Race hierarchy was still necessary as a political weapon to justify economic subjugation. This time, instead of the Bible, white supremacists turned to Darwin. Social Darwinist theories of “survival of the fittest" created a more virulent and hostile strand of racism than had existed under slavery. Evolution-based theories cast the racial hierarchy as an inevitable by-product of natural selection. Once it infected the academy, national policy, and popular thought, it would take generations to cure. In The Evolution of the Race Problem, Du Bois lamented that Darwin’s “splendid scientific work" was being misused in America as a “justification of disfranchisement, the personal humiliation of Jim-Crowism, a curtailed and purposely limited system of education and a virtual acknowledgment of the inevitable and universal inferiority of black men." He called this perversion of science to prop up oppression “the most cowardly dilemma that a strong people ever thrust upon the weak."119
Phrenology, the sham science of skull measurement, attempted to demonstrate the biological hierarchy of race. Formal-looking charts and graphs showed whites as the most advanced race and blacks as close to the apes. Generally, scientists found that whites, or more accurately those descended from certain regions in Europe such as Germany, were the pinnacle of racial advancement.120 Below them were others including the Irish, Italians, and Eastern Europeans. Much further down were Mongols (Middle Easterners and Asians) and the indigenous tribes of the Americas. At the bottom of every racial chart was the “African," who was portrayed as a step above the common ape. This racial ordering coincidentally mapped exactly onto the socioeconomic order created by slavery and European imperialism. A democratic society cannot accept such sharp divisions of fortune without a theory of racial inferiority to rationalize the gap. Evolutionary theory was corrupted to deal with this cognitive dissonance. Americans could now see blacks not as victims of racial oppression, violence, and exploitation, but as a naturally inferior race who were a burden on the nation, just as Europe cast its colonial peoples as the “white man’s burden."
Blacks were popularly portrayed as unevolved primates, or gorillas dressed as humans. The dominant stereotype of blacks was as “subhuman or a beast."121 Columbia University professor Howard Odum concluded that blacks were “as destitute of morals as any of the lower animals."122 Doctor E. C. Ferguson explained to the Medical Association of Georgia that the “negro is monkey-like; has no sympathy for his fellow-man; has no regard for the truth, and when the truth would answer his purpose the best, he will lie. He is without gratitude or appreciation of anything done to him; is a natural born thief,—will steal anything, no matter how worthless. He has no morals."123 Once blacks were relegated to being subhuman, it became justifiable to subjugate them economically.
The darkest chapter of white supremacy soon metastasized to envelop not just the South but the entire nation. Notions of race hierarchy seeped northward through fiction and art. Most popular were the novels of Thomas Dixon, who took his racism on tour across the country. Dixon’s play The Clansmen was revived by D.W. Griffith into the blockbuster movie, Birth of a Nation, which played to sold-out theaters in 1915. Dixon and other revisionists retold the history of Reconstruction not as a subversion of the democratic process through white violence and animosity, but as the unleashed brutality of black men having to be tamed by the Klan. The takeaway, according to Dixon, was that “God ordained the southern white man to teach the lessons of Aryan supremacy."124 In the movie’s climactic scene, the black villain tries to woo a white woman to marry him by promising to make her a queen in his “black empire." The Klan fights a black militia, saves the white woman, and restores social order by lynching the black criminal. The movie closes with Jesus and his angels smiling approvingly.
The resurgent Klan reached its peak year in 1920, with a membership of 4 million members nationwide. In 1925, 40,000 hooded members of KKK marched in front of the White House.125
President Woodrow Wilson, an acknowledged racist and a college classmate of Dixon’s, aired the film at the White House, the first movie shown there. The audience marveled at the new technology and soaked in the film’s racist dogma. Wilson founded his candidacy on both southern progressivism and white supremacy. According to Wilson, “Negro rule under unscrupulous adventurers has been finally put an end to in the South and the natural, inevitable ascendancy of the whites, the responsible class has been established.”126 Wilson purged the federal bureaucracy of any blacks who had managed to secure a government job. He prohibited the hiring of any black employees and fired those his predecessor had hired. The South had determined that it would not move forward without total separation of the races, and they wanted the rest of the country to follow suit. One of Wilson’s cabinet members explained that “the South would never feel secure until the North and West had adopted the whole Southern policy of political proscription and social segregation of the Negro.” “There is no room for [the Negroes] here,” wrote a Charleston newspaper.127
There was also no room for the Negro in Wilson’s progressive reforms, all of which were made possible by his southern cabinet and congressional leaders. The South had not only been embraced back into the national fold, but their legislators now held the key levers of national power. Southern legislators maintained control of the Senate through an unrivaled unity of purpose and organized their own ranks to maintain the racial hierarchy on which their economy was based. The continued exploitation of black labor was a preoccupation of southern legislators, and they brought it to pass by blocking any reforms that threatened it. Yet these Democratic southerners were progressives when it came to the government’s role in the economy. The South, built on agriculture and an outdated plantation system, resisted free markets and laissez-faire credit reform. They understood that capital was not interested in financing southern ventures and farms, but rather in Wall Street and the industrial north. So the southern legislators fought laissez-faire markets and sought to impose trade restrictions, break up banks, ease credit to farmers, and resist the excesses of capitalism. They did so while maintaining their racial caste system, which assured that whites would sit atop the economic hierarchy. Southern interests dominated the Wilson administration, but this mix of progressive credit and traditional racial ordering would be even more formative in shaping the American economy when the two strains converged again in creating the New Deal.
Wilson carried forward the populist ideas related to the democratization of banking and credit that had percolated in the South. While he did not go as far as the Populists or William Jennings Bryan would have liked, he instituted reforms to help poor whites gain access to easier credit and fought the monopoly power of northern banks. Wilson’s newly established Federal Reserve was a hybrid structure of populist reforms and private interests. “Our system of credit is privately concentrated," said Wilson. “The growth of the nation, therefore, and all our activities are in the hands of a few men." The prospect of fixing credit shortages, especially for rural farmers, was the reason President Wilson was able to convince Congress to create the Federal Reserve.128 The offices of the Federal Reserve were spread across the country in order to prevent centralization of power and money in the North.
After creating the Federal Reserve, President Wilson and the 64th Congress passed the Federal Farm Loan Act of 1916 for the express purpose of increasing credit to rural family farmers. The act established the Federal Farm Loan Board to administer the loans, twelve Federal Farm Loan Banks, and National Farm Loan Associations (established groups of ten or more mortgage-holding farmers).129 The bill reduced interest rates on farm loans across the South and made credit much more accessible. This bill was the first federal government loan program, and thanks to southern senators, it left black farmers out.130 The legislators created loopholes and provisions to exclude blacks and left the program to be administered in local offices in the South, with significant discretion given to local bureaucrats in lending, which effectively meant that blacks would not be given loans.131
Wilso
n was a progressive hero and champion of a mixed economy, with government working with business to advance the interests of the majority of American citizens. Wilson was the first president to use the state apparatus to make the market work for the benefit of all the people. The Federal Trade Commission, Federal Reserve, and loan programs were a combination of private incentives and public projects that continue to be used in one form or another. These progressive acts were a harbinger of the New Deal. Both Wilson and
Franklin Roosevelt relied on southern participation to pass their programs in Congress. The South controlled the Senate, a body which acted, in the words of Robert Caro, as “the stronghold of the status quo, the dam against which the waves of social reform dashed themselves in vain."132 Thus the Senate and the president worked in tandem to democratize credit, check excessive corporate power, and empower the people over the wealthy few. But the “people" did not include blacks. Because the black community’s autonomy and full participation in the market was in direct conflict with the South’s economic needs, it was continually subverted at all levels of government. The justification used to enforce this order was not economic. Rather, racial Darwinism convinced Americans that blacks were less-evolved humans, and so they could be put to work for the profitable use of white men and their institutions. The black southern experience at the turn of the century was one of economic exploitation backed by state-sanctioned violence. And so it was that many blacks decided to flee the only home they knew.
The Rise of Black Banking
The Great Migration, which lasted roughly from 1910 until 1970, radically transformed the country.1 During this seismic shift, approximately six million blacks left the south. In 1900, ninety percent of black Americans lived in the rural areas of Southern states. By 1970, 80 percent of black Americans lived in urban areas and nearly half outside the South. Blacks left the South because of racial injustice and the general decline of economic conditions below the Mason-Dixon line. They were pulled to the North by the promise of better jobs, better pay, and more opportunities for advancement.2
Great northern cities swelled with black migrants and put them to work. The poet of the Harlem Renaissance, Langston Hughes, articulated the appeal of the northward migration:
The lazy, laughing South With blood on its mouth.
The sunny-faced South,
And I, who am black, would love her But she spits in my face.
And I, who am black,
Would give her many rare gifts But she turns her back upon me.
So now I seek the North—
The cold-faced North,
For she, they say,
Is a kinder mistress,
And in her house my children May escape the spell of the South.3
It was easy to escape the South into the North’s booming economy and vibrant city life. Yet it was the “kinder mistress" that imposed systematic segregation and created the black ghetto. The North welcomed these migrants, but then quickly told them to proceed to
Harlem and stay put. It was the kinder mistress’s ghettos that came to be called the “cities of destruction.”4
The concept and terminology of a racial ghetto derives from the forced segregation of Jews in Europe—first in enclaves in the seventeenth century and then with barbed wire during the Nazi regime.5 There was no barbed wire in America’s black ghettos, but even more effective modes of containment through racial covenants and government credit and zoning policies that maintained the boundaries of the ghetto. Often referred to as black enclaves, black neighborhoods, or other racially neutral descriptions, the word ghetto is a much more accurate descriptor because it captures the involuntary nature of segregation. The ghetto was created by white racism, which in turn generated a complex web of interrelated social, political and economic challenges. Blacks were forced into a parallel and inferior economy simply because whites in the north would not accept them as neighbors. This had profound effects on African American economic advancement for the next century. Black racial segregation was so complete and so entrenched, that it is the defining characteristic of racial inequality in the twentieth-century and the major roadblock to economic progress.6
The first wave of the Great Migration from 1910 to 1930 coincided with the height of discriminatory segregation and the golden era of black banking. These developments were correlated in important ways: the surge of migrants entering cities of the north triggered racial animosity and housing segregation, which in turn created a separate and parallel economy and in time, a thriving black banking sector. From 1900 until 1934, some 130 black banks came into being, 88 of which were formed between 1900 and 1928.7 This did not include approximately 50 savings and loans and credit unions formed by blacks during this time.8 The resources of these institutions grew steadily, but the most robust expansion of black banking came from 1918 to 1929. The peak year of black banking came in 1926, when total assets held by these institutions reached roughly $13 million (this was still only 0.2 percent of all U.S. bank assets).9
Wherever African American populations could be found, black banks flourished to meet both the opportunities and challenges of a segregated economy.10 Concentrated populations of black wage workers proved to be a bounty for the black banks. But that same concentration also created special vulnerabilities. These banks were created by the same forces that worked against them at every turn—a segregated economy held the seeds of its own destruction. There would be many bank failures in due time, but not before some of these institutions had cemented their place in history as the pioneering giants of black finance. The 1920s roared for black banks too, but these machines were never able to perform the magic of banking that is the multiplication of capital through fractional reserve lending. As well, the bust following the boom would last much longer for black commercial institutions and their customers.
Chicago’s black belt, the most segregated black ghetto, was also the center of black banking in the North. Philadelphia, Washington D.C., and Boston were homes to several black-owned banks, but these institutions were far smaller than the banks of Chicago.11 The “titans of black finance" in the north were both located in Chicago: The Binga State Bank and the Douglass National Bank. At their peak in 1928, they controlled almost one-third of the combined resources of all black banks in the country.12 Most observers viewed these two banks as the best managed and strongest of all the black banks and as models for successful commercial banking in the black economy.13
Jesse Binga was born in Detroit in 1865. His father was a barber and his mother, who was Binga’s inspiration throughout his life, created a food shipping business while dabbling in real estate development. Binga was one of ten children and the family lived on limited means. He briefly practiced law, but would make his mark as a businessman.14 He moved to Chicago’s black belt district and opened a real estate business in 1896. The Chicago real estate market was in a state of rapid change as blacks migrated in to the city and whites moved out. The industrious Binga found a way to profit from segregation and neighborhood turnover by buying houses at below-market rates from whites desperate to sell, fixing them up and selling them to black buyers. Binga ran an advertisement in the Tribune in 1905: “WANTED—OWNERS, SOUTH SIDE—QUICK returns; if you desire to sell to reliable colored people submit your property for sale."15
Binga was viewed by his community as a fair and beloved businessman, setting him apart from the droves of exploitative contract sellers and loan sharks that would dominate the real estate market in Chicago in the next epoch. Binga quickly became Chicago’s top black real estate broker because he did the buying and selling as well as the fixing up. “I could do the repair work myself. I could do everything from digging a posthole to topping a chimney." He explained that his greatest asset in business was exploiting the discrimination of white businessmen. “It was partly the disposition of the average white man to underestimate my knowledge of real estate values. They wouldn’t believe that a colored man could take almost any old building and whip it in
to shape."16
Just as discrimination and white flight led to his real estate success, he turned the white banks’ refusal to lend to his real estate clients into another source of profit. When the white-owned McCarthy Bank on 35th and State failed in 1907, Binga purchased the building and chartered “Binga State Bank." In 1911, the Defender called Binga “Our Only Banker" and lauded his accomplishments, stating, “He was the pioneer in securing good houses and flats for the race and the beginning of his remarkable business along that line has been one of the main factors in the wonderful growth of the citizens of color in Chicago." Another black business leader called Binga’s Bank “one of the leading banks owned and operated by Negroes anywhere."17
Binga’s bank deposits grew from $300,000 to over $1.1 million between 1921 and 1924. During that same time period, Binga bought a prominent home in a white neighborhood near Washington Park. His purchase drew ire and triggered violence. During the race riots of 1919, his house was bombed seven times.18 Each time, the bomber left a note demanding that Binga leave the property and sell it to a white buyer. Binga was resolute. “I will not run. The race is at stake and not myself. If they can make me move they will have accomplished much of their aim because they can say, ‘We made Jesse Binga move; certainly you’ll have to move’ to all the rest. If they can make the leaders move, what show will the small buyers have?"19 Binga claimed that it was his right as a proud American to defend his home, life, and liberty.20
Binga’s bank was consistently more capitalized than what was required by the Illinois State Charter and his bank was held out by black and white contemporaries as a model of sound banking.21 Binga also bought a membership into the Chicago Clearinghouse, through which top banks paid into a fund used to rescue the member banks when they needed emergency liquidity during a run or a downturn.22 Before the Federal Reserve was founded in 1913 to offer similar protection, top bankers joined such funds, paying dues that would be set aside to help them in a liquidity crisis.23 The Chicago fund saved many banks from failure, and Binga’s bank was the only black bank granted membership. As Binga would later find out, however, fair dealing with this elite group was not reciprocated.
The Color of Money Page 9
