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Friedman Friday: Capitalism and Discrimination

Our Fridays are dedicated to dishing out capitalist wisdom, to nurse us (U.S. Americans) through the present Marxist captivity of our beloved republic.

Milton Friedman explains how economic liberty works against discrimination:

imgIt is a striking historical fact that the development of capitalism has been accompanied by a major reduction in the extent to which popular religious, racial, or social groups have . . . been discriminated against. The substitution of contract arrangements for status arrangements was the first step towards freeing the serfs in the Middle Ages. The preservation of Jews through the Middle Ages was possible because of the existence of a market sector in which they could operate and maintain themselves despite official persecution. Puritans and Quakers were able to migrate to the New World because they could accumulate the funds to do so despite disabilities imposed on them in other aspects of their life. The Southern States after the Civil War took many measures to impose legal restrictions on Negroes*. One measure which was never taken on any scale was the establishment of barriers to the ownership of either real or personal property. The failure to impose such barriers clearly did not reflect any special concern to avoid restrictions on Negroes. It reflected rather, a basic belief in private property which was so strong that it overrode the desire to discriminate against Negroes. The maintenance of the general laws of private property and of capitalism have been a major source of opportunity for Negroes and have permitted them to make greater progress than they otherwise could have made. To take a more general example, the preserves of discrimination in any society are the areas that are most monopolistic in character, whereas discrimination against groups of particular color or religion is least in those areas where there is the greatest freedom of competition.
. . . one of the paradoxes of experience is that, in spite of this historical evidence, it is precisely the minority groups that have frequently furnished the most vocal and most numerous advocates of fundamental alterations in a capitalist society. They have tended to attribute to capitalism the residual restrictions they experience rather than to recognize that the free market has been a major factor enabling these restrictions to be as small as they are.
. . . a free market separates economic efficiency from irrelevant characteristics. . . . the purchaser of bread does not know whether it was made from wheat grown by a white man or a Negro, a Christian or a Jew. In consequence, the producer of the wheat is in a position to use resources as effectively as he can, regardless of what the attitudes of the community may be against the color, the religion, or other characteristics of the people he hires. Furthermore, and perhaps more important, there is an economic incentive in a free market to separate economic efficiency from other characteristics of the individual. A business man or an entrepreneur who expresses preferences in his business activities that are not related to economic efficiency is at a disadvantage compared to other individuals who do not. Such an individual is in effect imposing higher costs on himself than are other individuals who do not have such preferences. Hence, in a free market they will tend to drive him out.
   This same phenomenon is of much wider scope. It is often taken for granted that the person who discriminates against others because of their race, religion, color, or whatever, incurs no cost by doing so but simply imposes costs on others. This view is on a par with a very similar fallacy that a country does not hurt itself by imposing tariffs on the products of other countries. Both are equally wrong. The man who objects to buying from or working alongside a Negro, for example, thereby limits his range of choice. He will generally have to pay a higher price for what he buys or receive a lower return for his work. Or, put the other way, those of us who regard color of skin or religion as irrelevant can buy some things more cheaply as a result.
   As these comments perhaps suggest, there are real problems in defining and interpreting discrimination. The man who exercises discrimination pays a price for doing so. He is, as it were, “buying” what he regards as a “product”. It is hard to see that discrimination can have any meaning other than a “taste” of others that one does not share. We do not regard it a “discrimination”— or at least not in the same invidious sense—if an individual is willing to pay a higher price to listen to one singer than another, although we do if he is willing to pay a higher price to have services rendered to him by a person of one color than a person of another. The difference between the two cases is that in the one case we share the taste, and in the other case we do not. Is there any difference in principle between the taste that leads a householder to prefer an attractive servant to an ugly one and the taste that leads another to prefer a Negro to a white or a white to a Negro, except that we sympathize and agree with one taste and may not with the other? I do not mean to say that all tastes are equally good. On the contrary, I believe strongly that the color of a man’s skin or the religion of his parents is, by itself, no reason to treat him differently; that a man should be judged by what he is and what he does and not by any f these external characteristics. I deplore what seem to me a prejudice and narrowness of outlook of those whose tastes differ from mine in this respect and I think the less of them for it. But in a society based on free discussion, the appropriate recourse is for me to seek to persuade them that their tastes are bad and that they should change their views and their behavior, not to use coercive power to enforce my tastes and my attitudes on others.

—Milton Friedman, Capitalism and Freedom (The University of Chicago Press, 2002), 108–111.

* I know this word may offend some. Realize, though, that these lectures were given in 1956, when “negro” was the vernacular term used by black and white alike.

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Posted  in: Capitalism and Freedom · Economics · Milton Friedman · Politics
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#1 || 10·01·08··09:01 || David Bissett

Great to see this online -- how great is our need for sound economic thinking -- which fuels liberty and freedom. I look forward to future installments.

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