When I started research on the project that became The Color of Money, I wanted to write a book about racial disparities in access to credit. When I started digging into the history, I started to realize that there was a much bigger story here, one that undermined one of the most basic neoliberal myths about the free market. This history of black banks and the economy of segregation reveals how inextricably financial markets are tied to racial exploitation, and how the dominant economy can continue to extract from racially subordinated groups through “color-blind” market mechanisms.
I hope that the upcoming symposium on The Color of Money will help connect the historical work to contemporary law, building on LPE’s commitment to understanding and reversing the many structures of racial capitalism.
In particular, I try to debunk three market myths in the book:
- That money, markets, and trade exist outside the realm of political power
- That inequality is a natural byproduct of market forces rather than being created by the state
- And that people left outside of the structures of power can overcome their exclusion through local institutions or self-help
The promise of free market capitalism is that it does not discriminate. Markets are meant to offer equal opportunity to trade and prosper based on one’s skill and ability to produce marketable goods. In The Wealth of Nations, Adam Smith explained that excluding any group from free market participation was antithetical to capitalism. Smith railed against any artificial exclusions on entering a profession or trade. In The Philosophy of Money, Georg Simmel claimed that money was a “basically democratic leveling social form” with a “complete indifference to individual qualities.” Even Karl Marx believed that capitalism would do away with “ancient and venerable prejudices” because it left “no other nexus between man and man than naked self-interest, than callous ‘cash payment.’” Yet history reveals that markets do discriminate—or, alternatively, that the American economy has never borne any resemblance to a free market. For most of our history, blacks have been excluded from occupations, schools, neighborhoods, and trades. And their property was not protected by law.
Money, likewise, is said to be apolitical. As Christine Desan explains in Making Money, the traditional history of money (to the extent money was seen at all) viewed it as a neutral background to economic activity. Money was like water—neutral and colorless. In fact, for much of U.S. history, the color of money was white. White, too, was the color of government credit. In each historical moment when wealth was being created, whether through the Homestead Acts or FHA mortgage credit, black communities were shut out of land and wealth accumulation.
In the book, I also focus on the ways that the white power structure has used myths about capitalism to uphold and reinforce its own dominance. At certain pivot points in history—specifically during Reconstruction and the Civil Rights Era—when black communities were demanding state intervention and state capital to remedy past injustice, the rhetoric of free market capitalism was used as a weapon against racial justice.
These are pivot points where bootstrapism, self-help, black capitalism, and “opportunity zones” became a decoy and an empty promise. Instead of a fair redistribution of capital, we got the myth of entrepreneurship: the notion that black communities can overcome systematic exclusion if they just work hard enough. A separate market of segregated banks and businesses has been used as a decoy to distract from other more direct avenues for inclusion in the economy. In other words, leaders upholding the dominance of white market institutions promised that the market would fix the problems that had been created by law and backed by private violence.
Using black banks as a case study, I aim to debunk the stubborn myth that “small community banks” or “cooperatives” are the solution to poverty, specifically for marginalized communities. The idea is that a group of poor people (we are to imagine them as farmers or coal miners or widows), living in a free market economy, will pool their resources, lend to each other, and collectively lift themselves out of poverty. This idea has seduced the right and the left—who both seem to pine for the noble Main Street community bankers who made America great.
In practice, these measures are mere band-aids on the wound of racialized wealth extraction and inequality. Neoliberal “reforms” created mammoth banks all underwritten by federal subsidies, while those left behind were offered a hodgepodge of micro-credit fantasies and “incentives” for “entrepreneurs who do good while doing well.” While J.P. Morgan gets (according to Morgan Ricks) $900 million a year from the Fed in interest on their excess reserves alone, they are celebrated for helping a few indigenous women set up a lending circle!
It is not exaggeration to say that the notion of “community empowerment” has been the foundational theory of every single act of banking legislation over the past 30 years aimed at financial inclusion, inequality, or addressing historic racial exclusion in credit and banking services. Most recently, we saw it in the Trump administration’s “opportunity zones,” which is a euphemism for a racial ghetto created by segregation. The most stunning episode I uncovered in my research for the book was President Nixon’s “Black Capitalism” program, which was a brilliant and cynical use of market capitalism to halt forward motion on civil rights. Presidents Reagan and Clinton began referring to these neighborhoods as “empowerment zones” (while Cory Booker called them “domestic emerging markets”!).
My book makes clear why these solutions are ineffective. In short, as long as the levers of power are held by whites, and the economy is based on racial subordination, even “free” markets have perpetually blocked black capital accumulation.
I look forward to hearing more from the symposium participants as we continue to unearth the history of racial capitalism.
[This post is part of a symposium on Mehrsa Baradaran’s The Color of Money. Read the complete symposium here.]