Copyright © 1999 by Paul F. deLespinasse, Adrian College
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Footnotes are at the end of the chapter.
"There is no racial economics in the sense of a
different kind of analysis for black people than
for white people, or for Jews and Gentiles, but
there is an economics of race in the sense that
the basic principles of economics can be applied
to deepen our understanding of the social problems
that revolve around race." Thomas Sowell, Race and
Economics (David McKay Co., 1975), p. v.
A doctor making a perverse diagnosis will often proceed to make a perverse prescription. Misinterpreting heart attack symptoms as upset stomach, the doctor may administer antacids. The patient may be greatly harmed as a result. Equal damage can be caused by legislation based upon gross misunderstanding of societal problems.
False political diagnoses are regrettably easy to make. People often conclude that private actors are causing a problem and prescribe government action to put things right when the problem has actually been caused by government itself.
Antitrust law, for example, is government's attempt to protect people from monopolies supposedly created by cooperation among private corporations. The "remedy" is legislation making monopolies illegal. But as Nathaniel Branden has pointed out, there is no way that monopolies in the objectionable sense can be created in the private sector:
When people speak, in an economic or political context,Since genuine monopolies can be created only by government action, none will exist if government stops protecting them. No legislation making action by private persons or organizations illegal is needed.
of the dangers and evils of monopoly, what they mean is
a coercive monopoly--i.e. exclusive control of a given
field of production which is closed to and exempt from
competition, so that those controlling the field are
able to set arbitrary production policies and charge
arbitrary prices, independent of the market, immune from
the law of supply and demand. Such a monopoly, it is
important to note, entails more than the absence of
competition; it entails the impossibility of
competition. . . . . In the entire history of capitalism, no
one has been able to establish a coercive
monopoly by means of competition on a free market.
There is only one way to forbid entry into a given field
of production: by law. (Footnote 1)
As Alan Greenspan has noted, actual U.S. legislation against monopolies just gives more arbitrary power to government:
[Antitrust law] is so vague that businessmen have no wayThe reason antitrust law is "vague" is that it is not a rule of action in the first place. It is, instead, a rule of intent and of consequences. It is pseudolaw, not law.
of knowing whether specific actions will be declared
illegal until they hear the judge's verdict--after the
fact. (Footnote 2)
Government effort to control inflation by wage and price controls reflects the same kind of confusion. It presumes that inflation is caused by private action. The private villains blamed for inflation may vary. Today, guilt will be attributed to greedy corporations. Tomorrow the culprit will be greedy labor unions. On still another occasion, inflation will be blamed on greedy Middle East sheiks who take advantage of circumstances to double the price they charge for oil.
Private actors, however, can only raise the asking-price for their own products. They do no have the power to raise the average actual price for all products. To "demand" a higher price is not the same thing as receiving it. Even if producers of some goods do succeed in getting higher prices, this is compatible with overall price stability if other prices come down as a result.
In order for the general price level to go up, government action is required, since government controls the money supply. The circumstances the greedy corporations, unions, or oil sheiks supposedly took advantage of were caused by government action. Wage and price controls are not needed to prevent or end inflation; government need merely refrain from inflating the money supply.
Like antitrust law, price controls are pseudolaw rather than law. They are not general rules of action. Rather, they take individual actions that are themselves perfectly legal--e.g., paying money to someone else, performing a service for somebody else--and making them "illegal" only when somebody else takes a similarly legal action. The "illegality" therefore derives not from the punished individual's action, but from another person's action, or from the desire to induce that action. But it is incompatible with the rule of law to impose sanctions on somebody for another person's legal action, or for his desires.
The perversity in both these cases was to assume that positive state action is required to cure a problem caused by private action, when in fact the problem was rooted in state action creating monopolies or inflating the money supply. The problems could not, in principle, be created by private action. Because of this, they cannot be solved by government regulation of private actions. The actual solution is for government to refrain from or stop its own actions which cause these problems in the first place.
Like coercive monopolies and inflation, racial oppression is rooted in state action. Pseudolaws prohibiting discrimination are based on the incorrect assumption that racial oppression rests on private foundations. Although repealing racist pseudolaws will not solve the racial problem, it will create conditions where the problem can be solved.
We must get rid of antidiscrimination rules because they are pseudolaws. A genuine law must be a general rule of action enforceable by sanctions. As we have seen, discrimination is not an action. It is only a motive or reason for taking an action.
It is impossible to obey an antidiscrimination rule. All conceivable actions might be motivated by bad reasons. Judges and administrators seeking to enforce antidiscrimination rules therefore must assume the power to look into people's hearts and determine whether their actions were well-motivated or badly-motivated. Allowing officials to make this kind of decision lets them do anything they think proper to anybody. Nobody can have any kind of personal security when government officials have this kind of power.
Getting rid of antidiscrimination rules, however, does not mean returning to segregation. Government-mandated racial discrimination and segregation, it must be remembered, were also pseudolaws. We are prohibited from going back to yesterday's segregation by the same principles which require us to repudiate today's antidiscrimination rules.
As long as the civil rights movement concentrated on attacking Jim Crow "laws," rules applying only to black people, it was unequivocally progressive. Every victory of the movement during this period was a victory not only for civil rights but also for people in general. It was a forward movement along the same road which historically led the human race onward, and upward. It was a movement away from arbitrary government treatment of people and towards legitimate government. It was a movement away from pseudolaws and towards the rule of law. It would be just as unthinkable to restore segregation as it would be to keep today's antidiscrimination rules on the books.
We in the United States have recent experience with two kinds of situations. Formerly, government acted through pseudolaws to require that people discriminate on the basis of race and live separately on the basis of race. More recently, government has been acting through pseudolaws to require that people not discriminate on the basis of race (except when it produces good results!). The third option, not yet tried, is freedom!
Freedom, of course, is dangerous. Edmund Burke, an Englishman with grave doubts about the French Revolution, observed once that the French people were now free to do as they pleased. But, he said, maybe we should wait to congratulate them on their new freedom until we find out what kinds of things it pleases them to do.
When antidiscrimination rules are repealed, will the resulting freedom harm black people? I do not think it will.
Economic markets exist when people are free to associate or not associate as each individual deems best. Prices are determined by the compromises that buyers and sellers must make in order to find people who are willing to trade with them. Sellers always would like to get more money, buyers would rather pay less. Transactions take place when people on both sides feel they will thereby become better off and that no better terms are available from other prospective trading partners. Quantities produced are determined in a very decentralized way based on producers' expectations of how much they can sell and at what price.
There is a school of thought which maintains that economic markets are inherently discriminatory and racist. Stephen Carter summarizes this outlook nicely:
The institutions of capitalist society, we have beenSuch beliefs are common among left-wing and Marxist thinkers. These beliefs are reinforced by an idea, also widely held, that private corporations--by whom many people are employed, or not employed!--are tantamount to governments. The apparent reasoning is:
taught at the feet of the theorists of black power,
are structured by racist commitments and are satraps
of racist authority. The system is the enemy; it is
capable only of self-interest, never of justice." (Footnote 3)
1. governments exert great power;Since corporations are governments, it is argued, they should be subject to the same limitations that we place on governments in order to protect people from their natural tendency to abuse their power.
2. corporations wield great power;
3. therefore a corporation is a government.
True, both government and corporations do two things: 1) they make rules; 2. they enter into contracts. But there are still major differences between governments and corporations. (Footnote 4)
Government's primary power is the power to make rules which are enforceable by sanctions. People who do not pay their taxes, for example, will be fined or imprisoned. The money received as taxes allows the government to enter into to contracts for the purchase of goods or services from private parties. Government's power to make contracts thus derives from its power to make rules.
Corporations, on the other hand, are voluntary associations created by the making of contracts among their various parties--stockholders, managers, employees, suppliers, customers. Corporations have no power to make rules that are binding on people in general or to enforce their rules with sanctions. Their power to make results derives from the power to make contracts and the rules apply only to people who are parties to the corporation. The ultimate penalty for violating a corporate rule, therefore, is a denied or discontinued inducement, not a sanction.
The ability to understand the difference between a government and a corporation is not helped by a general left-wing tendency to confuse and blur the significant differences between the three kinds of social power:
1. the power of the pen;A cartoon celebrating the 50th anniversary of Pravda, the official organ of the Communist Party of the Soviet Union, for example, showed a snake being stabbed with a pen. The confusion between the power of pen and sword was striking. A similar cartoon depicted foreign workers, attracted into Western Europe by high wages, as "wage slaves." Since slavery is rooted in the power of the sword, not of the purse, here too the confusion between types of power is obvious.
2. the power of the sword;
3. the power of the purse.
Still further confusion results from rhetoric claiming that markets hurt the poor and weak because they suffer from an "inequality of bargaining power" relative to large corporations and other employers. It is claimed that any deals between parties of such disparity in size are not fair to the weaker, smaller parties, that they are "adhesion" contracts rather than genuine contracts-- the only freedom the smaller party has is to take it or leave it. Inequality of bargaining power theory is an important element underlying current U.S. labor law.
This theory is, of course, utter nonsense. The terms on which contracts are made are determined by relations between supply and demand. There is no place in supply and demand for the size or wealth of the parties to have any bearing on what the market will bear. No matter how rich, how large, or how powerful the employing organization, it cannot hire all the workers it seeks if it pays less than market wages for their services. The United States government is a very interesting case in point. It is the biggest, richest, and most powerful organization in the world. But it found it absolutely impossible to raise an all-volunteer army at the low wages that were typical back when there was a military draft.
Military conscription, of course, is a genuine example of inequality of bargaining power. But this genuine inequality is not due to the difference in economic resources or "economic power" between government and the individual conscript, but rather to the ability of government to threaten the recalcitrant with its power of the sword. This power of the sword is not available to the legitimate private organizations which supposedly enjoy an inequality of bargaining power vis-a-vis their employees.
Since "inequality of bargaining power" rhetoric is never used in conventional analysis of military conscription or of illegitimate private organizations such as organized crime, where it might make sense, but is used strictly in discussions related to the power of the purse, we must conclude that such rhetoric has no analytical utility and must be discarded.
The logic of markets is the logic of voluntary associations. Voluntary associations exist whenever two or more parties consent to the exchange or transfer of inducements. As already explained, involuntary non-associations inevitably accompany voluntary associations. Not everybody who would like to associate with someone else is able to do so, precisely because of the requirement that consent to associate be mutual. Either side to a prospective association can refuse to consent, and can thus prevent the association from coming into existence.
Note that mutual consent is required only of the parties joining an association. Other people or parties have no right to veto or override the consent of those who are willing to associate. This was a major point in Shelly v. Kramer, the 1948 restrictive covenant case in which the Supreme Court noted that there was a "willing seller" and a "willing buyer" and that was that.
In markets power is highly decentralized. Everyone who can do something that another person or party might wish to have done shares in the power of the purse.
We do not need the protection against abuses of power from voluntary associations that we need to protect ourselves from high-handed treatment by government. Government, after all, is basically an involuntary association and--like all involuntary associations--is rooted in the power of the sword. Democracy, the rule of law, due process prevent the power of the sword from being used against us arbitrarily by the officials currently acting for government.
With voluntary associations, on the other hand, our basic protection lies in our right not to join a particular association and in our right to leave it if it becomes in our interest to do so. We do not need democracy inside a voluntary association to protect us from our associates because a far greater protection results from our right to leave. Indeed, since each individual is the final judge of whether departure from a voluntary association is a good idea, there is more security against abuse than could be provided by democracy. In a democracy there is always a good possibility that the majority will vote against us.
Likewise, the rule of law is not needed in a voluntary association. Even in government, it is needed only to protect us from arbitrarily-imposed sanctions, and voluntary associations wield no sanctions, only reduced, denied, or discontinued inducements from that particular association.
There might seem to be a downside to the requirement that parties to a voluntary association do so by their mutual consent. The mutual consent requirement efficiently protects the interests of people whose interests would not be served by entering into a particular association. But it apparently does nothing to protect the interests of people whose interests would be served by entering into a particular association, but who are prevented from doing so by a refusal to associate on the part of the other party or parties to the desired association.
Do we need protection from people's refusals to associate? This question assumes special urgency in the context of race relations, since one reason some people refuse to associate is the race of the other party.
We should frankly recognize that government "protection" from people's refusals to associate is completely incompatible with the very concept of a voluntary association. Such protection would mean that some people who do not want to associate with certain other people could be compelled to do so anyway. The resulting association could hardly be called voluntary, since it would not result from the mutual consent of the parties. And it would lack all of the protections from abuse that inhere in voluntary association.
Fortunately, no such government "protection" is necessary. A social system consisting of a legitimate government plus a multiplicity of voluntary associations provides everybody with ample protection from refusals to associate.
In such a system there may indeed be some or perhaps even many people who are racially prejudiced. But as long as government can be prevented from enacting and enforcing any pseudolaws, a market economy will force bigots to pay for their prejudices and will reward people who are not bigots or who can rise above their bigotry. A person's self-interest and his prejudices do not always point in the same direction.
One could possibly argue that economic markets (or, put differently, freedom of voluntary association) might not be per se discriminatory, but that in a society permeated with racist attitudes the market will reflect those attitudes. There is an element of truth here. Markets reflect all sorts of desires and tastes that people may have, with desires and tastes pertaining to race being no exception.
But we must remember that to express your tastes in a market, you often have to give up something that you want. Markets do not let people get everything they want; they force people to make tradeoffs between their conflicting desires.
A market forces people who are racially prejudiced to pay a price if they want to indulge their prejudices. An employer, for example, who is racially prejudiced against black people and simply will not consider hiring such people, is thereby limiting the supply of people who are available to work for him. The wages the employer will have to pay reflect both his demand for labor and the supply of labor. By holding the quantity of labor supplied artificially down, the employer thus is increasing how much he must pay to hire a given number of qualified workers.
The same economic logic applies to people who are selling goods or services. Refusal to sell to black people reduces the sales that can be made and thus decreases profits.
The fact that a market economy increases operating expenses and reduces profits for bigots does not, of course, prevent bigots from expressing their prejudices in action. But by forcing them to pay, it reduces the likelihood that they will act on their prejudices. There is a constant temptation to make more money by swallowing hard and hiring and/or selling to people that they do not think they like.
Let us examine the situation from the point of view of a prospective employee. In a market economy, it is true that everyone is free to refuse to deal with him, just as it is true that he is free to refuse to deal with anybody he wishes. But a refusal to hire him is only a refusal on behalf of one employer. Such a refusal cannot bind other employers to do the same thing. And it takes only one employer who is not a bigot, or who is more interested in making money than in expressing his prejudices, to put an end to the prospect's unemployment.
Even if no existing employer would hire a person, a very unlikely situation in a market economy dominated by the profit motive, the person seeking work would always have one additional option: become his own employer, become self-employed, perhaps even hire other people who have been similarly discriminated against, produce goods and services more efficiently than his competitors, and thereby run them out of business or force them to become equal opportunity employers just to remain in the game. In a market economy, the people who are currently employers enjoy no monopoly in that capacity.
It is not as if "the capitalists" (acting as if one) work to exclude certain people from the job market. Karl Marx claimed that capitalists want people to be unemployed, want to create a "reserve army" of unemployed people. Then, said Marx, demands for increased wages can be met with threats to fire those making the demand and replace them with people from the "reserve army." In a word, unemployment keeps wages low.
This idea will not survive analysis. Unemployment is created when prevailing wage rates are above the rate at which quantity of labor available equals the quantity of labor demanded. If the prevailing wages fall, this will increase the quantity of labor demanded, and if wages fall enough the increase in quantity demanded will be big enough to create full employment.
Unemployment is thus in no one's interest. It obviously is not in the interest of workers. Equally obviously, it is not in the interest of employers, since employers want to minimize wage costs and average wages are minimized when there is full employment.
Most capitalists are not in business for their health. They are interested in maximizing profits, and such maximization is quite incompatible with arbitrarily refusing to hire talent wherever it can be found and in whatever skin color it happens to be packaged. As long as government can be prevented from requiring private discrimination based on race, the natural tendencies of a market economy will swiftly undermine racism in employment.
We must reject antidiscrimination rules because they are pseudolaws rather than laws and because they thereby increase the power of government officials to impose sanctions arbitrarily on people. But in getting rid of antidiscrimination "law" we are also ridding ourselves of its very disturbing procedural implications.
Under antidiscrimination law many decisions that would be made in a very decentralized way in a market economy become, instead, highly centralized. True, initial decisions about whom to hire, whom to promote or demote, whom to fire will still be made by employers in a decentralized way. But an antidiscrimination regime renders these private decisions tentative, subject to eternal second-guessing by judges or administrators. Even decisions by entry level administrators or judges are not necessarily final, since there are always higher levels in the courts or bureaucracy to which lower-level decisions may be appealed.
Under an antidiscrimination regime, officials must evaluate the purity of heart with which an employer decided whether or not to hire someone, whether or not to promote someone, whether or not to discontinue the employment of someone. Purity of heart is difficult to evaluate. The best evidence, the testimony of the employer himself, cannot be taken at face value. Nobody but a complete idiot would admit to having discriminatory motives in a system which makes discrimination illegal. Cases therefore will drag on and on, litigation and transaction costs will soar, and employers and workers alike will be subject to the costs of uncertainty about where they stand. All of these costs will be reflected in the operating expenses of businesses and ultimately in the charges made to those who consume goods and services produced by those businesses.
None of the disadvantages of an antidiscrimination regime is produced when freedom is used as the method of combating racial discrimination. Freedom of voluntary association means that decision-making in a society is decentralized to the greatest possible degree. It means that there need be no consensus in the society about what qualities are "meritorious" in an applicant for a job or for admission into a university program. Each employer, each university, is totally free to employ whatever standards of "merit" they deem best, and nobody inside or outside of the government will be allowed to question such decisions. If there is a "willing buyer" and a "willing seller," then that is that. If there is not a "willing buyer" or not a "willing seller," then that too is that. The parties are free to look around for more agreeable partners; they are not free to invoke the government to force an unwilling party to associate.
A free society, interestingly, will also tend to be a diverse society. Members of minority groups who wish to "preserve their culture" rather than to assimilate into a larger society would be free to do so. Members of minority groups who prefer, for any reason, preferentially or entirely to employ members of their own race would be free to do so, realizing that they may be paying an economic price for this choice. Not all workplaces would "look like America" in the sense of having a racially (or otherwise) "balanced" work force, but nobody could prevent an employer who felt that such a balance is important from acting to achieve it. Universities would come in all shapes, sizes, and colors. Some might be all male, others all female. Some might be all black, others all white, or all hispanic, or all asian. Others, reflecting other perceptions of educational efficiency or social propriety, could be colorblind; still others, "balanced" in ways not permitted by strict color-blindness.
One of the strangest things about "diversity" as a value in contemporary American society has been its use to try to force all places of employment or all universities to look the same! A society of freedom, with maximum decentralization of decision-making, will also maximize diversity in its real sense. It will offer many different kinds of institutions and organizations, thus making it most likely that each individual can find places to live and work that are good fits with his or her particular tastes and values. Such a society may be what Robert Nozick had in mind in his seminal book, Anarchy, State and Utopia:
The conclusion to draw is that there will not be one
kind of community existing and one kind of life led in
utopia. Utopia will consist of utopias, of many
different and divergent communities in which people
lead different kinds of lives under different
institutions. . . . . Utopia is a framework for
utopias, a place where people are at liberty to join
together voluntarily to pursue and attempt to realize
their own vision of the good life in the ideal
community but where no one can impose his own utopian
vision upon others. (Footnote 5)
A society of freedom will have no pseudolaws. Since antidiscrimination rules are pseudolaws, it will have no antidiscrimination rules. But sanctions--the power of the sword--are not the only type of power wielded by governments. Governments also can and do employ the power of the pen, and the power of the purse--inducements. If reducing or eliminating racial discrimination remains an important goal supported by majorities of the population, then government would be free to use these latter forms of power to try to achieve this goal. Indeed, once antidiscrimination rules are swept aside, government as well as private actors will be more free to engage in programs like those now called "affirmative action."
Affirmative action in its more recent sense means taking a person's race into account in deciding whether to select that individual for a university program, a job, or some other opportunity. Since it is precisely taking race into account in deciding how to treat somebody that antidiscrimination rules purport to outlaw, affirmative action would be considered illegal today if the courts were disposed to apply the "law" in any kind of principled way.
Once antidiscrimination rules are gone, however, nothing will prevent private actors from taking an individual's race into account for whatever purposes deemed appropriate. For bigots of all races, race can be taken into account for purposes of refusing to associate with someone (but at a price, as noted previously). For other people, desiring to make amends for centuries of past bad treatment, race can be considered for purposes of giving some people the benefit of the doubt or even preferential treatment.
Government too could engage in affirmative action if it can get democratic support for such programs, as long as it limits itself to programs involving the power of the pen or the power of the purse--i.e. the purchasing power of government. Government can safely be trusted to impose sanctions only on people who have violated general rules of action--genuine laws! But this principle has no relevance to government decisions about whom to confer inducements on, with whom the government can enter into voluntary associations as employer, educator, purchaser of goods and services, etc.
There is no reason why government should not be just as free to determine with whom and on what terms it is willing to enter into voluntary associations as private individuals and organizations are. As long as the associations are voluntary, people are just as protected from disadvantageous associations with government as they are from such associations with other private parties.
The mainstream civil rights movement wisely chose reformist rather than revolutionary methods of improving the position of black people in the United States.
One of the many advantages of reform over revolution is that reform need not risk everything on an unproved, untested theory of government. Since reform proceeds gradually, reformers can benefit from experience accumulated during implementation of their reforms. They can get "feedback." They can reflect on the differences, if any, between their expectations and the things that have actually happened as a result of their efforts.
Occasionally, reformers may discover that they have made mistakes. Reform is an experimental art, and not all successful experiments are successes. Failures can be a valuable learning experience, and effective reformers must be willing to learn from their failures as well as their successes.
The ability to back up when necessary is an integral part of any strategy for moving forward. As I indicated in chapter 5, at one time antidiscrimination law seemed to be a reasonable way to reduce racial discrimination in the U.S. Since most of the criticisms of the proposed laws came from people whose interest in improving the racial situation was dubious to say the least, it was easy to overlook the fact that there were also principled reasons why such "laws" should not be enacted. People were confused by a failure to distinguish between the highly legitimate goals of the civil rights movement and the wrongfulness of some of the means by which they proposed to pursue those goals.
That the civil rights movement made a wrong turn a third of a century ago by itself is no basis for condemning that movement. Nobody is perfect and mistakes do happen.
Experience and analysis in the meantime, though, now indicate that antidiscrimination law is a contradiction in terms, that it reflects serious confusion between governments and voluntary associations, and that it has produced a major setback in our movement towards a fully legitimate government.
Making mistakes is natural and forgivable. Failure to notice mistakes and correct them is much less forgivable. The civil rights movement has plenty of friends who are unwilling to criticize the movement no matter how much criticism may be called for. "With friends like these, who needs enemies?"
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1 Ayn Rand, Capitalism: The Unknown Ideal. New York: Signet Books, 1967, pp. 72-73.
2 Ibid., p. 63.
3 Stephen L. Carter, Reflections of an Affirmative Action Baby. New York: Basic Books, 1991, p. 75.
4 My original exposition of this distinction was in "The Carrot and the Stick," Michigan Academician, Spring 1973, pp. 471-479.
5 Robert Nozick, Anarchy, State and Utopia. New York: Basic Books, 1974, pp. 311-312. 6