Mises Wire

Progressive-Era Economics and the Legacy of Jim Crow

Progressive-Era Economics and the Legacy of Jim Crow

Mainstream historians and economists tend to see the period from about 1900 to 1920 as a glorious time for the Progressive agenda. In 1913 alone, the government headed by Progressive Woodrow Wilson created the Federal Reserve System, direct election of US Senators via voters (and not state legislators), and the federal income tax. The rise of regulatory agencies such as the Food and Drug Administration, the Interstate Commerce Commission, the Federal Trade Commission, and the Federal Communications Commission further directed the US economy away from “destructive” laissez-faire and toward a more “rational” model. Likewise, the US government at this time aggressively pursued anti-trust policies that sought to break up or prevent the creation of private monopolies, supposedly protecting the very heart of the American free enterprise system: competition.

Not surprisingly, upon further inspection, we find that the reality was different than the vision historians have produced. As economic historians such as Robert Higgs in Crisis and Leviathan, have documented, the economic regulation imposed by American Progressives actually formed monopolies where none had existed and Progressive policies created new and harmful barriers to entry that blocked whole groups out of occupational lines in the name of creating a better society.

Progressives and Race: Spoiling the Picture

If there were dark clouds in this otherwise “bright” period of “progress,” they were World War I, the most destructive and murderous international conflict ever in which the USA inevitably was drawn, and the rise of institutional racism, otherwise known as Jim Crow. World War I, while admittedly a disastrous event of one sort, did serve to further uproot the conservative and regressive monarchies of Europe. Thus, from the Progressive perspective, there was a small but important “silver lining” in the dark cloud of war.

Jim Crow laws were another matter altogether, but Progressive historians had a ready-made explanation for what clearly were the implementation of policies that exacerbated inequality at a time when intellectuals, journalists, and politicians were beating the drums of equality. The Progressive advocates of Jim Crow, write historians such as C. Vann Woodward and David W. Southern, simply suffered under a “blind spot” of racism. While their intentions were good, and while the economic policies they advocated ultimately would advance the cause of African-Americans, the practitioners and creators of Jim Crow were blind not only to the needs of blacks, along with their basic humanity, but also were unable to understand that they unwittingly were helping the very people they claimed to hate.

There is another way to view Progressive policies, however, one that does away with the so-called blind-spot-of-racism narrative and replaces it with a viewpoint that recognizes that the very economic and social “reforms” that Progressives championed and for which they receive ubiquitous praise actually were intended to harm blacks and other minorities that found themselves out of favor with American Progressives.

In 2013, David Kiriazis and I published an article in The Independent Review in which we openly challenge the “blind spot” thesis and claim that Progressives wanted to harm black Americans and that their reforms were the tools which they employed to carry out their goals. Far from making economic life “fairer” and more open via the regulatory process, we argue that the Progressive Era regulatory machine did what government regulations always do: create economic winners and losers through the creation of barriers to entry, raised business costs (which favored the larger business enterprises that also were politically-connected) and in the process created government-sponsored economic rents.

In an eye-opening paper, Thomas Leonard of Princeton University lays out how Progressives embraced the faux science of eugenics in an attempt to “weed out” ethnic groups that Progressives considered to be vastly inferior to educated whites. Blacks were among those groups that Progressives believed needed to be subjugated to white rule and pushed into the margins of society, with the tools being economic “reforms” and the implementation of the minimum wage.

Some quotes from intellectuals of that day simply are shocking. Margaret Sanger, the founder of Planned Parenthood and an icon of Progressivism spoke of the need to “exterminate the Negro population” through a program of birth control and sterilization. Economists such as Irving Fisher, Frank Fetter, Simon Patten, and Edward A. Ross saw the presence of blacks and immigrants from Eastern Europe as destructive to American society and believed that the implementation not only of eugenics, but also imposing a minimum wage would help “purify” the country by keeping the “unemployables” out of the workplace.

Likewise, the most passionate economic “reformers” of the early Progressive Era, such as US Senator “Pitchfork” Ben Tillman of South Carolina, also were the most vocal racists and based their campaigns on going after established businesses and blacks. (Woodward could not reconcile himself to what he saw as the inconsistency of Tillman’s political and economic Progressivism with his racism.)

Leonard points out that the Progressives saw the increased unemployment caused by the minimum wage to be a net social benefit, which went against the standard neoclassical viewpoint of economists like Alfred Marshall, A.C. Pigou, and Phillip Wicksteed, who saw job losses via the minimum wage as imposing a social cost. If one promotes the viewpoint today that increasing the minimum wage will create higher levels of unemployment, especially among blacks, then that person is a racist, according to socialist Harold Myerson, who writes for the Washington Post.

Regulation and Racism

Few people understand the impact of the regulatory process on the modern economy. For example, Democratic party presidential candidates Hillary Clinton and Bernie Sanders both have attacked the popularity of ride-share companies like Uber and Lyft, along with Airbnb, which permits people in high-cost cities like San Francisco and New York to turn their apartments into a bed and breakfast. Both Sanders and Clinton claim that these entities are “unregulated,” which, in their view, places consumers in danger and prevents authorities from overseeing their operations and offering protection to their users.

Likewise, New York Mayor Bill de Blasio attacks Uber supposedly for its lack of regulations when, in fact, de Blasio is representing the interests of the taxicab industry, which does not want competition and which gave the mayor large campaign contributions. Like his fellow politicians, de Blasio and his supporters want us to believe that economic regulation creates a lower-cost, “orderly” market that “protects” consumers and actually results in lower prices (because government regulators set cab fares).

Far from making economic life low-cost and orderly, government regulation creates economic rents that accrue to people who are politically-connected, shutting out people who are shunted to the back of the line, and reducing economic opportunities and, in the end, reducing the supply of goods and services in the marketplace. This last point is important, for even Paul Krugman supposedly understands that if in a market the government reduces the supply of a good, its price will rise, ceteris paribus (all other things held equal). Government cannot regulate an increasing supply of goods into existence, period; it only can reduce that supply because regulation adds costs to production and the distribution of goods.

Progressive Policy as an Extension of Jim Crow

So, where does Progressivism and Jim Crow fit into this picture? The answer is disarmingly simple, yet rejected even by modern black Progressives who seemingly have embraced the very economic doctrines that help hold back African-American economic progress.

Regulation by government by definition restricts economic output, thus creating economic rents that are distributed, at least in part, on a political basis. Thus, people who are best politically-connected will be at the head of the line and those not connected will be at the back. It is that simple. The history of Progressive labor laws, especially those from earlier in the twentieth century, are a history of blatant attempts by powerful white labor unions to legislate black workers out of the workplace altogether.

One example is the National Recovery Act, the 1933 New Deal law that sought the cartelization of nearly every industry in the USA. (The thinking behind the Franklin Roosevelt-inspired legislation was that if government could increase prices of goods, it would increase revenues and profits for businesses, thus keeping them from going under and creating even higher unemployment. For obvious reasons, the attempt to fight unemployment by reducing economic output did not cure the nation’s economic ills.)

Given that black Americans already labored under infamous Jim Crow laws, it did not take long for the NRA to manifest itself in racist ways. Blacks called the law the “Negro Removal Act,” “Negroes Rarely Allowed,” and “Negroes Robbed Again.” Likewise, the Progressives touted the minimum wage not as a tool to lift black workers out of poverty (as modern Progressives claim will happen), but rather as a device to keep black workers from competing with whites.

Another example involves the taxi industry, which is scrutinized in Walter Williams’s book, The State Against Blacks, in which Williams documents how government policies often force black workers to the back of the line. The taxi industry in New York City (the same government-chartered monopoly that Mayor de Blasio favors), Williams writes, has legally-imposed high barriers to entry which effectively shut out blacks who might wish to drive cabs

The Progressive-inspired Flexner Report of 1910, which recommended the closure of a large number of small medical schools that trained African-American doctors, ultimately resulted in blacks being shut out of many professional jobs in medical care. While Flexner did not primarily aim to damage black individuals pursuing medical careers, he did understand that implementation of his recommendations (America, he said, needed “fewer and better doctors”) would effectively shut out most African-Americans from medical professions.

Blacks, Whites, and Unemployment Rates

While few modern Progressives are willing to acknowledge their movement’s racist past, even fewer Progressives are willing to admit that the very policies they demand be implemented have a strong negative impact upon black Americans. What may be most ironic is that the proof of the failure of Progressivism can be seen in numbers on black unemployment even while both white and black Progressives demand more of the same.

If the cause of high rates of black unemployment were simply caused by white racism, then one would expect the employment “gap” between blacks and whites was greater before the 1940s when whites pretty much were free to act on their own racial prejudices than was the “gap” after World War II. However, that is not the case, according to the Pew Research Center:

The black-white unemployment gap appears to have emerged in the 1940s, according to a 1999 analysis of Census data. Although labor economists, sociologists and other researchers have offered many explanations for the persistent 2-to-1 gap — from the differing industrial distribution of black and white workers to a “skills gap” between them — there’s no consensus on causes. One 2011 working paper, after reviewing existing research on wage and unemployment differentials among blacks and whites, concluded that “none of the existing models of race discrimination in the labor market explains the major empirical regularities.”

According to Pew Research, black rates of unemployment have been roughly double that of white joblessness since the 1950s. Today, the rate of black unemployment is almost twice what it is for whites, but the gap exploded only after Progressive economic policies became permanently embedded in the US economy. If the reason for this employment gap is not racism (and American racial policies have changed drastically in the past sixty years), then why would we see these kinds of numbers?

I believe that the biggest reason has been the tendency of African-Americans — and especially African-American political leaders — to fully embrace the Progressive agenda. While it might seem strange that blacks would give full support to an economic and political ideology that caused blacks to be shunted onto the margins, one must remember that the educated classes, both black and white, embrace Progressivism religiously.

Furthermore, modern Progressivism is an urban-based, secular religion and most African-Americans tend to live in cities. It should not be surprising that when the dominant urban intellectual culture is anti-enterprise, people most exposed to the steady drumbeat of hatred for private enterprise are not going to support it. Indeed, most large American cities with large black populations are dominated politically by coalitions of wealthy, anti-enterprise whites and African-Americans.

Take Baltimore, for example. As I pointed out during the Baltimore riots last April, Baltimore is dominated by the Progressive white-black coalition that is friendly to the kind of “economic development” that is high-profile, subsidized by governments, and carried out by politically-connected whites and benefits mostly affluent whites. However, real-live entrepreneurs that wish to involve the local black population are given the back-of-the-hand by the Progressive establishment. Progressives might like “investment” in subsidized stadiums and high-profile shopping centers that have little positive effects for local black populations, but are not going to support the ordinary businesses that help keep communities together.

Lest one thinks I exaggerate, the recent quote from former Baltimore mayor Martin O’Malley, who also has been governor of Maryland and now is running for president of the United States, sums up the Progressive view toward private enterprise:

“It is not true that regulation holds poor people down, or regulation keeps middle class from advancing,” O’Malley, the former governor of Maryland, said Monday in an interview with NPR’s Steve Inskeep. “That’s kind of patently bulls---.”

Yet, we know the history of economic regulation and we know its effect upon black Americans. Progressives knew what they were doing when they built regulatory structures that pushed African-Americans to the back of the line in the struggle for the government-created economic rents. The results have become doubly tragic because blacks now fully embrace the very political philosophies that made their lives so difficult during the Jim Crow era.

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