The Color of Money Read online

  But what was to be done about the centuries that America had been explicitly violating its own foundational myths? As soon as the acts were passed, it was apparent that the victory had been a hollow one. Blacks were still unemployed at twice the rate of whites, they occupied low-wage jobs, had little wealth, and these momentous laws provided no conceivable path out of poverty.8 Abolishing racist laws was not the same thing as achieving equality. Ending segregation was not the same thing as integration. Ending job discrimination was not the same thing as having jobs. Ending credit discrimination was not the same thing as providing credit. A legal right to equality was meaningless to the destitute and marginalized unless it could open a path to actual equality. The movement shifted toward “achieving the fact of equality," as Bayard Rustin wrote in 1965, rather than merely “removing the barriers to full opportunity." If it was true, according to Rustin, that “freedom must be conceived in economic categories," the civil rights movement turned its focus to achieving justice as an economic matter.9 But economic demands faced a major roadblock: equality.

  The sweet-sounding tune of equality soon became a noose around the movement as leaders began to seek the “fact of equality” and not just its scent. In the beginning of the civil rights era, equal rights had meant giving blacks the rights they had always been entitled to—the same rights whites enjoyed. The only people who objected to this were those who believed blacks to be unworthy of these rights, the incorrigible southern racists, who were a shrinking minority. But intractable economic problems required stronger weapons than just equality before the law—it meant that whites had to allow blacks to move into their neighborhoods and that centuries of exclusion needed redress. It meant providing public funds or specific privileges to blacks to even the playing field. In 1963, Dr. King said “just as we granted a GI Bill of Rights to war veterans,” we should “launch a broad-based and gigantic Bill of Rights for the Disadvantaged.” “For it is obvious,” stated King, “that if a man is entering the starting line in a race three hundred years after another man, the first would have to perform some impossible feat in order to catch up with his fellow runner.” Whitney Young, executive director of the Urban League, stated, “Many of these [white] people are now middle-class, their rise made possible by a host of federal programs—the GI Bill, home loan insurance, road-building, and economic and employment policies.”10 Maybe it was time to provide the same boost to blacks.

  The mood suddenly turned. By the end of the decade, whites were lambasting the government for depriving whites of their rights to equality.11 Once the message of equality and nondiscrimination was heeded, it was clung to. “The way to stop discrimination on the basis of race,” said Chief Justice John Roberts in 2007, “is to stop discriminating on the basis of race.” This sentiment was already beginning to form at the tail end of the civil rights movement and would only grow over time. This late-term egalitarianism could not erase, overnight, the wealth gap caused by centuries of racism, yet many proclaimed that it already had.

  The other edge of the sword of equality was used to cut down any claims for special privileges. If blacks demanded that they not be judged based on their race, using the same logic, whites demanded that blacks not be given any special favors based on their race. A U.S.

  senator who wished to remain anonymous explained that his white voters were angry—“I’m getting mail from white people saying ‘Wait a minute, we’ve got some rights too.’ "12 Whites felt threatened, believing that black gains were coming at the expense of whites. By 1966, a poll found that 85 percent of whites believed that “the pace of civil rights progress was too fast."13 The more the Johnson administration pushed for programs that would benefit blacks, the more whites began to demand equality. The irony, of course, was that Congress needed to enforce color-blind civil rights legislation because the nation had never actually been color-blind.

  Almost before the decade was over, a rewriting of the history and the purpose of the civil rights movement had already begun. Dr. Martin Luther King’s modern legacy has been boiled down to his historic “I Have a Dream" speech. More accurately, his dream was reduced to just a few sentences of that pivotal 1963 speech: “I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin but by the content of their character." In its distilled form, King’s dream was interpreted as a color-blind utopia, the liberal ideal of individual equality. This is unfortunate because in the same speech, there was a forceful indignation in the face of past injustice. He was asking the nation for redress of past wrongs—specifically in economic terms:

  In a sense we’ve come to our nation’s capital to cash a check. When the architects of our republic wrote the magnificent words of the Constitution and the Declaration of Independence, they were signing a promissory note to which every American was to fall heir. This note was a promise that all men, yes, black men as well as white men, would be guaranteed the “unalienable Rights" of “Life, Liberty and the pursuit of Happiness." It is obvious today that America has defaulted on this promissory note, insofar as her citizens of color are concerned. Instead of honoring this sacred obligation, America has given the Negro people a bad check, a check which has come back marked “insufficient funds." But we refuse to believe that the bank of justice is bankrupt. We refuse to believe that there are insufficient funds in the great vaults of opportunity of this nation. And so, we’ve come to cash this check, a check that will give us upon demand the riches of freedom and the security of justice.14

  King, who chose his words carefully, was asking for a financial reckoning. Inspired by Mahatma Gandhi, King was genuinely and passionately committed to nonviolent protest, but like Gandhi, he was aware of systemic economic exploitation. He was as committed to changing structures and systems as he was to changing hearts and minds. Segregation was not wrong because it judged people by the color of their skin, but because it was exploitative. King believed that “the underlying purpose of segregation was to oppress and exploit the segregated, not simply to keep them apart . . . the basic purpose of segregation was to perpetuate injustice and inequality."15

  King knew that talk of love and unity would only go so far without cold economic realism. “When all is finally entered into the annals of sociology; when philosophers, politicians, and preachers have all had their say, we must return to the fact that a person participates in this society primarily as an economic entity. At rock bottom we are neither poets, athletes, nor artists; our existence is centered in the fact that we are consumers, because we first must eat and have shelter to live."16 He understood that blacks had been excluded from full economic participation, and he maintained that any strides toward civil rights had to be linked with antipoverty programs to be effective because “the inseparable twin of racial justice was economic justice."17 Yet King acknowledged that the latter was a more difficult battle because it would require radical change.18

  Just one year after the historic Civil Rights Act and two years after the March on Washington, King was frustrated by the lack of progress and by political retrenchment. In a 1965 sermon called “The American Dream," he offered a more realistic sequel to the famous Dream speech. He revisited his dream metaphor at Ebenezer Baptist Church, but this time with much less publicity and fanfare. And the dream had changed.

  About two years ago now . . . I tried to tell the nation about a dream I had. I must confess to you this morning that since that sweltering August afternoon in 1963, my dream has often turned into a nightmare; I’ve seen it shattered. . . . I continue to see it shattered as I walk through the Harlems of our nation and see sometimes ten and fifteen Negroes trying to live in one or two rooms.

  I’ve been down to the Delta of Mississippi since then, and I’ve seen my dream shattered as I met hundreds of people who didn’t earn more than six or seven hundred dollars a week. I’ve seen my dream shattered as I’ve walked the streets of Chicago and seen Negroes, young men and women, with a sense of utter hopelessn
ess because they can’t find any jobs. And they see life as a long and desolate corridor with no exit signs.19

  By the 1960s, black poverty was deeply entrenched, but more importantly, it was marked by its stark contrast to the white middle class’s prosperity.20 Not only had the majority of blacks not ridden the postwar economic boom; conditions in the ghetto had actually worsened.21 Almost half of black children lived in poverty in contrast with only 9 percent of white children.22 Black families had less than one-fifth the wealth of white families.23 A Federal Reserve study concluded that the source of the wealth gap was historic inequalities in income and opportunities, “a legacy of past economic deprivation,” which would not be fixed even if the income gap were eliminated. The study held that it could only be closed by a reversal of past privileges.24 The wealth and opportunity gap would continue unabated without direct government action—in other words, something more than just stopping racial discrimination.

  Laws set in motion a century earlier had created a black ghetto economy that was uniquely ruinous. Black poverty, having been created by economic exclusion and segregation, was distinct from white poverty. The urban ghettos were zones with fewer public resources such as quality schools, roads, hospitals, universities, and infrastructure. In fact, even the urban renewal programs that upgraded and revived America’s cities in the 1960s did so at the expense of the black population. James Baldwin referred to “urban renewal” programs as “negro removal,” for the effect was that highways and roads built through ghettos pushed and packed black residents into increasingly overcrowded and under-resourced neighborhoods.25 The segregated ghetto contained too little capital, and its main export, labor, was struggling to find work as industries abandoned America’s cities for the less costly suburbs before eventually moving offshore.26

  These trends were self-reinforcing. Urban decline pushed businesses out of the ghetto, which led to further urban decline. As businesses moved to the suburbs where land was cheaper and business costs lower, the ghetto suffered from both high prices and general deterioration. In the economic trap of the ghetto, small retailers sold inferior products at higher prices because they had lower sales volumes, lower profits, and higher costs. Because suburban retailers had an economically diverse set of customers and higher sales volume, their costs were lower. The economy of the black inner city was a unique vortex of negative forces that further compounded poverty. In 1965, Kenneth Clark described the “dark ghettoes" as “social, political, educational, and—above all—economic colonies."27

  The situation was explosive.28 Sixteen days after the Civil Rights Act of 1964 was passed, Harlem erupted in violence. Five days after the Voting Rights Act was signed into law, the Watts district in Los Angeles exploded in a deadly riot that killed and injured many and destroyed millions of dollars worth of property. One in three people in Watts was unemployed, all but a single industrial plant had abandoned the Los Angeles district, and Watts had been thoroughly segregated over the preceding decades, making poverty concentrated and extreme.29 Watts was a tinderbox. Against this backdrop, a mundane incident of police aggression lit a fuse that exploded into days of violent rioting and looting. About 30,000 people participated in the riots. White property was a common target as rioters turned their anger toward their perceived exploiters—white absentee property owners, pawn shops, and grocery stores. In Chicago’s West Side, rioters claimed that they wanted to “drive white ‘exploiters’ out of the ghetto."30 Black communities were demanding attention to their economic plight in ways that the white public could no longer avoid.

  This new phase of the black movement was not calling America to honor its founding message of equality, they were venting pent-up rage at their economic state and demanding more opportunity. With no unifying leader or clear agenda, the rage that exploded in the streets fractured the civil rights coalition, creating a confounding national crisis on the heels of radical reforms. Dr. King noted that these rioters were “so fed up with . . . powerlessness" that they would “rather be dead than ignored."31 King urged the nation to focus on the causes of rioting and the “daily violence" that society imposed on blacks due to unemployment, poverty, and segregation.32 He also tried to persuade the rioters that violence was not effective, that it would lead to a white backlash, and crucially that they stood no chance against a well-armed majority.33

  But King was not their leader. He and the other heads of the civil rights movement were powerless against this new form of resistance. When Bayard Rustin tried to quell a crowd in Harlem, they shouted him down as an “Uncle Tom!"34 Having led hundreds of thousands of people in the March on Washington, Rustin could no longer command a few hundred people.

  To many, it felt like a domestic war—especially when the National Guard was sent in with military equipment to deal with the insur-gency.35 Doug McAdam’s study of the civil rights movement after 1965 explained, “It would not seem an overstatement to argue that the level of open defiance of the established economic and political order was as great during this period as during any other in the country’s history, save the Civil War."36A CBS TV broadcast announced, “This was not a riot. It was an insurrection against all authority."37 One official report on the violence was titled Violence in the City— An End or a Beginning? The answer was, unfortunately—and unequivocally—just a beginning.

  Though rioting and looting in some places looked like random destruction of imprecise orientation, many observers noted that there were usually specific targets. Black rioters destroyed white business establishments, but even more specifically, according to press accounts and government research, the pent-up anger was directed at the ghetto lenders.38 The Washington Post reported that the stores that sold on credit were the “most popular victims of the riots."39 A congressional hearing determined that rioters engaged in “selective burning and looting" of the stores they felt “had treated them unfairly," and that these rioters went to the lenders “not to loot, but to destroy the credit records of the stores they burned. This was their final solution to oppressive debt."40 During a riot in Chicago, an elderly black man watched as a grocery store burned and chanted, “Burn, burn, burn. White man ain’t milking me no more."41 Looters destroyed the leather-bound books on which their debts were recorded before they destroyed anything else. Onlookers reportedly yelled, “Burn the damn records”; a mother told looters at a grocery store, “Don’t grab the groceries, grab the book.”42 Just as King’s coalition had protested Jim Crow buses in Birmingham, in Harlem and Chicago and other black ghettos across the country, residents were protesting Jim Crow Credit markets.

  As credit became a ubiquitous feature of American life, neither credit cards nor mortgage credit had crossed the color line. Almost every large purchase was paid for with high-cost installment credit, and even some small ones like groceries, doctor visits, and encyclopedias.43 Black families across all income levels had more installment debt than whites.44 Installment credit added high debt loads to those living on the economic margins, and thus it was debt that turned the ghetto into a pressure cooker.

  The money-pit economy of the ghetto meant that black consumers paid much more for everything than those living just across the color line. In the 1963 study The Poor Pay More, Columbia professor David Caplovitz described the debt market in the ghetto as a “deviant one in which exploitation and fraud are the norm rather than the exception.”45 Specifically, he found that residents of New York ghettos paid much higher prices—“unbelievably” high, according to the author—for goods than anywhere else. These customers were not buying more goods than the average consumer or even relying more on credit, but they obtained “considerably less value for their dollar.”46 Another 1968 study conducted by the Federal Trade Commission (FTC) reported that 93 percent of sales in the ghetto were on installment, compared with only 27 percent in white suburbia. The FTC’s study, which was also titled “The Poor Pay More,” calculated that for $100 of goods, the poor paid $300 compared to $150 paid by those buying from general ret
ailers outside the ghetto.47 The report also found costs to be higher for housing, food, and services across the board.48 The FTC called these results “disturbing.”49

  The disturbing price of credit had to do with the economic trap of the ghetto, which led to a constrained credit market. Due to the triple forces of racism, poverty, and segregation, ghetto residents were not offered credit cards or consumer loans from banks. Large retailers did not operate within the ghetto, so most purchases were financed at the store that sold the goods through informal debt contracts.50 Because these consumers were a “captive market,” there was no price competition among these retailers. Lenders courted customers through advertising, promises of easy credit, and peddling from door to door to solicit sales.51 Borrowers fell into a relationship of continuous debt with these merchants, a situation appropriately described as an “urban sharecropping system."52

  Loan default was common, and had to do in part with the financial instability created by poverty and wage irregularities. But it also had to do with resentment. Ghetto retailers were selling shoddy merchandise at high prices. Furniture advertised as new was usually not.53 When the furniture inevitably fell apart, the borrower stopped paying. As explained by Senator William Proxmire at a Senate hearing, this felt like exploitation, “so many of them stop making payments."54 This obviously meant that their credit would be further restricted in the future and they would have to pay more, but noncomplicity in this debt cycle seemed to be a matter of dignity. But even a dignified default came with a world of trouble.

  These informal neighborhood transactions often entailed repossession, wage garnishments, court judgments, and even shakedowns by lenders, all of which were unimaginable in the suburbs. The loss of a job could lead to default on a furniture loan, but a missed payment could also lead to loss of a job, because it was common for an employer to fire an employee whose wages were garnished in order to avoid the hassle.55 There were many more court judgments in the ghetto than in the suburbs, which meant that law enforcement and the court system were a part of the credit system for blacks.56 Repo men, courts, lawyers, police, bankruptcy—all from buying a refrigerator and a television set. These lenders were the very face of exploitation, humiliation, shame, and injustice. So it is not surprising that they were the first targets of the violence.