The Color of Money

by Mehrsa Baradaran

  Southern white supremacist Thomas Dixon was enraged that Washington would even suggest that blacks should become financially independent. Dixon was angry that Washington was not training “servants,” but instead was “training them all to be masters of men, to be independent, to own and operate their own industries, plant their own fields, buy and sell their own goods.” This was unacceptable since, to Dixon and the southern ideology he represented, “the Negro remains on this continent for one reason only,” and that reason was that “the Southern white man has needed his labor."44 So it was likely dubious for Washington to claim that blacks with economic power would gain respect, because it was unlikely that Dixon and his Klan would allow any “uppity" black men to gain that power in the first place. Washington was also overly optimistic when he wrote in Up from Slavery (1901) of “the great change that has taken place since the days of the ‘Ku Klux’ " in the South. He predicted that the Klan had died and that “public sentiment" in the South was solidly against it.45 In fact, the Klan was headed toward a violent resurgence. The peak in Klan membership and activity was yet to come.

  Washington was, however, very realistic in his assessment of the South’s mood. It is unlikely a more radical or demanding leader would have succeeded, let alone survived, in the South for as long as Washington did. And history has redeemed Washington’s dim prospects for full integration—it has yet to happen. However, Washington’s unflinching faith in black capitalism may have stood in the way of or diverted other avenues toward reform because it occupied such a central position in the black community. As the black community’s most prominent post-Reconstruction leader, Washington set the tone and the agenda for generations of black and white leaders and businessmen. Although Washington’s faith-inspiring advocacy for black business may have set a misguided course, more meaningful avenues for reform would have required help from the white power structure, and that help was not forthcoming.

  W. E. B. Du Bois, a Harvard Ph.D. born free in the North, had no patience for Washington’s moderation; he wanted blacks to fight for integration and full legal rights, without which equality would never be achieved. Du Bois cofounded the National Association for the Advancement of Colored People (NAACP) in 1909 to dismantle Jim Crow and to confront the South’s racial violence. Du Bois urged blacks to mobilize and act against their continued oppression, rejecting the idea that southern whites would ever grant blacks equal rights without continued political and legal pressure.46

  Though Du Bois is remembered as a critic of capitalism, he was an enthusiastic supporter of black business enterprise. He was clear, however, that black business and black wealth were not the panacea against racial inequality that Washington believed them to be. He denounced the black community’s belief in “wealth as a remedy for every social ill," advocating instead for black cooperative enterprise with a focus on community building as opposed to profit maximizing.47 Nevertheless, with no apparent hesitation, Du Bois promoted black enterprise. He was the first black scholar to conduct a comprehensive study of black business. In his seminal 1899 study The Negro in Business, Du Bois remarked, “It is hardly possible to place too great stress on the deep significance of business ventures among American Negroes." He remarked that economic emancipation had yet to be achieved for a “Negro then to go into business means a great deal. It is, indeed, a step in social progress worth measuring."48

  When two black businesses, a bank and a life insurance company, went bankrupt, Du Bois urged readers of The Crisis not to lose confidence but to continue to support them. In fact, he urged blacks to patronize only black businesses. He also proposed the idea of a National Negro Business League, which was formally founded by Washington. Du Bois suggested in an Atlanta conference of black leaders in 1899 “the organization in every town and hamlet where colored people dwell . . . [of] Negro Business Men’s Leagues."49

  One could hardly be a leader of the black community and not endorse the only avenue the community had toward selfdetermination. To do otherwise would be to admit defeat or to ask the black population to suffer until more adequate reforms, such as integration or land grants or a new economic order, made them equal participants in the economy. John Hope, president of Atlanta University, made this point forcefully, stating, “the policy of avoiding entrance in the world’s business would be suicide to the Negro."50 Living in a land of wealth and capitalism, “is it not obvious that we cannot escape its most powerful motive and survive?"51 The black community had to live their lives, find credit, invest their wages, and make a living. And in the segregated society blacks inhabited, they could not receive credit from a white bank, insurance from a white broker, or purchase a home from a white realtor.52 Economic theorist Max Weber, in The Protestant Ethic and the Spirit of Capitalism, pointed out that when groups face national oppression, they react by organizing entrepreneurial ventures.53 Blacks certainly did, and their leaders threw their full support behind them.

  Black leaders hoped that successful black enterprise would move blacks upward from the lowest rung of the economic ladder. Blacks had thus far only provided labor, which turned into someone else’s capital. According to Hope, black business was an attempt to “take in some, if not all, of the wages, turn it into capital, hold it, increase it.”54 But to obtain meaningful capital creation, black businesses had to expand beyond their current state, which Hope described as “pebbles on the shore of business enterprise.”55 The black community needed large and powerful black enterprises to grow viable banks. For “without these factories, railroads and banks,” blacks would never be able to fully participate in capitalism.56 Hope was right. Without large businesses, the black community would not have access to large enough stores of capital to serve as a basis for an economy.

  And indeed it did not. The absence of factories, railroads, and black enterprise on a large scale hindered black banks. Black business would remain pebbles on the shore, but there would be many pebbles. Between 1867 and 1917, 4,000 black-owned businesses grew to 50,000.57 By 1930, the number of black businesses had grown to 70,000.58 Many businesses arose as a direct response to segregation, producing goods and services for blacks in the self-help economy. 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 infrastructure in the black community for the accumulation and generation of capital.

  At the turn of the century, black leaders converged on a plan to grow black enterprise that included urging young people in churches and black societies to go into business, creating black business leagues, and harnessing all of the resources of the black community in support of black business.61 Booker T. Washington founded the National Negro Business League (NNBL) in 1900 to help promote and develop black business.62 In his inaugural address at the conference, Washington repeated his unverifiable and likely untrue promise that wherever he had “seen a black man who was succeeding in business . . . that individual was treated with the highest respect by members of the white race."63 Washington continually urged blacks to create more banks to provide financing for black businesses. He celebrated each bank opening and dreamed of a day when the South could support more than forty black banks.64 The NNBL even proposed its own financing corporation to provide credit to black business, but it was never able to get enough capital together.65

  The NNBL gained membership over the next five years, with 300 local business leagues organized. In 1907 Washington wrote The Negro in Business, as a follow-up to Du Bois’s Negro in Business written in 1899. Unlike Du Bois’s statistically heavy treatise, Washington’s book contained a series of inspirational success stori
es aimed at highlighting the “undoubted business awakening among the Negro people of the United States." One story was of a minister who started a bank, which to Washington demonstrated “how closely the moral and spiritual interests of our people are interwoven with their material and economic welfare."66

  Not only was black business infused with religious meaning, but religious meetings were also infused with the spirit of black business. 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

  Washington saw black business itself as a Christian principle. During his 1910 annual address at the NNBL convention, he delivered a “Business Sermon," in which he used the biblical precept “to him that hath shall be given" as an analogy to black business, explaining, “these lines spoken by the Master strike the keynote for individual success and equally for racial success." He wanted the attendees to go out and proselytize the message of the business gospel, claiming that “each individual shall be a missionary in his community—a missionary in teaching the masses to get property, to be more thrifty, more economical, and resolve to establish an industrial enterprise wherever a possibility presents itself."68 Created out of economic necessity, black businesses became steeped in religious meaning. According to E. Franklin Frazier, “faith in business enterprise was mingled with the Negro’s religious faith."69

  Though Washington painted a rosy picture of black business success, many black businessmen and leaders spoke of the tremendous challenges they faced. The main financial challenge was that black businesses relied exclusively on black clientele. Jim Crow segregation prevented black businesses from branching out to white customers. In The Negro as a Business Man, a report compiled in 1929, black historians and business leaders lamented that “German and Irish immigration into this country drove the Negroes even out of menial services in many Northern cities."70 White riots led by immigrant groups, who saw black businesses as competition, “often broke up Negro businesses which had been prosperous for years."71 This was not the respect Washington had promised would greet successful black business establishments.72

  Black businesses had to find customers for whatever they were selling from within their own race, but the prohibitions did not work in reverse. White businesses often sold goods to blacks, which meant that black businesses had to compete not only with other black businesses but with any white businesses serving black customers as well. Prominent insurance executive Merah Stuart explained the bind of black businesses in these terms: “the American Negro has been driven into an awkward, selfish corner, attempting to operate racial business to rear a stepchild economy." Stuart explained that this was an “economic detour" that no other immigrant group had to pass through, as these groups were allowed passage to the “economic Broadway of America." By contrast, blacks, despite “centuries of unrequited toil . . . must turn to a detour that leads he knows not where.”73

  The economic detour made it difficult for black businesses to grow and expand or to take advantage of economies of scale, which usually meant that their operation was usually more costly.74 This presented black customers with a conundrum.75 Black leaders had each exhorted the black community to patronize only black business because black business survival depended on patronage from the black community. “We must cooperate or we are lost," said John Hope. “The mass of the Negroes must learn to patronize business enterprises conducted by their own race, even at some slight disadvantage.”76 But black customers were indeed suffering a disadvantage by “buying black.” They were usually paying more for an inferior product because of the inherent weakness of black businesses operating in the distorted Jim Crow economy. This was the surcharge of collective self-help and racial pride—piling another unfair disadvantage on the heap.

  In this “stepchild economy” or “economic detour,” it is no wonder that the few black businesses that experienced sustained and profitable growth were providing services for which there was large demand that white businesses were unwilling or incapable of meeting.77

  The first black entrepreneur in the United States to become a selfmade millionaire was Madame C. K. Walker, born Sarah Breedlove in 1867. Walker made her fortune in 1910 selling hair products to black women. Many black women were suffering from severe hair loss because of malnutrition and constant labor. Walker herself suffered from the scalp condition, which led her to create an elixir from sulfur and capsicum that ameliorated the effect. She later labeled the formula “Wonderful Hair Grower” and enlisted a sales force of black women, called Walker Agents, to sell the product to friends and acquaintances in their communities. She expanded her market even further by adding a hot comb and other hair-straightening products, calling the entire process the Walker System. She would sell millions of products to black women who wanted “symmetrical, deep and lasting waves” in their hair.78

  It is telling that one of the few African Americans who could achieve financial success in the early twentieth century did so by selling a product that gained its value directly from the hardship and racism experienced by blacks. This was not yet a market that white businesses were interested in pursuing. And because segregation facilitated marketing and distribution by making her customer base more geographically concentrated, Madame Walker could grow her business greatly.

  Another open marketplace for blacks was for undertakers and funeral homes, a thriving niche created because whites either refused to handle black bodies or treated them differently than white ones.79 A. G. Gaston, one of the wealthiest black entrepreneurs in the country, made his fortune in the death business.80 If Booker T. Washington’s vision could have lived in human form, it would have been through Gaston. In fact, Gaston said that Up from Slavery was his primary source of inspiration—especially the wisdom that acquiring wealth would lead to equality. Gaston began his business career while working in the Alabama coal mines of the Tennessee Coal and Iron Company with convict laborers. He knew that he would die quickly if he remained a miner, so he decided instead to become a small entrepreneur. First, he sold the miners lunches cooked by his mother, and with that small pool of profits, he became a lender. He lent small sums of money to the miners at 25 percent interest. In another financing venture, Gaston bought the state-issued scrip that black teachers were being paid their salaries with in exchange for cash. He bought the scrip at a 50 percent discount and sold it at full value, taking half the teachers’ salary for the service.81 With practices like these, it is no wonder that critics would blame black businessmen for exploiting their own race.

  Gaston saw an opportunity in insuring the burial costs of the miners, a high-demand service because the miners lived short lives and because funeral costs ranked among the biggest financial burdens of black families.82 Gaston first created the Booker T. Washington Burial Society and then the Booker T. Washington Insurance Company, and he went door to door collecting premiums. Gaston’s insurance company would soon be the basis of a large business empire, which included a bank, funeral homes, and a motel in Birmingham, Alabama, that would be central to the civil rights struggle.

  The largest industry to fill a market void was black insurance companies. These companies were first created to provide a cushion against the risks of life on the margins, but the industry thrived because of the racist practices of white insurers. Insurance was an interpersonal exchange at the time, requiring trust between the salesperson and the customer. A customer needed to believe that insurance contracts would be enforced when payouts were due after years of paying premiums. A relationship of trust and respect between an insurance salesman and his
customer was a business imperative. Reports indicate that white agents visiting black clients not only failed to show “common courtesy," but they “frequently abused the property of their clients."83 One scholar of the period noted that “nothing has more greatly aided Negro agents in meeting the competition of their more experienced competitors than the abundance of examples of insults to and abuses of Negro policy holders at the hands of white agents which could nearly always be pointed out in every community."84 After a white insurance agent participated in the lynching of a black man in Mississippi in the late 1800s, black customers flocked to black insurers. In a market based on mutual trust, white insurers for the most part failed to attract black customers.

  Many proactive white insurers refused to insure blacks altogether based on their actuarial models and “scientific data." Frederick L. Hoffman’s 1896 book Race Traits and Tendencies of the American Negro convinced insurers that black lives should not be insured, because blacks were destined for extinction. Hoffman claimed that the rampant disease and premature death in the black community was a feature of their race and had nothing to do with their circumstances. “It is not the conditions of life but in the race traits and tendencies that we find the causes of the excessive mortality."85 He concluded that “a combination of these traits and tendencies must in the end cause the extinction of the race."86 Hoffman based his conclusion on scientific data collected from chest measurements said to show that blacks had a deteriorated physique, which he attributed not to overwork or malnutrition but to racial inferiority.87 Hoffman was a statistician for the Prudential Insurance Company of America, and his argument was that the company should not insure blacks. Based on his widely read study, insurance providers concluded that it would be “unwise to insure Negroes." Black insurance companies stepped into the breach, and a few of them eventually grew to become the most profitable of all black-owned businesses.88