The Color of Money: Black Banks and the Racial Wealth Gap

by Mehrsa Baradaran

The backlash was extreme and ruinous. Having contemplated a complete reordering of the South, and perhaps exactly because the stakes were so high, the Reconstruction revolution was violently overthrown. Ex-Confederates won back through violence, fraud, and coercion what they could not achieve through military victory or political process.

The backlash was extreme and ruinous. Having contemplated a complete reordering of the South, and perhaps exactly because the stakes were so high, the Reconstruction revolution was violently overthrown. Ex-Confederates won back through violence, fraud, and coercion what they could not achieve through military victory or political process.

The Ku Klux Klan became a para-military force in the South whose purpose was the overthrow of Republican government, black politicians, and any other activists not fully in line with the established antebellum order. According to Reconstruction historian Eric Foner, “the largest number of violent acts stemmed from disputes arising from black efforts to assert their freedom from control by their former masters.” Especially vulnerable were blacks who tried to purchase land.

The Ku Klux Klan became a para-military force in the South whose purpose was the overthrow of Republican government, black politicians, and any other activists not fully in line with the established antebellum order. According to Reconstruction historian Eric Foner, “the largest number of violent acts stemmed from disputes arising from black efforts to assert their freedom from control by their former masters.” Especially vulnerable were blacks who tried to purchase land.

A postwar struggle was being waged over economic control of the South. The Freedmen’s Bureau could not survive the violence and chaos that followed Appomattox and thus promises of land and equality vanished.44 As Du Bois said of Reconstruction, “the slave went free; stood a brief moment in the sun; then moved back again toward slavery.”

A postwar struggle was being waged over economic control of the South. The Freedmen’s Bureau could not survive the violence and chaos that followed Appomattox and thus promises of land and equality vanished.44 As Du Bois said of Reconstruction, “the slave went free; stood a brief moment in the sun; then moved back again toward slavery.”45

President Andrew Johnson, the accidental president who assumed office after Lincoln’s assassination, joined the white southern backlash and rolled back Lincoln’s promises. He thoroughly undermined the Freedmen’s Bureau bill, including the land grant, and fought the black rights mo...

President Andrew Johnson, the accidental president who assumed office after Lincoln’s assassination, joined the white southern backlash and rolled back Lincoln’s promises. He thoroughly undermined the Freedmen’s Bureau bill, including the land grant, and fought the black rights ...

Though the southern rebels had expected to be hanged for their treason, Johnson welcomed them back into the fold, pardoned them, ...

Though the southern rebels had expected to be hanged for their treason, Johnson welcomed them back into the fold, pardoned them, ...

President Johnson said that the Freedmen’s bill was advantaging blacks over whites and that it was time for blacks to fend for themselves.

President Johnson said that the Freedmen’s bill was advantaging blacks over whites and that it was time for blacks to fend for themselves.

The Homestead Acts gave out millions of acres of government land to white settlers for years.

The Homestead Acts gave out millions of acres of government land to white settlers for years.

Blacks were denied land, not because the government was beholden to market rules, but because the government was controlled by political factions favoring the

Blacks were denied land, not because the government was beholden to market rules, but because the government was controlled by political factions favoring the

southern white elite, and giving blacks land was politically unpopular.

southern white elite, and giving blacks land was politically unpopular.

The myth that free-market principles were guiding political choices was further exposed as hypocrisy because blacks could not even pay “market prices” for land. White southerners simply refused to sell land to blacks. Land was sometimes sold at half the price to white buyers compared to what black buyers were offering just to avoid selling their land to blacks. Even when white landowners did not have sufficient resources to cultivate the land themselves, t...

The myth that free-market principles were guiding political choices was further exposed as hypocrisy because blacks could not even pay “market prices” for land. White southerners simply refused to sell land to blacks. Land was sometimes sold at half the price to white buyers compared to what black buyers were offering just to avoid selling their land to blacks. Even when white landowners did not have sufficient resources to cultivate the land themselves,...

The southern economy was anything but a free market. Prominent southern lawyers, legislators, and judges drafted laws that governed all aspects of black life and spurred racial bias across the South. These “black codes” prohibited blacks from property ownership, trade, testifying in courts, and voting. Blacks

The southern economy was anything but a free market. Prominent southern lawyers, legislators, and judges drafted laws that governed all aspects of black life and spurred racial bias across the South. These “black codes” prohibited blacks from property ownership, trade, testifying in courts, and voting. Blacks

could not engage in commercial trades other than what they were conscripted to do. An 1865 South Carolina law declared that “no person of color shall pursue or practice the art, trade, or business of an artisan mechanic or shopkeeper, or any other trade, employment or business … on his own account and for his own benefit until he shall have obtained a license which shall be good for one year only.”56 One black veteran remarked of these laws, “If you call this Freedom, what do you call Slavery?”

could not engage in commercial trades other than what they were conscripted to do. An 1865 South Carolina law declared that “no person of color shall pursue or practice the art, trade, or business of an artisan mechanic or shopkeeper, or any other trade, employment or business … on his own account and for his own benefit until he shall have obtained a license which shall be good for one year on...

Denying blacks landownership took care of the threat of subsistence farming, but black labor also had to be “induced” back to the cotton plantations. The South worked quickly to turn freedom into a legal technicality as opposed to an experienced economic reality. The black codes and compulsory work contracts took care of that by mandating constant and unrelenting work and punishing resisters through vagrancy laws.65 Work contracts forced blacks to stay on the plantation, and a contract breach, usually enforced through monetary damages, was punishable by

Denying blacks landownership took care of the threat of subsistence farming, but black labor also had to be “induced” back to the cotton plantations. The South worked quickly to turn freedom into a legal technicality as opposed to an experienced economic reality. The black codes and compulsory work contracts took care of that by mandating constant and unrelenting work and punishing resisters through vagrancy laws.65 Work contracts forced blacks to stay on the plantation, and a contract breach, usually enforced through monetary damages, was punishable by

violence, imprisonment, and loss of life.66 So coercive was this system of enforced labor that freedmen were prohibited in many states from hunting or fishing, which prevented them even from exploiting natural resources for survival.

violence, imprisonment, and loss of life.66 So coercive was this system of enforced labor that freedmen were prohibited in many states from hunting or fishing, which prevented them even...

As Martin Luther King Jr. echoed a century later, “the Emancipation Proclamation freed the slave, a legal entity, but it failed to free the Negro, a person.”

As Martin Luther King Jr. echoed a century later, “the Emancipation Proclamation freed the slave, a legal entity, but it failed to free the Negro, a person.”

As one white observer explained, the white managers, entrusted with guarding the meager savings of the freed slaves, “looted the bank.”117

As one white observer explained, the white managers, entrusted with guarding the meager savings of the freed slaves, “looted the bank.”

Douglass quickly discovered that the bank was “full of dead men’s bones, rottenness, and corruption.”125

Douglass quickly discovered that the bank was “full of dead men’s bones, rottenness, and corruption.”

“And what is most lamentable,” noted prominent banker Arnett Lindsay decades later, “is the fact that only a few of those who embezzled and defrauded the one time liquid assets of this bank were ever prosecuted.”

“And what is most lamentable,” noted prominent banker Arnett Lindsay decades later, “is the fact that only a few of those who embezzled and defrauded the one time liquid assets of this bank were ever prosecuted.”

Judges, politicians, and newspapers all obliged—preferring to save the union that survived the Civil War by sacrificing the rights of blacks.

In order to maintain absolute control of the levers of state power and enforce a permanent racial hierarchy, southerners worked tirelessly to keep blacks from the polls. Having to contend with the Fifteenth Amendment, innovative southern politicians created literacy tests, property ownership requirements, and poll taxes, making sure to create loopholes for poor whites through “grandfathering” clauses.165

Economic and political necessity required the continued exploitation and disenfranchisement of blacks. Although white supremacy accrued justifications based on religious texts, or on moral and ethical grounds, its true intent was economic subjugation.

The inhuman institution of slavery required the dehumanization of black slaves, and so too did the South’s post-Reconstruction economy. U.S. congressman David A. DeArmond of Missouri described blacks as “almost too ignorant to eat, scarcely wise enough to breathe, mere existing human machines.”

Senator Benjamin Tillman of South Carolina bragged in a public lecture that he did not know how many black men he had killed himself, and even advocated the extermination of the 30,000 blacks in his state.171

The South was not alone in enforcing the racial and economic order. The U.S. Supreme Court also fell in line, though instead of inflammatory language, they used sophisticated constitutional interpretation to deprive blacks of their rights. In 1883, the Supreme Court declared the Civil Rights Act of 1875—a law that would have fined businesses for racial discrimination—unconstitutional.

Since 2,000 blacks would be lynched over the next several years for alleged crimes without any due process, it was premature to declare that their rights were being protected by ordinary modes of justice.173

In a series of decisions between 1873 and 1898, including the Slaughterhouse Cases, United States v. Reese, and United States v. Cruikshank, the Supreme Court weakened the rights of black citizens and their ability to contest racism. The Supreme Court was not just reconciling the North and the South, but navigating federal and state tensions that had simmered to a boiling point during the Civil War. Each

And then in 1896, Plessy v. Ferguson dealt the most devastating and long-lasting blow by blessing the doctrine of “separate but equal,” which legitimatized Jim Crow laws and segregation for half a century.175

In fact, for the next century, it came up more to defend corporations against state overreach than it did black men and women against the hostile arm of the state. These cases moved the law toward protection of property as the primary objective as opposed to protection of blacks from violence.176

Du Bois’s survey of almost 2,000 businesses with over $500 in capital found that most had evolved from occupations dictated by slavery.59 “House servants became barbers, restaurant keepers, and caterers; field hands became

gardeners, grocers, florists, and mill owners.

Those who had been plantation craftsmen used their talents to become builders and contractors, brick masons, painters, and blacksmiths.”60 These businesses were almost always individually owned; few had corporate charters, and they often died with their founder. This was a weak infrastru...

Respected black pastors often urged their congregants to support a black bank, support that instilled the institution with the community trust that it needed to operate. Of the Citizens Trust Bank, founded in Atlanta in 1921, a local Reverend remarked, “the preachers made Citizens Trust Bank. They put in deposits that Monday morning. Around 11:00 o’clock the lobby would be full of nothing but preachers. And the people, seeing their preacher deposit God’s money from the churches in Citizens Trust, put their money into it and helped to put it over, in a great way.”67