In 1957, the executive committee of the American Economic Association (AEA) faced a moral dilemma. In three years, the organization’s annual conference was to be held at the Roosevelt Hotel in New Orleans, Louisiana. With the recently decided case Brown v. Board of Education, The civil rights movement was in full swing. New Orleans, however, clung to racial segregation and the old Southern Jim Crow Order.
To be planned and a hotel deal coming up, the AEA leadership called a meeting to see if the organization could, in good conscience, hold its conference at a separate hotel in a different city. The Posh Roosevelt Hotel – multi-storey as a favorite drinking spot for generations of Hue P Long and Louisiana’s political elite – had such an advantage. Until the Civil Rights Act of 1964 prohibits discrimination in public housing, it will be against racial solidarity.
Faced with a choice between moving forward with the agreement or relocating to another city, the AEA’s executive committee has decided to send a message. According to the minutes of the meeting, “the group was of the view that the association would not meet in a hotel that was separate in terms of meeting room, accommodation or meals.” The committee assessed “the current situation in New Orleans,” following which the “Secretary was instructed to make alternative arrangements for the 1960s as soon as possible.”
AEA documents do not go into detail about the discussions behind the decision to move the conference. A Recently discovered letterHowever, the story reveals another level. Richard A. Musgreve, a member of the AEA executive committee, described the decision of the meeting to a colleague a few years later. Along with other AEA representatives, Musgrave protested that “we should not go there because of discrimination.” He relayed the discussion leading to this decision:
Milton Friedman adds that – as an incentive – the hotel should be told we will come (I think the date was ’62) if there is no discrimination. Secretary George Washington Bell was instructed to reschedule accordingly.
The AEA minutes record that the committee has instructed further delays in the “until the next date if the situation in New Orleans changes.” According to Friedman’s advice, economists discriminate against non-white customers of hotels in order to financially penalize the benefits of their contracts.
AEA’s position presents an opportunity for Friedman to work on a theory that his doctoral student, Gary Baker, proposed in a research paper written at the University of Chicago the same year. Isolated businesses have ultimately harmed themselves by denying their services to disenfranchised ethnic groups, resulting in them losing out as customers. As Friedman later observed, economic decision-making could be used as a powerful weapon against discriminatory practices. In this case, if the Roosevelt Hotel does not allow black guests to stay on its premises, economists will move their conference and its paying customers elsewhere.
Friedman describes this principle in detail in his now-classic 1962 book, Capitalism and freedom. As he wrote in that text, “It is often accepted that a person who discriminates against others regardless of their race, religion, caste or whatever, does so at no cost but imposes a cost on others.” This view, Friedman continued, relied on an economic dilemma. “Anyone who refuses to buy or work with a Negro, for example, has a limited range of choices. He usually has to pay a higher price for what he buys or get a lower return for his work. Or, to put it another way, Those of us who find skin color or religion irrelevant can buy some things more cheaply.
While Friedman was in favor of making the AEA’s hotel agreement contingent to dismantle their facilities, he aimed to take it home at this point. If the Roosevelt Hotel is not consolidated in time for the conference, it will not receive any business from the company.
The AEA Hotel episode reveals that Friedman’s arguments were not merely hollow in defending the free-market ideology – an accusation often made by modern-day opponents of the free-market economy, such as Nancy McLean, who even falsely accuses Friedman of allying with separatists. Advance school vouchers.
Like many such propaganda campaigns, their history is simply not wrong – it is the exact opposite of reality. Friedman was genuinely opposed to racial segregation on moral and economic grounds, and his actions were matched by his eloquence. When the time came to take these beliefs away in 1957, he chose to send an economic message to the offending business by moving its customers elsewhere.
Philip W. Magnus
Philip W. Magnus is senior research faculty and director of research and education at the American Institute for Economic Research. He is also a Research Fellow at the Independent Institute. He holds a PhD and MPP from George Mason University’s School of Public Policy and a BA from St. Thomas University (Houston).
Prior to joining AIER, Dr. Magnus spent more than a decade teaching public policy, economics, and international trade at institutions including American University, George Mason University, and Berry College.
Magnus’s work covers the economic history of the United States and the Atlantic world, including the economic dimensions of slavery and racial inequality, the history of taxes, and the specialization of the measurement of economic inequality over time. He maintains an active research interest in the history of higher education policy and economic thought. In addition to her scholarship, Magnus’ popular writings have been published in numerous places, including the Wall Street Journal, the New York Times, Newsweek, Politico, Region, the National Review, and the Chronicle of Higher Education.
Selected publications
“How pronounced is the U-curve? A Review of Income Inequality in the United States, 1917-1960 ”co-authored with Vincent Geloso, Philip Schlosser, and John Moore. The Economic Journal (March 2022)
“The Great Overstimulation: Tax Data and the Measure of Inequality in the United States, 1913-1943.” Co-author with Vincent Gelso. Economic research (April 2020).
“Virginia school has a tradition of non-discrimination in public choice theory.” Public choice. James M. Buchanan Centennial Issue. (March 2020).
“John Maynard Keynes, H. G. Wells, and a problematic utopia.” Co-author with James Harrigan. History of political economy (Spring 2020)
“Identifying Historical Inequalities: A Replica of Thomas Pickett’s Estimates of Wealth Density for the United Kingdom.” Social Science Quarterly (Summer 2019)
Art Cardin and Vincent Gelso co-authored “James M. Buchanan and the Political Economy of Desegregation. ” Southern Economic Journal (January 2019)
“Lincoln’s Swing State Strategy: Tariff Surrogates and the 1860 Pennsylvania Election” Pennsylvania History and Biography Magazine, (January 2019)
“Are the addicts exploited ?: Some grounds for skepticism.” Co-author with Jason Brennan. Journal Business ethics. (Spring 2017).
“Estimating Cost of Concurrent Judgment: A Case Study in University Business Ethics.” Co-author with Jason Brennan. Business Ethics Journal. (January, 2016)
“The American System and the Political Economy of the Black Colonies.” Journal of Economic Thought History, (June 2015).
“British Honduras Colony: Black Immigrant Support for Colonialism in the Lincoln Presidency.” Slavery and abolition, 34-1 (March 2013)
“Morrell and the Missing Industry: Strategic Lobbying Behavior and the 1861 Tariff.” Journal of the Early Republic29 (Summer 2009).