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Segregation and Exploitation in the Old South
...So now the obvious question: Why the clandestine activities? Answer: because helping African-Americans leave the Old South was an illegal activity under state law.

But why? If blacks were despised and demeaned in the South, the Southern segregationists should be thrilled to pay black families to head north. After all, five hundred or a thousand miles creates what looks to be the ideal form of segregation.

Yet, the historical practice was to the contrary. The explanation for this consistent pattern is consistent with the rest of the sorry history of Jim Crow, which runs through Brown v. Board of Education in 1954 until the passage of the Civil Rights Act of 1964.

What bears recounting here, however, is the economic explanation for keeping despised blacks trapped in the South. Quite simply, there is no way to economically exploit individuals by letting them leave. The entire system of segregation has, in some quarters, been grotesquely treated as though it were some form of market system, when in fact it was anything but. The key feature of a market system is ease of entry and exit, which puts pressure on all economic players.

By blocking exit from the South, the segregationists sought to limit the options open to blacks, whom they could exploit on the farm, in the city, and everywhere in between. The underground railroad of 1915 does not carry the same connotations as the underground railroad of 1850, when the stakes were far higher. But it shows the same steely determination to use stealth to undermine a formal set of restrictions, even if (unlike the earlier underground railroad) the restrictions were not backed by a constitutional duty to return slaves (or, to use the guarded language of the Constitution, those “held to labor or service”) to their true owners in the South.

But the effort to preserve segregation by controlling exit rights is only one side of the story. The other side involves controlling entry into the old South, namely by Northern businessmen, who might be prepared to bid up the price of Southern African-American labor. These entrepreneurs need not hold any special affection for Southern black laborers. It is enough that they see an economic opportunity to compete in national markets by taking advantage of cheap labor.

Yet, that entry did not take place on significant levels. In his classic work, The Strange Career of Jim Crow, C. Vann Woodward asked how the South managed to remain segregated when there were so few race conscious laws on the books to back up the strict patterns of de facto segregation.

Part of the answer obviously lies in the political control that whites retained over the ballot box, the police force, and all other instrumentalities of governance. One of those key government elements was oversight over all the network industries needed to open any business in the Old South, just like anywhere else.

Every business needs access to electricity, gas, water, telephone service, and the like. In 1915, all services were monopolistically supplied in the sense that given the economies of scale in setting up the network, the service could be best supplied by a single provider. As an offset to that power, the state was supposed to ensure that all potential users had access to that grid on reasonable and nondiscriminatory terms. The easiest and most inconspicuous way to keep someone out of the network is to deny, quietly, these critical hookups. In most cases, a single hint would discourage entry. The politics of exclusion thus dominates the economics of open competition....