Roundtable 3: Race and Money
M. Baradaran, How the Right Used Free Market Capitalism against the Civil Rights Movement

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May 19, 2020

Mehrsa Baradaran, University of California Irvine

In order to achieve racial justice in America, we must confront and then thoroughly reject simplistic and ahistorical myths about markets and capitalism. We have mistaken notions that (1) colorblind economic policies can fix vast inequalities created by centuries of explicitly race-based policies and (2) that free markets are an antidote to heavy-handed state policies of economic exploitation and exclusion. More narrowly, the reason that the United States has never significantly contemplated a meaningful program of racial justice is because demands for economic justice have been crushed by myths of self-reliance and neoliberal free market fundamentalism. The most recent and least understood of these political decoys was the Nixon era “black capitalism” program that was used to block meaningful reforms by offering capitalist dogma. These programs linked the Civil Rights coalition’s demands for justice with threats of communism in order to hide the history of heavy state intervention that created vast racial inequalities in wealth and income.

The 1968 Kerner Commission Report, which was the closest the US ever got to an official acknowledgement of its history of racial injustice, spoke to the phenomenon of protests and unrest in America’s segregated cities. The final report determined that the riots stemmed from poverty, racism, inequality and other social ills, but that the underlying cause was segregation. “Segregation and poverty have created in the racial ghetto a destructive environment totally unknown to most white Americans,” the report said. “What white Americans have never fully understood—but what the Negro can never forget—is that white society is deeply implicated in the ghetto. White institutions created it, white institutions maintain it, and white society condones it.” The report was an unapologetic excoriation of white society, which the commission deemed guilty not just of racism, but of apathy toward black poverty. The only way to address these injustices, according to the report, was through a robust federal response. Nixon won the 1968 election by promising that he would do no such thing. But first, his campaign had to get the messaging right. Alan Greenspan, who served as Nixon’s economic advisor, addressed claims by black activists for reparations in a private campaign memo to candidate Nixon in 1967 called “The Urban Riots of the 1960’s.” He wrote that capitalism itself was under attack by demands made by black militants and that “ghetto riots have become a rallying cry for an attack upon America’s system of free enterprise and individual rights.” Greenspan outlined his reasoning:

The critical question is, of course, whether the Negroes are correct in claiming that they have been exploited and that their violent reaction is the rational response. There can be little doubt that discrimination has been rampant. However, the charge of exploitation in the sense of value being extracted from the Negroes without their consent for the profit of the whites is clearly false . . . . This distinction between discrimination and exploitation is all the difference in the world.[1] 

In other words, because whites had not profited directly from black misery, reparations should be rejected. Moreover, he underscored in the memo that any capitulation to demands for federal spending in the ghetto was a threat to free enterprise.

Greenspan believed that the cries of exploitation were misguided because black activists had misunderstood capitalism and the natural market of the ghetto, and had erroneously and unfairly blamed whites for exploitation. He was correct when he said that “profit rates in slum areas are doubtless distressingly low considering the risks,” but he erred when he concluded based on that observation that the white community was not gaining any “advantage and profit” and that therefore cries of “injustice” were “erroneous.” He could not see that the same system that discriminated against blacks had brought benefits to whites. Nor did he acknowledge that for blacks who were being crushed by the ghetto debt trap, it could still feel like an “injustice” even though the lenders were not making direct profits. He rejected the liberal notion that “the Negro ghetto must be elevated to the level of affluence of middle-class America” because “this can only be done by massive governmental expenditures.” Instead, he advised Nixon to pursue programs to “help Negroes help themselves.”

In line with the Greenspan-Nixon approach, Milton Freedman used theories and models of free market capitalism (as opposed to the actual economic history) to fight basic anti-discrimination laws in his foundational 1962 book, “Capitalism and Freedom.” The intellectual father of neoliberalism opposed such laws as a violation of free market capitalism. He decried discrimination as a matter of bad taste, but said that Civil Rights laws were an “interference with the freedom of individuals to enter into voluntary contracts with one another.”[2] He compared laws prohibiting discrimination to laws requiring discrimination—it was all unjustified government intervention. Friedman believed that markets would themselves root out discrimination because it was costly and inefficient. Friedman claimed that anyone who opposed buying goods from black businessmen or employing black employees was expressing an inefficient preference and would therefore pay a higher price for that preference. Theoretically, this was true, but historically it was not. Because the ghetto had cordoned off a segment of risky borrowers, whites actually paid significantly less for goods, credit, and housing. Racial discrimination had not cost whites, but had actually brought many advantages through all-white suburbs, lower competition for lucrative jobs, and, for a time, even labor protections that benefited whites at the expense of blacks.

Friedman, Greenspan and other market capitalists grounded their arguments in economic theory. They were chasing a libertarian vision of the economy, but what they were describing was a hypothetical future—it had no relationship to the actual lived experience of American history. The historical American reality was that blacks had never fully participated in free market capitalism and that whites had benefited from heavy government interventions that had worked to the direct disadvantage of blacks. The arteries of trade and commerce had not flowed freely through the ghetto, at least not in the realm of credit and banking. Credit markets laid atop a federal government apparatus including guarantees, secondary markets, deposit insurance, and federal reserve support. The only places where those forces were not working were inside the ghettos. The ghetto itself had been an unnatural creation of anti-market impositions of racist policies. Indeed, discrimination was incredibly costly, but only to blacks.

The neoliberal faith in capitalism and market efficiency was rooted in an ideal much like the egalitarian principles of the founding documents. They were aspirational faiths, but they were not accurate descriptions of the real world. In theory, it was costly to refuse to buy products from blacks if they were offering the same or lower prices. In reality, whites often refused to associate with blacks at any cost. Besides, even if discrimination did suddenly disappear, the broken markets of the ghetto would not. Discrimination had created macro market forces that were now operating on their own. Yet neoliberal dogma and market fundamentalism demanded adhesion to market theory, which meant an aversion to any and all “government intervention” aimed at black poverty.

The neoliberal right demanded smaller government involvement and spending in all spheres. Without spewing the racial animus of the George Wallace wing of his party, Goldwater, Nixon, Reagan and the rightwing judiciary and Congress opposed Civil Rights laws, integration, and any affirmative racial remedies—all in the name of free market capitalism. Since any redress for past economic exclusion required heavy federal government action, an immediate libertarian backlash began to delegitimize all government action. Conservatives began to demand a bill of rights that guaranteed the right to free use of property, including the right to segregated neighborhoods. The movement could hardly be seen as anything but a direct response to the economic demands of the black movement and the government anti-poverty program. Nixon was not a libertarian—he expanded the federal bureaucracy and created more government agencies than any modern president—but he still opposed government interference of any kind when it came to integration or anti-poverty measures. Republican strategist Lee Atwater gave away the playbook in a 1981 interview: “You start out in 1954 saying nig***, nig***, nig***. By 1968, you can’t say nig*** – that hurts you, backfires. So you say stuff like, uh, forced busing, states’ rights, and all that stuff, and you’re getting so abstract. Now, you’re talking about cutting taxes, and all these things you’re talking about are totally economic things and a byproduct of them is, blacks get hurt more than whites…”

The theory of economic dogma which James Kwak has called “Economism” began to be adhered to like a religious dogma and used to fight each and every government intervention to remedy past sins. Economism even provided a new justification for stark wealth inequality and exploitation. Inequality along racial lines has been a constant on the American scene, but different eras have justified it with different myths. Christianity was corrupted to hold that white men had a divine right—even duty—to subjugate and enslave blacks. When religious theory fell out of favor, social Darwinism and skull measurements held that blacks were an inferior species who had lost the evolutionary race and thus their subjugation was nature’s will. Now, economic theory held that “the free market” decreed that blacks hold the bottom rung because, for example, it was the laws of supply and demand that caused blacks to pay more for credit, the market that determined how much their labor was worth, and that integration was anti-market. Any effort to change these markets were delegitimized and labeled as harmful government interference with what President Regan called “the magic of the marketplace.” And just as “God’s will” was difficult to challenge in the 1800s, so too was free market economic theory in the 1960s, lest one be labeled a heretic or a communist. For the ascendant libertarians that were taking hold of American politics, the only acceptable remedy for a history of exclusion was black capitalism. But what these white policymakers surely meant by black capitalism was capitalism only for blacks. Government intervention in markets had been the norm, as were government-imposed Jim Crow laws. Capitalism had not created the ghetto and black poverty—racist laws and state intervention in the markets had created both. There had never been free market capitalism for blacks. After years of exclusion, Jim Crow, segregation, and the deviant markets these state interventions had created, the Nixon administration was actually proposing that maintaining that segregated market was the remedy. That somehow by attaching the word “black” to “capitalism” would remedy past wrongs. In order to achieve racial justice, we must offer economic remedies that adequately address a long history of exclusion. And in order to do that, we must confront and reject simplistic and ahistorical models of Capitalism.

[1] See Letter from Alan Greenspan, Chairman, Townsend-Greenspan & Co., to Richard Nixon, Republican Presidential Candidate, on the Urban Riots of the 1960s (Sept. 26, 1967) (on file with the Richard Nixon Presidential Library).

[2] See Milton Friedman, Capitalism and Freedom 109-15 (Chicago University Press, 1962).