It is interesting to re-read Milton Friedman’s Capitalism and Freedom some fifty years after its original publication. There are many aspects of the book that are likely to catch a contemporary reader’s attention, but mine was drawn to Friedman’s analysis of racial discrimination. In general, Friedman believes that capitalism is fundamentally good for promoting categorical equality.
It is a striking historical fact that the development of capitalism has been accompanied by a major reduction in the extent to which particular religious, racial, or social groups have operated under special handicaps in respect of their economic activities; have, as the saying goes, been discriminated against. (108)
More specifically, Friedman argues that racial discrimination in employment (and housing as well, it would seem) is essentially impossible within a market economy.
We have already seen how a free market separates economic efficiency from irrelevant characteristics. As noted in chapter i, the purchaser of bread does not know whether it was made from wheat grown by a white man or a Negro, by a Christian or a Jew. In consequence, the producer of wheat is in a position to use resources as effectively as he can, regardless of what the attitudes of the community may be toward the color, the religion, or other characteristics of the people he hires. (109)
So self interest on the part of employers will induce them to make hiring decisions that are category-blind: the most productive and least costly worker will be hired. A rational business or corporation has powerful incentives not to discriminate.
In fact, Friedman expresses skepticism about whether the concept of “discrimination” even makes sense within a market economy.
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 as “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 to 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 by a person of another. The difference between the two cases is that in the one case we share the taste, and in the other we do not. (110)
It is hard to square these observations with the rigid segregation and discrimination that was taking place at the same time in the Jim Crow South. For that matter, the facts of racial discrimination in housing and employment that have characterized American society since emancipation were perfectly visible in Friedman’s own city of Chicago in 1962. So all Friedman needed to do was to look around him on Chicago’s South Side.
Friedman draws a logical conclusion from his set of assumptions about markets and discrimination: fair employment practices legislation is wrong. “Such legislation clearly involves interference with the freedom of individuals to enter into voluntary contracts with one another…. Thus it is directly an interference with freedom of the kind that we would object to in most other contexts” (111).
So taking steps through legislation to reduce the harmful effects of racial discrimination in hiring (and presumably in housing) is an illegitimate use of the force of government, according to Friedman. In fact, he compares efforts to do so to the Hitler Nuremberg laws (111).
These are stunning conclusions, now that we have lived through the Civil Rights movement and have seen the coercive practices that provided the architecture of the American racial system. What it suggests is that Friedman saw the social reality around him through the spectacles of an idealized form of pure market society, in which transactions occur between purely rational individuals and lead collectively to beneficent outcomes. But that was not the reality of the United States, then or now.
We don’t need to assume that this particular economist was racist; one doesn’t know. In fact, Friedman asserts the opposite:
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 these external characteristics. I deplore what seem to me the 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. (111)
(Is anti-racism just a “taste”?)
In fact, Friedman’s views throughout this chapter illustrate a different deficiency. His analysis of racial discrimination is a striking example of the ways in which adherence to a theory can blind a person to the patent social realities around him or her. And once we see the realities of how racial discrimination and coercion worked in America, it is incumbent upon us as a society to put aside our stylized theories and attack the problem.