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The "Racist Premium" Is Just One Way the Market Punishes Racism

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Tags U.S. Economy

09/12/2018

In the 1959 Broadway play, A Raisin in the Sun, an impoverished black family uses a substantial insurance payment to purchase a home in an affluent and white neighborhood. Perturbed by the fact that black people would move into their community, a white representative from the area offers to buy the home to prevent them from planting roots. In the end, the family resists the offer and moves in anyway.

The odious and shameful circumstances in the play, which was turned into a stupendous 1961 motion picture starring legendary thespian Sidney Poitier, was quite common for black American families for much of the 20 th century. There were generally two decisions for these households to make: Combat discrimination or concede defeat.

For J. Dallas Bowser and Philip Payton Jr., there was another option: Take advantage of people’s racial prejudice and use basic economics to profit from it.

Trolling Racists for Fun and Profit

On August 18, 1900, The New York Times published a short but fascinating article, titled “Negro Finds Way to Wealth,” that described a black man who got rich by exploiting the racist sentiments of neighbors.

Bowser, a teacher, poet, and newspaper publisher, acquired homes next to white people in wealthy neighborhoods and moved in. Homeowners in the neighborhood were so outraged by his presence that they were willing to purchase his home at an above-market price just to kick him out. This resulted in Bowser earning an “exorbitant profit.”

Unfortunately, a lot of irked people started finding out about this ingenious practice and proceeded to take action. According to The Times, attorneys Joseph Rust and Ross Latchaw pressed ridiculous charges against the man before the Board of Education, causing Bowser to stand trial.

How did Bowser defend himself? From the newspaper:

“Bowser read a long paper in his own defense, standing on his right as a free-born American citizen to live where he pleases and to sell his property at whatever price he can find a purchaser willing to pay.”

Thankfully, others followed in Bowser’s footsteps — and they heeded his advice of self-improvement.

Black Capitalist Crusaders

In basic economics, there is something called the “racist premium.” This means customers will pay more and receive less for their racial prejudice and business owners will lose money for either being racist or caving into the demands of their racist customers. What’s more important? Staying in business or closing down?

Philip Payton Jr., known as “the father of Harlem,” will not be taught in schools, mentioned by MSNBC, or be commemorated by Black Lives Matter. But he was an important figure in the early 20th century.

After an apartment building located on an all-white Harlem block rented to black tenants, a lot of white people fled the neighborhood, resulting in scores of vacancies. Payton and a team of investors purchased these buildings on 99th Street at a discount and rented to blacks. The area then became home to future legends like Billie Holiday and Robert Earl Jones.

Payton ultimately believed that property owners who maintain racial covenants would pay the racist premium in a competitive rental market. He argued that even the most bigoted of landlords would realize that profit was far more important than their prejudice, writing:

“Race prejudice is a luxury, and like all other luxuries, can be made very expensive in New York City. The fight that I am making has got to be made sooner or later and I see no better time than now. A respectable, law-abiding negro will find conditions so changed that he will be able to rent wherever his means will permit him to live.”

It wasn’t all sunshine and lollipops, though. Payton and black tenants endured resistance from resentful white residents and property owners who were concerned that their neighborhoods would become diverse. This prompted the formation of holding companies to acquire properties “to get rid of colored people” and to “prevent negroes from coming to Harlem to live.”

There was a successful resistance to the resistance. Payton founded the Afro-American Realty Company, raised nearly $10 million in today’s money by issuing 50,000 shares at $10 each, and bought and leased complexes and houses to black tenants. Gaining support from the press, the church, and influential figures, black people were urged to live in Harlem to drive out the racists. And they did.

Profits Over Prejudice

Free markets have done more for race relations than any government mandate ever did — and will.

Baseball team owners wanted to win ballgames, so they put in Jackie Robinson and Willie Mays. Big bands wanted to attract ears to their music, so white band leaders tapped the remarkable talents of Billie Holiday, Teddy Wilson, and Lionel Hampton. Celebrities appreciated the skills of Ella Fitzgerald and Sammy Davis Jr., so they pressured many hotels and venues to abolish silly white-only rules.

J. Dallas Bowser and Philip Payton Jr. should be treated as civil rights champions with monuments and plaques to remember their contributions to the black community and the free market. Yet, most people have never heard of these men. Why? Perhaps because they never played the victim card, despite enduring the peak of racial bigotry, and they understood basic economics, unlike the supposed civil rights crusaders today who demand reparations, affirmative action, and something for nothing.

These are two great examples of how you can never abolish real racism – not the modern-day progressive view of racism – but you can punish archaic and reprehensible behavior through the free market. And that is exactly what Bowser and Payton did, allowing them to get rich in the process and improve the living standards of so many other people.

In the end, Bowser and Payton, and the millions of black entrepreneurs since then, have realized that capitalism is the least racist structure in the world today. The free-enterprise system is indifferent to your skin color; it only cares about green.

Originally Published by Liberty Nation.

Andrew Moran is the Economics Correspondent at LibertyNation.com and is the author of The War on Cash. You can find more of his work at AndrewMoran.net.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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