"Self is a sea boundless and measureless." Kahlil Gibran
It has become commonplace to argue that "free markets" will eliminate racism. This is the underlying argument behind many respected theoretical positions on the subject of racism (probably the most notable voice in support of this theoretical proposition has been Gary Becker). Some theorists have gone so far as to argue that those who focus upon racism as a determinant of social outcomes are misguided because the actual determinant, sui generis of social outcomes, including the presence or absence of racism, is the structure of markets and the relative degree of interference in such markets (usually by governments). When markets are competitive, racism will, according to their logic, be minimized. Only the presence of market imperfections can, for these theorists, explain the continued existence of racism in practice. Such theorists argue that racism is merely an effect of market structures that do not allow for the most efficient outcome (which would, necessarily, be a non-racist outcome). These theorists implicitly assume that racism is irrational. They assume explicitly that competition in free markets (which implies the unfettered utility and profit maximizing behavior of economic agents) displaces irrational behaviors, of which racism is an example.
It must be noted that this assumption is based upon an unspoken belief that preference orderings are not shaped by racist tastes or that such tastes are not very strong. Otherwise, it would clearly not be possible to assume away racism quite so easily, even within the mainstream theoretical framework of neo-classical economics. Why racism should be assumed to be irrational or outside of the autonomous preference orderings that are assumed to underpin all decisions is not at all clear. We will return to this point in a moment.
The problems with presuming the efficacy of competitive, unregulated markets in combating racism are many. There are epistemological and ontological problems related to the continued adherence to 19th century reductionist notions of cause and effect, human behavior and free will (although, it is important to note, many theorists in and prior to the 19th century had found alternatives to reductionist approaches). In this essay, only one of the problems will be addressed, however. The notion that racism, as typically represented by certain discriminatory social practices, can be reduced to an epiphenomenon of imperfect market structures dismisses the possibility that racism may be imbedded in the preference orderings or predilections of human agents, act as one of the determinants of market structure, and be strong enough (as a social phenomenon) to thrive in a wide range of market and non-market environments, including so-called perfectly competitive markets. In other words, if we do not assume that racism is some aberrent behavioral characteristic, fostered by market imperfections that short-circuit more rational behaviors, then we are faced with the possibility that, within the framework of neoclassical economic orthodoxy, there exists a powerful argument against the notion that free markets are incompatible with racism. To the contrary, racism may be shown to be reproduced within free market activities. Let's examine this further.
How are human preferences shaped? We know that within the context of neoclassical economic theory all human behavior is assumed to be an outcome of these preference orderings. Humans reveal their preferences in their decisions. The theory simply assumes that these preferences are autonomous of the social structure and the preferences of other economic agents. If preferences were recognized as a product of the social structure and/or interdependent with the preferences of the crowd then many of the social welfare conclusions of mainstream theory, including the argument that free markets lead to optimal social outcomes, would be called into question. Rationality simply implies that the preferences underlying the individual's decision-making fulfills certain criteria, such as reflexivity, transitivity, and totality. Why is racism, the taste for certain "races" over others (even if race is itself simply a social construct, justified by privileging certain physical attributes) viewed any differently from other preferences? If a person has a taste for red sweaters over blue ones, then he is assumed to seek satisfaction by offering more in exchange for a red sweater than he would offer for a blue one. If a person has a taste for "white" chauffeurs over "black" chaffeurs then he will be willing to pay a higher price to hire the services of a "white" chaffeur than a "black" one. Is this irrational? Not according to the internal logic of mainstream economic theory. The consumer of chaffeur services is simply revealing, in his market exchange decisions, underlying racial preferences. His racism is, by definition, rational, so long as he acts consistently.
The works of such writers as Thomas Sowell, implying the incompatibility of racism and free markets, are clearly flawed when examined in the context of the internal logic of the very theoretical framework they are deploying. Racism will shape economic exchanges and therefore shape the decisions of profit-maximizing firms. The freer the market, in the context of racist preference orderings, the more likely the outcome of market exchanges will result in racist outcomes. If preference orderings are not autonomous but shaped by herd instincts, then the very process of acting out racist preference orderings may help to shape institutional structures that teach others to have stronger racist preference orderings, further reinforcing the racist effects of the initial revealed preference orderings.