Black PEOPLE were white people's wealth.
This makes me think of Marx's primitive accumulation, where he outlines how and through what means capitalists originated their initial wealth. Instead of stolen land, wealth was enslaved by coercion and force.
Furthermore, the value of slaves accounted for an estimated 100% of productive output,
"In 1860, slaves as an asset were worth more than all of America’s manufacturing, all of the railroads, all of the productive capacity of the United States put together,” the Yale historian David W. Blight has noted. “Slaves were the single largest, by far, financial asset of property in the entire American economy.” The sale of these slaves—“in whose bodies that money congealed,” writes Walter Johnson, a Harvard historian— generated even more ancillary wealth." (Coates, 2013).
Black people are systematically denied wealth.
It is well documented during Jim Crow there were systemic laws and rules that prevented black wealth from accumulating, see here and here.
Black wealth was often stolen or destroyed.
In the New Jim Crow, Michelle Alexander argues this same systemic form of social control still exists today in the form of mass incarceration. "Criminals" are LEGALLY discriminated against and barred from wealth building (home ownership loans) among other things such as voting, employment, and serving on juries.
Black Wealth vs. White Wealth Today
Implications of a lack of wealth
Black people were people's wealth then
were (and still are) systematically denied wealth, and currently the wealth gap
is at a staggering 13x. But so what? What does lacking wealth even
translate into? Luckily we have a team of mostly white men to shed some light
on the issue: Jared Bernstein and Ben Spielburg have aggregated studies dealing
with this issue in their set of inequality
slides while Sam Bowles has utilized the tools of game theory to analyze wealth
effects on social efficiency.
Lack of wealth constrains economic
mobility, contractual
opportunities, overall economic efficiency and democracy
Economic Mobility
Even if the way black wealth has been
treated throughout history doesn’t bother you, wealth inequality should be
alarming because it kills the soul of America- the American Dream. The idea
that anyone can “make it” is not represented in the data. Bradbury and Triest find the more unequal a locality, the more
likely it has lower levels of economic mobility. A Pew Research study on economic
mobility finds that there is "stickiness" at the ends of the mobility
latter, indicating 66% of those at the bottom, will stay at the near the bottom.
The study also finds upward mobility in terms of wealth is more likely among
whites than blacks. Furthermore, the study finds that “people who grow
up in an affluent household and don’t graduate college are 2.5 times more
likely to earn a top 20 percent income than people who grow up in a low-income
household and do graduate" (Bernstein and Spielburg, 2014).
Opportunities
Embedded in the rags to riches story
is that America is that this is the land of “opportunity”. No matter how wealth
is distributed, all face the same opportunities. Sam Bowles argues this claim is rooted in the Walrasian
paradigm and it is not an accurate representation of how the world works.
The Walrasian paradigm is a world
based on certain assumptions that simplify complex problems and to try and gain
some insights into them. One of
these assumptions is that exchanges are completely
contractible, meaning if a lender were to lend to a borrower, there would
be a way for the lender to enforce the contract and surely be paid back.
However, the real world does not work
this way. Even though many times
lenders do find ways to somehow through coercion or other methods get their
money back, there is not yet an enforceable way to get repayment. The lender-borrower
relationship is an incomplete contract.
This seemingly small change in
assumption yields major changes in insights.
*For an in depth presentation of the
mathematical model as another way to draw the following conclusions see Bowles, Microeconomics, chapter
9.
Incomplete contracts are
ubiquitous. They are characterized
by the fact that not all aspects of an exchange can be specified. For example,
how much effort a worker should exert or how careful an insured person should
be. If an individual can invest their own wealth in a project it rectifies two
issues of incomplete contracts: adverse selection and moral hazard. Adverse selection is the problem of not
knowing the quality of a project that is bought or invested in. In the lender-borrower problem, the
lender doesn’t know the quality of the project the borrower will engage in. The moral hazard problem concerns the action
the borrower (agent) takes. If the
borrower already has the money, they might take risks that would be harmful to
the lender (principle).
An investor with enough wealth to fund
a project on their own is the residual claimant of that project. The investor has the incentive to have
a quality project and to act in ways that would benefit the project.
When investors lack wealth and have
to borrow to invest, the adverse selection and moral hazard problems return.
Sometimes borrower’s wealth is so low that the incomplete contract problems are
too risky to overcome; meaning the amount of wealth the borrower can invest in
the project is not enough to convince the lender that the project is of good
quality and/or that the borrow will not engage in risky behavior so the lender
would rather invest money in alternatives. In other words, the opportunity cost
for the lender would be too large. The people who cannot borrow are credit
market excluded.
For similar reasons, the wealthier
can borrow larger amounts, have lower quality projects, or a lower interest
rate. The wealthier can borrow more (same quality and interest rate) because
their extra wealth convinces the lender their interests align and the borrower
will not have a bad project or act in harmful ways. If a person with some wealth and a person with more wealth
borrow the same amount at the same interest rate, the quality of the wealthier
can be of lower quality. The
reasoning for this is the same as why the wealthier can borrow a higher amount,
their wealth helps clear up the incomplete nature of a lender-borrower
relationship.
Clearly in the world of incomplete
contracts, unequal wealth distributions do not offer the same opportunities for
everyone. People with less wealth cannot borrow as much as they’d like or are
charged a higher interest rate.
Some low-wealth borrowers are barred borrowing at all.
Social Efficiency
The equal opportunity sentiment
reflects a belief commonly found in economics, namely who owns the
wealth is not important. The Second Fundamental Theorem and the Coase Theorem
state whatever the distribution of the initial wealth, (with complete contracts
or incomplete respectively) a Pareto optimum will occur (Pareto optimum
allocation meaning no one can be made better off without making someone worse
off). In other words, the distribution of wealth in society doesn’t matter for efficiency
in the society.
But Bowles argues wealth does matter
for allocative efficiency by determining the set of opportunities facing a
citizen, “Thus wealth differences have qualitative effects, excluding some and
empowering others…Wealth difference may persist across generations due to the
more limited opportunities to borrow and less lucrative investment opportunities
of those who do not inherit wealth from their parents” (Bowles, 2006).
A lack of wealth impeding economic
mobility and social efficiency is not anything new. It can be seen in the crop
liens of the post bellum South.
Most farmers did not have enough wealth to post collateral for loans, so
instead of collateral, lenders staked a claim on the planted crops. Since cotton was a more secure crop to
sell, relative to corn, farmers were forced to produce cotton, leaving individuals
and the community worse off.
Renting is a more current phenomenon
with the same results. A home
owner is a residual claimant, meaning they own the house so they have a stake
in what happens to it, so they take care of it. If everyone in the neighborhood was a homeowner, the
individual and the community would be better off, however, as of 1995 about a
third of the population rented (Bowles, 2006).
As from the lender-borrower
relationship characterized above, borrowers with little or no wealth may have
better equality projects than wealthy borrowers, but will not be lent to. Social efficiency suffers from some low
wealth borrowers being shut out of the credit market all together. A number of
studies have shown people who received inheritances are more likely to be self
employed or start their own business (Bowles, 2006).
Wealth determines contract options,
contract options determine power level, those with more wealth exercise power.
It is only a small step to see how wealth not only constrains mobility,
opportunity, social efficiency but also democracy itself.
Lack of wealth undermines democracy
Gilens and Page
found that the US represents an oligarchy more so than democracy. In one
of the researcher's own words, "ordinary citizens have virtually no
influence over what their government does in the United States. And
economic elites and interest groups, especially those representing business,
have a substantial degree of influence." (Kapur, 2014).
The historical and current denial of
black wealth in itself is unjust.
Furthermore, it destroys everything America is supposed to be a symbol
of: economic mobility, opportunity, democracy and freedom.
________________________________________________________________________________
Bernstein, J. & Spielburg, B. (2014). Increasing Inequality: It's happening, it matters, and there's something we can do about it. Center on Budget and Policy Priorities.
Bowles, S. (2006). Microeconomics: Behavior, Institutions, and Evolution. Princeton University Press.
Bowles, S. (2006). Microeconomics: Behavior, Institutions, and Evolution. Princeton University Press.
Coates, T. (2014). The Case for Reparations. The Atlantic.
Kapur, S. (2014). Scholar Behind Viral Oligarcy Study Tells You What it Means. TPM
Kapur, S. (2014). Scholar Behind Viral Oligarcy Study Tells You What it Means. TPM
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