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.