggregate market valuation of firms listed in Berlin fell by 1.78 percent of German GNP. These findings imply that discrimination can lead to significant economic losses and that individual managers can be key to the success of firms.

If firing all the Jews means you make lower profits then capitalist firms aren’t going to fire all the Jews. Or those that do will be outcompeted which over time amounts to much the same thing. Gary Becker was right, discrimination is costly. Which is why those who prefer discrimination will use the law to enforce it – normal market processes will undermine their desires.