It is often claimed that capitalism leads to all sorts of ills, such as racism and cartels (or monopolies). As with most attacks on capitalism, these claims attempt to blame capitalism for the consequences of government intervention into the economy. The Jim Crow laws illustrate this point.

Following the Civil War former slave owners faced a serious labor problem. Prior to emancipation slaves provided a steady and dependable source of labor. The South’s agricultural economy was labor intensive, and this threatened the region’s economy.

Initially this problem was addressed as free men solve problems–by mutual consent to mutual gain–and a number of solutions developed. Some plantation owners simply hired laborers as they were needed. This presented certain problems, as the planting and harvest seasons created a high demand for labor and the plantation owners were uncertain if they would have sufficient labor when it was needed. They were also bidding for that labor against other plantation owners, which drove wages up.

Another solution that developed was share cropping. The details varied, but under this arrangement the plantation owner essentially leased his land to a tenant. The land owner supplied the tools and materials to farm his land, and the tenant supplied the labor. The crop was then shared between the land owner and the tenant. This too had certain disadvantages to the land owner, as he had to front the expenses in the hope that he would be repaid. But the tenant had a motivation–his own profit–to work the land efficiently and effectively and thus provide a return to the land owner.

Following Reconstruction and the withdrawal of federal troops from the South, Democratic legislators began to slowly implement laws that disenfranchised blacks. Literacy tests and polls taxes were among the methods used. By 1890 very few blacks were eligible to vote in the Southern states. The voting requirements also excluded many poor whites, but an exception was made for them. Anyone who had been eligible to vote or who was related to someone eligible to vote prior to the Civil War was not subject to the new voting rules (this is the source of the term “grandfather clause”).

With blacks now excluded from voting, as well as holding most public offices, the Democratic legislatures began to enact the Jim Crow laws. While the specifics varied from state to state, they generally contained 4 key provisions:

  1. Labor contracts had to be negotiated and agreed to at the start of the year. This allowed the plantation owners to negotiate when labor demands were low and also provided them with greater certainty that their labor needs would be met. Breaking a labor contract was a criminal offense, rather than a civil matter.
  2. It was made illegal to entice laborers to seek employment in another state or county. Prior to Jim Crow employment agents had thrived–they advertised and recruited for plantation owners willing to pay higher wages. This resulted in laborers working for those who most valued their work, and created labor shortages in areas with lower wages.
  3. Vagrancy laws made it illegal to be out of work, even temporarily. This made it difficult for laborers to seek higher paying work, as they were subject to arrest.
  4. Those who were unable to pay their fines were sentenced to chain gangs, which were then leased to plantation owners. The mortality rate on the chain gangs was often as high as 45 percent, which meant that the penalty for vagrancy was often a death sentence.

Combined, these laws essentially put black laborers back into slavery. The laborers could no longer negotiate on equal terms or act on their own judgment. The penalties for vagrancy greatly discouraged blacks from seeking better employment. The plantation cartel had the steady source of labor that it needed. In short, it was government coercion that protected racists and made the cartel possible.

Prior to Jim Crow, plantation owners competed against one another for labor. Though there were informal agreements to refrain from such bidding wars, individual plantation owners ultimately acted in their own self-interest and competed for labor. This of course, increased wages to the benefit of laborers and the detriment of the plantation owners. The plantation owners responded by using government force in the form of Jim Crow to impose restrictions on everyone–neither plantation owners nor laborers could act as they judged best.

When the market was free plantation owners had a motivation–their desire to plant and harvest crops–to put aside their racism and negotiate with black laborers as equals. Those who valued their racist views more than their profit were free to act accordingly and they suffered the consequences. But they couldn’t force blacks to accept their terms. It was only through Jim Crow and government’s legal monopoly on force that they were able to form a “successful” cartel and impose their racism on others.