The Racial State: The Costs of Discrimination

Blog Post - The Racial State: The Costs of Discrimination

If slavery was the open, festering wound on the body of the nascent American republic, Jim Crow and “the racial state” that followed after its abolition was the unsightly scar it left behind. A republic built on the idea that “all men are created equal” could not long endure with the existence of such a “peculiar institution” that was frighteningly anathema to everything our founding fathers fought for. Slavery in the United States was unique from other parts of the world as it relates to its own founding principles and how those most interested in its perpetuation, rationalized its existence. It was the interested sophistry of the Southern elite that used racism as a fortification against these aforementioned principles to safeguard the unjust and cruel institution. Later it became the brain-child of an intellectual movement used to describe socioeconomic disparities without any evidence. Eventually, slavery was abolished at the end of a cannon, but the racist animosity generated to rationalize its existence did not end as abruptly and was subsumed into the state—the racial state was born.

Slavery was a universal institution throughout human history, and slavery itself preceded racism by many thousands of years. While slavery was widely accepted as a fact of life elsewhere, it was never able to gain the wide acceptance of the American society as a whole. Slavery was under ideological attack before the country had even been formed—abolition movements existed prior to the drafting of the Declaration of Independence, most notably Benjamin Franklin’s and Benjamin Rush’s “Pennsylvania Society for Promoting the Abolition of Slavery” established in 1774. Franklin once opined that slavery was “an atrocious debasement of human nature… a source of serious evils” (Spalding). John Jay established a similar society in his home state of New York in 1785, after unsuccessfully trying to abolish slavery at the drafting of the New York State constitution in 1777 (Sudderth). John Adams referred to slavery as the “foul contagion in the human character” and James Madison added that slavery was “the most oppressive dominion ever exercised by man over man” (Spalding).

By 1804, all Northern states had voted to abolish slavery (Boston) and even in the South “tens of thousands of slaves were voluntarily set free” (Sowell, 2008, p.181). Most of the Southern slave owners threatened by the prospect of manumission needed a defense against the ideology of freedom and the “widespread” criticisms of slavery, “racism became that defense” (Sowell, 2008, p.181). Because of the enlightenment verities inculcated into our founding documents and rule of law, racism only became a problem in the United States where “all men are created equal.” The only way one could justify the existence of the institution of slavery is to make them less than human. Southern slaveholders ace-in-the-hole was the existence of racial slavery, as historian Daniel Boorstin points out, “Now for the first time in Western history, the status of slave coincided with a difference of race” (Boorstin, 1965, p. 183). Outside the United States no such defense was necessary, for example, Brazil, which imported more slaves than the US, never developed the racial animosity akin to that of the American South (Sowell, 2008, p.181).

After the conclusion of the Civil War, the addition of the 13th, 14th and 15th Amendments, settled the question of whether slavery can be reconciled with our founding principles. Racism and its corollary—discrimination, did not end as abruptly, however. By the end of the 19th century and well into the 20th century, the ideology of racism gained the aura of “science” among the intelligentsia, contributing in large part to the constitutionally perverse decision in Plessy v. Ferguson in 1896 (Sowell, 2009, p.381). Plessy was a Supreme Court case upholding a Louisiana state statute mandating the segregation of blacks on train cars, to provide separate but equal accommodations for black passengers. In reality, it was anything but “equal” accommodations; they had been since the very start inferior to the accommodations offered to whites (George). This decision, though completely antithetical to the 14th amendment, directly coincided with the prevailing intellectual doctrines of the day, and was an implicit, if not explicit, stamp of approval on Jim Crow segregation laws in the South. “Scientific racism” was espoused among intellectuals at the leading academic universities of the time and there was little surprise or outcry after the decision. So little attention was paid to a complete usurpation of the constitution that the New York Times reported the story under railroad news (Ely, 2012). Plessy is a clear-cut case of how the prevailing wisdom of intellectual elites has more influence over the interpretation of the Constitution than the words or intent of the Constitution itself.

The Progressive movement of the early 20th century played a large part in perpetuating the myth of racial inferiority and “scientific” theories of racial disparities (Sowell, 2009, p. 384). Progressive activist Madison Grant’s 1916 best seller, The Passing of the Great Race—dividing Europeans into differing races—expressing the fear of losing white hegemonic rule within the United States, undergirded intellectual thought. Though Grant’s sweeping claims were largely unsupported by any evidence whatsoever, among them, “race lies at the base of all the manifestation of modern society,” and the “resurgence of lower races at the expense of the nordics” (Sowell, 2009, p.388). Any disparities during this time period were largely attributed to hereditary or biological differences, that blacks and immigrants from Southern and Eastern Europe must be inferior to the “Nordic” white race. Their “scientific evidence” stemming from Grant’s work as well as mental testing of more than 100,000 soldiers by the U.S. Army during the First World War, showing the aforementioned races scoring below Northern Europeans with Blacks at the very bottom (Sowell, 2009, p.395). The very fact that disparities existed among differing ethnicities could only be explained by ethnicity or race without any other factor clouding the intellectuals preconceived notions. Francis Galton, Charles Darwin’s half-cousin, and widely regarded as the father of eugenics declared its “first object is to check the birth rate of the unfit instead of allowing them to come into being . . . the second object is the improvement of the race by furthering the productivity of the fit by early marriages and the healthful rearing of children.” The idea is to limit the breeding of undesirable people among particular “inferior” races. Far from being a fringe idea of a ideological kook, eugenics approach to social and economic reform “were popular, respectable and widespread.” (Leonard, p.208).

The eugenics movement was popular among many progressive intellectuals of time, most notably John Maynard Keynes, H.G. Wells, George Bernard Shaw, Harold Laski, Jack London and Margret Sanger. Eugenics was by no means limited only to progressives; conservatives Neville Chamberlin and Winston Churchill were also supporters of the movement (Sowell, 2009, p.387). These ideas that disparities between ethnicities or “races,” are attributable only to biological differences, though without a single speck of evidence, infected institutions in the federal government from the Supreme Court to the Executive and Congress, as well as municipalities solidifying the racial state. To the state, or those intellectual statists that use the state to impose their ideological vision, were determined to perpetuate these disparities by explicitly subsidizing them or promulgating them into statutory law. Woodrow Wilson and Franklin Delano Roosevelt (FDR), ironically both friends with Madison Grant, used government, much like the Supreme Court in Plessy, to perpetuate disparities and lower the cost of discrimination in markets. Wilson, a fan of“The Birth of A Nation,” a picture glorifying the Klu Klux Klan, mandated the segregation of federal bureaucracies and the firing and downgrading of black employees (Sowell, 2009, p.400). It was easy for the state to discriminate because it came at such a low cost. The government has a monopoly over government jobs, and the lack of competition insulates them from costs many people and businesses would refuse to accept, irrespective of their racial biases.

The law of demand states that if the price of a good rises, the quantity demanded of that good will fall. The same principle applies to how costs are distributed for discrimination—the manifestation of racism within a given society. Federal, state and local policies tried to reduce the costs of discrimination by making racism mandatory or by subsidizing it altogether. Where neighborhoods were largely integrated before, FDR’s Public Works Administration (PWA), under the New Deal, created segregated neighborhoods. Law Professor Richard Rothstein explains that the PWA, “razed and then built segregated public housing in those neighborhoods… where none existed before” (Rothstein). When left alone, the free market had integrated neighborhoods from the bottom up, distributing the higher costs to sellers of homes that wanted to limit their market to only white buyers. For example, if a white seller was to discriminate against black buyers, any white buyer can offer less, and purchase the home for less than any black potential buyer could offer. The difference would come at a cost to the seller, the higher the cost, the less likely anyone is willing to discriminate.

Perhaps nothing reduced the costs of discrimination more effectively than the Federal Housing Administration created by FDR’s New Deal. The FHA’s explicitly racist policy proscribed blacks from moving into white neighborhoods by barring suburban subdivision developers from qualifying for federally subsidized construction loans unless developers excluded blacks from the community (Rothstein). This not only reduced the costs to the developers for discriminating, it actually made it profitable. The FHA went further by proscribing blacks from receiving bank mortgages in suburban subdivisions that were privately financed without federal construction loan guarantees, and refused to to insure mortgages for black families in all white neighborhoods and black neighborhoods—a policy known as “redlining.” The inability to obtain a mortgage and restrictions on the available supply of housing meant that blacks were either forced into renting apartments for higher rates than their white counterparts, or bought homes on installment plans. Missing a payment on a non-amortized installment plan means the loss of a home with no accumulated equity (Rothstein).

At the local level, the City of Baltimore enacted a residential segregation ordinance confining blacks to designated blocks. In 1925, some Baltimore neighborhood associations, in an effort to reduce costs of discrimination, urged property owners to sign “restrictive covenants” which forbade property owners from selling to blacks (Rothstein). A government commission (the Kerner Commission) appointed by President Lyndon Johnson in 1968, determined that “white society” and “white institutions” were to blame. Richard Rothstein points out the reality of this position that it was not white society at all but “government—federal, state and local—that employed explicitly racial laws, policies and regulations to ensure blacks would live impoverished, and separately from whites” (Rothstein).

Lowering the costs of discrimination was not limited to the housing market. During the Jim Crow era the construction business afforded black workers enormous opportunities, especially in the south. More than 80 percent of unskilled construction workers were black and non-unionized. This posed a problem for white unionized workers not only in the South, but primarily in the North where black construction workers could migrate and undercut white union labor. In 1931, Congress passed the Davis-Bacon Act, requiring all private contractors to pay the “prevailing wages” (union wages) to employees on all federally funded construction projects (Scott Bullock and John Frantz). This eliminated the costs associated with racial preferences and in effect subsidizing the hiring of white construction workers. Similar policies were used in apartheid South Africa to prevent black construction workers that were undercutting white construction workers in violation of the law (Williams). Not only was this trend symmetrical for both the American South during the Jim Crow era and in South Africa under apartheid, it was also the case for railroads. Blacks made up a higher percentage of railroad employees in the early 20th century, when labor markets were freely competitive, and less of a percentage of employees by mid-century—when labor markets were more controlled. The former system ascribing costs to discrimination and the latter eliding those costs (Sowell, Applied, 2009, p. 218).

In industries with less discrimination there was less influence of the racial state lowering costs or subsidizing discrimination altogether. In the 1920’s, the height of the prevailing racist intellectual movement, Blacks were beginning to star on broadway, a business where denying their participation could come at a huge cost. Economist Thomas Sowell explains “the cost of refusing to hire black entertainers who could fill a theater was just too high for this industry…” (Sowell, Applied, 2009, p. 219). Where there is more competition, there exists higher costs for discrimination. Much like the covenants created by some Baltimore neighborhood associations to limit the costs of discrimination, major league baseball, acting as a cartel also had low costs of discrimination by keeping black players out. These costs could only remain low if all teams agreed, by limiting competition. In 1947, The Brooklyn Dodgers signed Jackie Robinson, breaking the color barrier and “sharply” raising the costs of discrimination (Sowell, Applied, 2009, p. 218). The result of more competition and higher costs of discrimination was far more participation among blacks, the net result in baseball was that large numbers of black players entered into the major leagues. For a seven year period no white man won the major league MVP award. If the Dodgers had been the only team to hire black players, they would have had a very successful team earning them substantial profits. Even in South Africa during apartheid, white employers violated official government policy in competitive industries “on a massive scale by hiring more black workers and in higher positions than the law allowed” even though violating the apartheid laws also came at a cost (Sowell, Applied, 2009, p. 221).

Government intervention into the economy to perpetuate disparities among racial groups is a tacit admission that market forces alone do not create such disparities. Racism however prevalent, exists only in ones mind. Discrimination is the manifestation of racism in the real world and when the racial state deliberately elides the costs or subsidizes discrimination for such a long period of time, you will have disparities that persist today. Some policies discussed herein, such as the Davis-Bacon Act are still on the books, moreover, wage controls such as minimum wage laws are efficacious means to the same ends. When intellectuals can sway government institutions into promulgating their defective or maladroit policies based on their prevailing wisdom, devoid of any hard evidence, leaves one to wonder what good a rule of law really is. Racism is the side effect of the attempt to preserve slavery, and when coupled with government, imposes devastating effects on blacks as a group. When there is more government control of markets, there tends to be commensurate levels of disparities among groups, a fact well known to policy makers within the racial state.

Works Cited

Boorstin, D. (1965). The Americans: The national experience (Vol. II, p. 203). New York: Random House.

Boston, N., & Hallam, J. (n.d.). Slavery and the Making of America. Retrieved November 30, 2015, from

Bullock, S., & Franz, J. (n.d.). Davis Bacon Act – Institute for Justice. Retrieved December 1, 2015, from

Ely, J. W. (2012, December 12). Plessy v Freguson. Retrieved from

George, R. (2005). Judicial Usurpation and the Constitution: Historical and Contemporary Issues. Retrieved November 30, 2015, from

Leonard, T. (2005). Retrospectives: Eugenics and Economics in the Progressive Era. Journal of Economic Perspectives, 207-224.

Rothstein, R. (2015). Historian Says Don’t ‘Sanitize’ How Our Government Created Ghettos. Retrieved November 30, 2015, from

Rothstein, R. (2015). This Is One Reason Why Places Like Ferguson and Baltimore Have Become Explosive. Retrieved November 30, 2015, from

Sowell, T. (2008). Economic facts and fallacies. New York: Basic Books.

Sowell, T. (2009). Disparities and Their Causes. In Intellectuals and society (Revised ed., p. 381). New York: Basic Books.

Sowell, T. (2009). Applied economics thinking beyond stage one, revised and enlarged edition (Rev. and enl. ed.). New York: Basic Books.

Spalding, M. (2002, August 26). How to Understand Slavery and the American Founding. Retrieved November 30, 2015, from

Sudderth, J. (n.d.). Jay and Slavery. Retrieved November 30, 2015, from

Williams, W. (2007). Minimum Wage, Maximum Folly | Foundation for Economic Education. Retrieved November 30, 2015, from

Comment list

  • Cuck Cuckerson
    05-Aug-2016 06:08 PM

    Overwrought. Boring. Shallow thoughts. As a writer, you're a great burger chef.

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