The Color of Money

1. Slavery's Legacy: A Foundation of Inequality

Slavery, “America’s original sin," according to James Madison, created the foundation of modern American capitalism.

Economic Engine. Slavery wasn't just a social injustice; it was the bedrock of the American economy. The labor of 3.2 million enslaved people, valued at $1.3 billion, fueled the growth of industries and modernized credit markets. This system, however, denied enslaved individuals any opportunity to participate as buyers or sellers, cementing a stark wealth distortion that continues to resonate today.

Racial Hierarchy. To justify the barbarity of slavery, a racial hierarchy was constructed, portraying Black people as subhuman. This ideology persisted even after emancipation, restricting freed Blacks from full participation in commerce through Jim Crow laws and social barriers. Even free Blacks faced legal and social barriers, limiting their ability to own property, testify in court, or engage in finance.

Enduring Effects. The wealth and power accumulated through slavery created a lasting advantage for white Americans, while the denial of economic opportunities for Blacks perpetuated a cycle of poverty. This legacy of slavery continues to shape the racial wealth gap, hindering Black economic advancement and perpetuating inequality.

2. Freedmen's Bank: A Promise Betrayed

What the bank eventually did, according to Du Bois, was “not only ruine[d] thousands of colored men, but taught to thousands more a lesson of distrust which it will take them years to unlearn.”

A False Start. In the aftermath of slavery, the Freedmen's Savings and Trust Company was established by the federal government as a means for newly freed slaves to save and build wealth. However, mismanagement, corruption, and risky investments led to the bank's collapse, devastating the Black community and eroding trust in financial institutions.

Counterfeit Capitalism. The Freedmen's Bank was designed as a savings bank, not a lending institution, preventing it from actively growing wealth within the Black community. Instead, deposits were invested in government securities and, later, speculative ventures, benefiting white investors while leaving Black depositors vulnerable.

Long-Term Consequences. The failure of the Freedmen's Bank had a lasting impact on Black financial behavior, fostering distrust of banks and hindering the development of Black-owned financial institutions. This betrayal further widened the wealth gap and reinforced economic inequality.

3. Jim Crow Economics: Capitalism for Blacks Only

The black ghetto and the white suburb were created by heavy state intervention.

Segregation's Impact. Jim Crow laws and practices systematically excluded Black Americans from economic opportunities, forcing them into a separate and unequal system. This segregation limited access to jobs, housing, and credit, creating a "stepchild economy" where Black businesses struggled to compete.

Limited Opportunities. Black entrepreneurs were often confined to serving Black clientele, facing competition from white-owned businesses that also catered to the Black community. This restricted growth and prevented Black businesses from achieving economies of scale, perpetuating economic disadvantage.

The Cotton Debt Cycle. In the South, sharecropping and debt peonage trapped Black farmers in a cycle of poverty, forcing them to grow cotton for white landowners and merchants. This system ensured a cheap labor supply for the cotton industry while denying Black farmers economic independence.

4. Black Banking: A Symbol of Pride, a Tool of Oppression

Black economic power and autonomy had a natural appeal in the face of segregation and racism, but also constitute a political diversion and a proxy for more meaningful reform.

Dual Role. Black-owned banks emerged as symbols of racial pride and self-determination, providing financial services to a community excluded from mainstream institutions. However, these banks also faced inherent limitations due to the economic realities of segregation and the lack of capital within the Black community.

The Segregation Trap. The very forces that created the need for Black banks—discrimination and segregation—also undermined their effectiveness. Limited deposit bases, risky loan portfolios, and the outflow of capital to the white economy made it difficult for Black banks to thrive.

Political Diversion. Support for Black banking was often used as a substitute for more meaningful reforms, such as land redistribution or desegregation programs. Politicians embraced Black capitalism as a way to appease racial tensions without addressing the root causes of economic inequality.

5. The Great Migration and the Rise of the Ghetto

Pushed outside the main arteries of American commerce, the black community turned inward and created its own institutions.

Northern Promise, Segregated Reality. The Great Migration saw millions of Black Americans move from the South to the North in search of better opportunities. However, they encountered systemic segregation and discrimination in housing, employment, and credit, leading to the creation of Black ghettos.

Ghetto Economics. These ghettos became economic colonies, characterized by high rents, limited access to quality goods and services, and exploitation by white-owned businesses. Black banks emerged within these communities, but faced the challenge of operating in an environment of concentrated poverty and limited resources.

The Chicago Example. Chicago's Black Belt became a center of Black banking in the North, with institutions like Binga State Bank and Douglass National Bank serving the community. However, these banks ultimately succumbed to the pressures of the Great Depression and the inherent limitations of a segregated economy.

6. The New Deal: White Affirmative Action

In America, each rung on the ladder toward prosperity consisted of bank credit—even more so in the twentieth century when homeownership became synonymous with both mortgage credit and prosperity.

Government-Sponsored Inequality. While the New Deal aimed to alleviate poverty and promote economic recovery, its programs were often administered in a discriminatory manner, benefiting white Americans while excluding Black communities. This "white affirmative action" further widened the racial wealth gap.

Exclusion from Benefits. Black workers were often excluded from Social Security, minimum wage laws, and other New Deal programs due to their concentration in agricultural and domestic labor. Government-backed mortgage programs like the FHA favored white suburbs, reinforcing segregation and limiting Black access to homeownership.

Redlining and Segregation. The Home Owners Loan Corporation (HOLC) created "redlining" maps that designated Black neighborhoods as high-risk, making it difficult for residents to obtain mortgages. This practice perpetuated housing segregation and limited Black wealth accumulation.

7. Civil Rights and Economic Nightmares

Instead of land, freed slaves got rights that they could not use due to their economic and political status at the bottom rung of society.

Limited Impact. The Civil Rights Act of 1964 and the Voting Rights Act of 1965 were landmark achievements, but they failed to address the underlying economic inequalities facing Black Americans. Legal equality did not translate into economic opportunity, leaving many trapped in poverty.

The Rise of Black Power. Frustration with the slow pace of economic progress led to the emergence of the Black Power movement, which advocated for Black self-determination and economic empowerment. However, these efforts were often met with resistance and co-optation by the white establishment.

The Ghetto Money Trap. The economic realities of the ghetto—high rents, limited access to credit, and exploitation by white-owned businesses—created a cycle of poverty that was difficult to break. Black banks, despite their best efforts, were unable to overcome these systemic barriers.

8. Black Capitalism: A Decoy for Real Reform

Support for black banking and black capitalism have been consistent policy band-aid solutions, a decoy response to the fundamental challenge of overcoming America’s legacy of slavery.

Nixon's Strategy. President Nixon embraced Black capitalism as a way to address racial tensions without challenging the existing power structure. This approach emphasized individual entrepreneurship and self-help, while neglecting systemic issues of discrimination and inequality.

Limited Resources. Black capitalism programs were often underfunded and lacked the necessary resources to make a significant impact. They focused on creating small businesses in the ghetto, rather than addressing the root causes of economic disadvantage.

Co-optation of Black Power. Nixon co-opted the rhetoric of the Black Power movement to promote Black capitalism, diverting attention from more radical demands for economic justice and political empowerment. This strategy served to neutralize Black resistance and maintain the status quo.

9. The Free Market Confronts Black Poverty

The very circumstances that created the need for these banks— discrimination and segregation—permanently limited their effectiveness and would ultimately cause their demise.

Market Fundamentalism. The rise of neoliberalism and market fundamentalism in the late 20th century further exacerbated the economic challenges facing Black communities. Deregulation, tax cuts, and reduced government spending widened the wealth gap and undermined social safety nets.

The War on Drugs. The War on Drugs disproportionately targeted Black communities, leading to mass incarceration and the destruction of families and neighborhoods. This policy further entrenched poverty and limited economic opportunities for Black Americans.

The Subprime Mortgage Crisis. The subprime mortgage crisis of 2008 devastated Black wealth, as predatory lenders targeted Black communities with risky and unsustainable loans. This crisis exposed the vulnerability of Black homeowners and the fragility of Black economic progress.

10. The Color of Money Still Matters

The truth was that segregated communities could not segregate their money.

Persistent Inequality. Despite decades of civil rights reforms and economic development initiatives, the racial wealth gap persists in America. Black families continue to lag far behind white families in terms of wealth, income, and access to opportunity.

The Need for Systemic Change. Addressing the racial wealth gap requires a fundamental shift in policy and a commitment to dismantling the systemic barriers that perpetuate inequality. This includes investing in education, affordable housing, and job creation in Black communities.

A Call for Justice. The story of Black banking reveals the complex and enduring challenges of overcoming America's legacy of slavery and racism. Achieving true economic justice requires a reckoning with the past and a commitment to creating a more equitable future for all Americans.

Last updated: March 18, 2025