That history is told in gripping detail by Mehrsa Baradaran in her book The Color of Money. Ostensibly a history of “black banking,” The Color of Money actually tells the tale of racism and poverty experienced by black people in the United States from its very inception. Further, it chronicles the historical failure of supposed anti-racist victories, from emancipation to civil rights legislation, to substantially change the designated bottom-rung position of black people within the US economy. This failure is evident in recent studies showing that black wealth is actually decreasing while white wealth is continuing to grow. But the history Baradaran marshals gives extensive evidence of why the wealth gap has persisted and deepened. For one, emancipation did not come with a hand up to freed slaves in the form of the proverbial 40 acres and a mule. In fact, the plan floated within the newly created US Freedmen’s Bureau was not to grant 40 acres, but to mortgage it, with newly freed slaves needing to produce a 40 percent down payment on a subsidized parcel. After Lincoln’s assassination, President Andrew Johnson scuttled even that plan. Instead, free blacks were forced into coercive cotton sharecropping arrangements. The endless indebtedness of sharecroppers to plantation owners in these arrangements meant that both the “economic order” and “the lives of freedmen” were “virtually unchanged” by emancipation. In the place of real economic change came the Freedmen’s Savings and Trust Company, the first of many government interventions based on the idea that through black banking and “black capitalism,” black people’s economic status could be improved without changes to the dominant economy.
Over and over in The Color of Money, Baradaran shows that black business, and particularly black banks, have been offered as a sort of deus ex machina that might magically transform the lives of black people, even if they remain exploited by the dominant economic system. When Jim Crow laws relegated blacks to second-class-citizen status, black leaders like Booker T. Washington and John Hope put their faith in the generation of black capital, which they thought would elevate black people above such draconian treatment. Black activists during the Harlem Renaissance sought to create a “parallel economy” anchored by black banks. Marcus Garvey “likened the black ghetto to a domestic colony” and believed that black banking was an important part of the self-sufficiency essential to black nationalism. In the wake of the Civil Rights movement, black capitalism was further codified in government policy by Richard Nixon’s administration, who appropriated black power rhetoric to advocate for little more than technical assistance to black bankers, who then bore full responsibility for solving the racial wealth gap.
The problem is, black capitalism has not improved the economic lives of black people, and Baradaran deftly explains the reasons why. Black people were systematically excluded from New Deal policies, including the subsidized FHA mortgages that proved fundamental in increasing white wealth, through redlining and racial covenant agreements. Where black banks did exist, they were consistently less well funded, less profitable, and made fewer loans than white banks, rendering them powerless to substantially improve the prospects of black community members. And herein lies one of the most important lessons of The Color of Money — over the course of American history, white economic success has often been subsidized by black dollars, rather than the other way around. Baradaran notes that white banks often benefited from black dollars, particularly as the savings of black people in black banks transformed into loans for suburban whites. It worked like this: black banks were held up as a way to teach supposedly profligate black spenders to save their money. However, the other side of banking, lending to the community, was restricted for a number of reasons. Because the banks were smaller, and because well-meaning government deposit programs required it, black banks had to hold a large proportion of deposits in government securities, rather than making community loans. This “piggy bank” model of black banking effectively funneled black dollars into government programs like FHA loans they rarely benefited from. What’s more, when loans were made to black customers, they were often spent at white businesses or to buy property from white sellers. In turn, the loans were deposited at mainstream white banks where they funded loans to white customers, rather than circulating in the black community. This ensured that “not only were black banks not multiplying money in the black community, they were multiplying money in the dominant (white) banking system.”
Even as Baradaran criticizes the implementation of black capitalism, she claims several times that the reason black banking does not succeed in lifting black people out of poverty is that the mechanisms of free-market capitalism were blocked from proper functioning by the “structural inequalities” of racism, as if these existed outside and apart from capitalism, and infected it. Racism made capitalism sick, and if we could fix the former, the latter would deliver equal benefits to all. And yet, one can take the historical evidence she presents to argue something quite different: racism is embedded in the foundations of American capitalism.
The enslavement of Africans at the inception of American capitalism was not a coincidence but a necessity. Racial slavery situated the slave master, and white people in general, at a structural advantage that actually produced capitalist growth. The examples that Baradaran narrates demonstrate that same dynamic weaving its way through the modern history of black banking. The Freedmen’s Bank that replaced the promise of land to freed slaves was promoted as a way for black people to save their meager wages toward improving their status. The bank took deposits — $75 million worth in 10 years’ time — but offered no loans to depositors. The managers of the bank, however, speculated with those deposits in financial markets and lent it to outside interests. In short, “the white managers entrusted with guarding the meager savings of the freed slaves ‘looted the bank.’” After monumental losses — nearly half of the value of deposits — the bank was dissolved in 1874, spelling “financial ruin for many blacks.” As Baradaran explains, it was not the black depositors’ fault that the bank failed, but rather it was the fact that the bank failed to operate as a normal bank by issuing loans that would multiply the bank’s capital. However, like racial slavery, this was no accident. It was because the bank was only for black people — who couldn’t be trusted with loans and instead had to be taught the value of thrift — that it could be “looted” for speculation by its white managers.
The speculators who caused the bank’s failure weren’t punished, and instead blamed the collapse on volatile markets, an eerie foreshadowing of the narratives applied to the subprime crisis more than 100 years later. That crisis, too, disproportionately affected black people because they were black. As Baradaran explains, in the run up to the crisis, “banks were specifically targeting black borrowers for their worst loan products even when they qualified for prime loans,” and “most of the areas that were targeted for subprime lending were formerly redlined districts.” Baradaran claims that this was an accident of fate: “without malice, capital looking for yield can lead to exploitation if there are structural inequalities.” But when has capitalism existed without structural inequalities? Baradaran’s own history demonstrates that structural inequalities provide the opportunities for the yield itself.
That is why it is important to clarify the stakes of the new Poor People’s Campaign. The history of black banking shows the connections between racism and the economic subordination of black people. And while racism has often been popularly considered as physical power and violence, the history of racial slavery in the United States demonstrates that violence and economic exploitation are often one and the same thing. MLK seems to have begun the Poor People’s Campaign out of a recognition of this inseparability, and perhaps if he had lived to promote the campaign as much as his dream of legal equality, the racial animosity and increasing economic inequality that characterizes the United States today would be different. But what The Color of Money shows is that a new Poor People’s Campaign must at the very least resist the temptation to put faith in a separate but equal system of black capitalism. Instead, it should seek out spaces of protection that can shelter people from differential exploitation because they are poor and/or black. Banking today already offers low interest loans and free services to the wealthy, while reserving payday lending and check cashing for those with the least resources. Baradaran’s lesson is that a separate system of black capitalism would intensify, rather than ameliorate, this dynamic along the lines of race.
Armond Towns is a professor of Culture and Communication at the University of Denver. His essays have appeared in Social Identities: Journal for the Study of Race, Nation and Culture, Communication and Critical/Cultural Studies, and Women’s Studies in Communication.
Carolyn Hardin is a professor of Media and Culture & American Studies at Miami University. Her essays have appeared in Cultural Studies, Journal of Cultural Economy, and American Quarterly.