How Legal Activism Stopped the Market from Abolishing Segregation

When I ask non-lawyer friends what Supreme Court cases they have heard of, two invariably arise: that of Brown vs. Board of Education of Topeka and Plessy vs. Ferguson. It is probably no coincidence that they remember these cases together. Brown undid the racial interpretation of the Constitution made under Plessy, removing the “separate but equal” standard that had been the law since 1896. Brown was also highly controversial in its time — a period that is associated with racial division, Jim Crow, and the birth of the Civil Rights movement and which also paved the way for further civil right cases.

The ruling in Plessy permitted states to have "separate but equal" public facilities. 

Though Brown ended state-sponsored segregation on paper, the political reality was that the Brown decision took time to develop and unwind the more than 55 years of institutionalized segregation. Some parts of the South resisted more than others and further court victories were yet to be had, such as Loving vs. Virginia, which declared anti-miscegenation laws unconstitutional.

The erroneous holding of Plessy permitted states to require separate facilities in public accommodations and other public institutions, such as schools. Afterward the language of “separate but equal” became a widespread justification for discriminatory practices. Justice Harlan stated that the Constitution was “colorblind” and as such, could not permit legal distinctions based on race. But he was alone in his dissent.

Hidden in the well-known tidbits of Plessy is a surprising story of a market that was moving away from discriminatory practices and toward equal accommodations regardless of race. Of course, this would not have occurred overnight. Markets do not always create instantaneous outcomes, but they do push toward equal treatment and the Plessy saga is such a story.

Plessy vs. Ferguson

Homer Plessy was a man of mixed race descent, what was at the time called an “octoroon,” meaning he was one-eighth African-American descent and seven-eighths white. Born a free man, his racial distinction was part of the legal classifications of the time that determined at which point minority descent legally mattered.

In Louisiana, “one-eighth” meant that an individual was classified as being of sufficient African descent to be segregated from the white population. In terms of a perfect plaintiff, Plessy met the bill by being on the legal border. Additionally, his white phenotype further illustrated the difficulty in implementing the segregation policy.

In litigation, finding a plaintiff that is sympathetic and pushes the logic of the law is a good first step in winning a case.  An interest group called The Comité des Citoyen (Citizens’ Committee), composed of African Americans, whites, and Creoles, approached Homer Plessy to help make their case and challenge the segregation laws.

The execution was near flawless. Plessy bought a first-class ticket, sat in the restricted area and the Comité hired a private investigator with arrest powers to issue him a citation and remove him from the train at a designated stop. This was done to further eliminate any additional charges that may have arisen, allowing the facts and the legal issues to be narrowly focused on the Louisiana Separate Car Act.

The act required all rail companies that would carry “passengers in their coaches in this State” to provide “equal but separate accommodations for the white and colored races by providing two or more passenger coaches for each passenger train, or by dividing the passenger coaches by a partition so as to secure separate accommodations.” Additionally, it stated, “no person or persons, shall be admitted to occupy seats in coaches other than the ones assigned to them on account of the race they belong to."

Markets are institutions that bring about desired social change.

The rail company was supportive of the effort and was notified by the Comité in advance, and cooperated with the effort.

These conditions — amenable facts and focused legal questions — allowed the case to proceed with the locus on the Constitutional challenges arising under the thirteenth and fourteenth amendments. The strategy was to corner the court into addressing the Constitution head-on instead of sidestepping it with other ambiguous or confounding questions.

As the case progressed over several years a minor shift in the composition of the Supreme Court occurred. The litigants pressed forward and took the risk regardless. The rest, as they say, is history. Homer Plessy lost his case and segregation was the law of the land so long as it was substantially equal, a standard which proved to be impossible to implement and later contributed to the segregation and disparate outcomes in the public schools and other such publicly controlled goods and services.

The Untold Story

What is often lost in the short history-class-version of this case is the effort by the company to comply and remove the segregation law. This may appear counterintuitive to some, but the market reality made segregation expensive.  Looking at the requirements of the law (see above) makes it clear why securing separate accommodations, either by car or partition, is costly, and when you are in the business of selling seats, increasing the likelihood of empty seats works against that interest.

In the 1950’s the economist Gary Becker at the University of Chicago began to write about the economics of discrimination. His writing was contemporaneous to the Brown case which was decided in 1954. Becker’s book, titled The Economics of Discrimination and released in 1957, began a discussion on discrimination in the market which has yielded counterintuitive results in many instances.

Using economic assumptions to describe discriminatory behavior, Becker observed two basic features of discrimination. First, that discrimination may depress the wages and employment opportunities of those discriminated against and conversely that the discriminator may pay higher wages to avoid hiring a minority.

If for example, a white worker gets paid $2 more an hour than an African American worker, the employer is paying a $2 an hour penalty to maintain his discriminatory preferences. Over time, this is a difficult practice to maintain in a competitive environment. The result is parity when comparing equal, similarly situated people. Most employers or businesses are not willing to pay that penalty in the long run.

Since Becker’s book, others have also observed the impact of discrimination in markets and the tendency to move away from discrimination unless the base is sufficiently broad and the taste for discrimination is rather strong. However, in this scenario discrimination is highly likely to arise via democratic mechanisms as well, as it did in the South unless there is a constitutional constraint to prevent discriminatory democratic results.

Markets create more peaceful and less discriminatory communities.

Additionally, when faced with strong preferences for discrimination those discriminated against are likely to move to geographic areas with more equal outcomes, much like the movement to the north of about six million African-Americans during The Great Migration, which was certainly exacerbated by Jim Crow.

The Free Market Is the Great Equalizer

What Plessy illustrates is that even in a place willing to legalize discrimination (meaning the democratic taste for it was sufficient to be legislated, even if it failed to reach a true majority due to potential disenfranchisement), the market was pushing toward more equal market outcomes and had to be artificially constrained. Essentially, the Plessy verdict granted a special interest group their preference and arrested the development of the market preventing it from moving away from discriminatory practices.

With the hindsight of Becker and others like him, we see how Plessy set the stage for years of subsidized discriminatory behavior. In practice, the schools and other segregated venues behaved as cartels with the ability to impose costs on an industry and essentially remove it as a matter of competition for certain services. If all market actors faced the same imposed costs, there is no incentive to compete to remove that cost.

The Plessy verdict prevented the market from removing discriminatory behavior and it also created a rent-seeking incentive. With the Plessy verdict, racists and segregationists learned they could implement their preference of a segregated society by diffusing the costs among the population at large. Until Brown, these rent-seekers were able to implement their market preferences and it is no surprise that after Plessy Jim Crow continued to grow throughout the South.

There is also a political reason why markets should be preferred over legislation to remove discrimination. Markets tend to work quietly in the background; there is no grand political movement, no sweeping legislation, and very little reactive backlash against those politics that ingrain, often unintentionally, discriminatory views.

In contrast, the doux commerce thesis suggests markets are institutions that bring about desired social change, peace and cordiality, and anti-discrimination becomes a byproduct of this thesis. Two of the most recent advocates of this view have been Deirdre McCloskey in her Bourgeoise trilogy, and Nathan Oman in his book, The Dignity of Commerce. Markets create more peaceful, less discriminatory communities simply because they penalize discrimination and introduce personal interactions within the market.

The lessons of Plessy, often overlooked, are two-fold. The market removes discrimination in a more peaceful manner if we allow it to do so but the desire to intervene on behalf of one group or another is very alluring (an argument to restrict, maybe chain, democratic governments may be merited to some degree based on this observation).

When we take the stance that intervention is necessary we increase the risk of a less peaceful outcome and increase the incentive for rent-seeking behavior, even when discrimination is not the underlying impetus. Understanding the history of this pivotal Supreme Court case teaches how markets provide more favorable outcomes and dispels the myth that free markets are tools of oppression.

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