The Free Market Doesn’t Guarantee Freedom for Everyone

Does the free market ensure freedom? There’s a common perception that it does — that if, for example, a business discriminates against people of a certain race or sexual orientation, it will bring punishment upon itself in the form of higher expenses and fewer customers. Competitors will profit by meeting the unsatisfied demand.

Unfortunately, the history of Black Americans demonstrates that the market doesn’t always deliver the freedom it promises — a conclusion that has implications for addressing discrimination today.

Imagine traveling to a large city and finding that no hotel will allow you to stay the night, or needing to bring toilet paper on a road trip because no gas station will allow you to use the restroom. Such discrimination was the norm for Black Americans before the Civil Rights Act of 1964 barred racial discrimination in public accommodations. Historian Mia Bay finds that more than 90% of US hotels in the 1950s refused service to Black people. From the bus boycott in Montgomery, Alabama to the lunch counter sit-ins in the early 1960s, Black protests were concentrated on how businesses and public services denied them equal access.

In recent years, historians have used novel methods to better understand this neglected part of America’s past. One valuable resource: the “Green Book” travel guides published from 1936 to 1966 by Harlem postal worker Victor Green, listing hotels, businesses, restaurants and other businesses that served Black customers. These and other guides were used by millions of Black Americans, who knew that being in the wrong place could have dire consequences.

In new research using the Green Books, the economists Lisa Cook, Maggie Jones, David Rosé and I find that even in the Northeast, where some anti-discrimination laws were in place by the 1950s, Black patrons could not take service for granted. As a share of all businesses, the thousands of listed establishments were relatively small. This made knowing where they were all the most important.

Such discrimination was an issue facing America’s free-market principles. For decades, conservative economists held that government intervention was not needed: The market would drive bigots out of business — just as it would punish an employer who rejected Black workers, allowing competitors to underpay for Black labor. Yet their logic ignored what happens when consumers value discrimination. This was the concern of businesses during the years of lunch-counter sit-ins and other protests: If one decided to serve Black customers, its predominantly White customers would go to the competition. In North Carolina, for example, business owners worried that if they served all races equally, they would “lose a sufficient percentage of their present patronage” to go from profit to loss.

In other words, the market penalized fairness. As a result, many businesses (some begrudgingly) supported non-discrimination ordinances, including the Civil Rights Act of 1964: Such mandates forced both them and their competitors to treat all customers equally, eliminating anyone’s ability to profit from racial discrimination. This helps explain why non-discrimination is enforced under the Commerce Clause of the Constitution, not the equal protections under the 14th Amendment. It’s also relevant today in deciding how to protect the rights of lesbian, gay, bisexual, transgender and queer people, who commonly face discrimination but do not enjoy the same federal protections.

The ability to access businesses is a critical part of economic citizenship. When the free market cannot deliver such freedom, the government must intervene. If policy makers get the history right, they can learn to put the market, and freedom, in their appropriate places.

More From This and Other Writers at Bloomberg Opinion:

• Slavery Was Never an American Economic Engine: Trevon Logan

• The California Boomtown That Racism Destroyed: Dean and Logan

• Got a Labor Shortage? Make It Easier to Work: Kathryn Edwards

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Trevon Logan is a professor of economics at the Ohio State University and a research associate at the National Bureau of Economic Research.

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