Isegoria

There is arguably no racial disparity more striking than the wealth gap, Coleman Hughes argues:

While the median white household earns just 65 percent more income than its black counterpart, its net worth is fully ten times as high. And, unlike income, which individuals earn in their own lifetimes, wealth accrues over generations, and whites are more than three times as likely as blacks to inherit money from their families. In the public debate on racial inequality, the wealth gap is among the sharpest arrows in the progressive quiver.

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Although it is true that the median income of white men more than tripled between 1939 and 1960 (rising from 1,112 dollars to 5,137 dollars), the median income of black men more than quintupled (rising from 460 dollars to 3,075 dollars).⁹ Black women, too, saw their incomes grow at a faster rate than white women over the same timespan.¹⁰ Baradaran makes the same mistake in her description of life for blacks in the 1940s and 50s: “poverty led to institutional breakdown, which led to more poverty.”¹¹ But between 1940 and 1960 the black poverty rate fell from 87 percent to 47 percent, before any significant civil rights gains were made.¹²

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If wealth differences were largely explained by America’s history of favoring certain groups over others, then it would be hard to explain why Asian-Americans, who were never favored, are on track to become wealthier than whites.

Nor can historical racism explain wealth disparities between groups of the same race. A 2015 survey of wealth in Boston found that the median black household had only 8 dollars of wealth. Newsweek reported this fact under the heading “Racism in Boston.” But the 8 dollar figure only pertained to black Bostonians of American ancestry; black Bostonians of Caribbean ancestry had 12,000 dollars of wealth, despite having identical rates of college graduation, only slightly higher incomes, and being equally black in the same city.

Similar disparities emerge when people are grouped by religion. A 2003 study found that Jewish households had a 7-to-1 wealth advantage over Conservative Protestant households, despite the fact that Protestants have been favored over Jews for most of American history. Because facts like these discredit the assumption that government favoritism drives wealth accrual, they don’t make it into the progressive narrative. When all the facts are included, the story changes: wealth is not handed from the top down. It is produced by a bottom-up process involving millions of individuals bringing their skills, habits, and knowledge — attributes which vary from group to group — to bear on valuable tasks.

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No element of culture harms black wealth accrual more directly than spending patterns. Nielsen, one of the world’s leading market research firms, keeps extensive data on American consumer behavior, broken down demographically. A 2017 Nielsen report found that, compared to white women, black women were 14 percent more likely to own a luxury vehicle, 16 percent more likely to purchase costume jewelry, and 9 percent more likely to purchase fine jewelry. A similar Nielsen report from 2013 found that, while only 62 percent of all Americans owned a smartphone, 71 percent of blacks owned one. Moreover, all of these spending differences were unconditional on wealth and income.

To what extent do poor spending habits explain the persistence of the wealth gap? Economists at the University of Chicago and the University of Pennsylvania asked this question after analyzing 16 years of nationally representative data from the Consumer Expenditure Survey. Consistent with the Nielsen data, they found that blacks with comparable incomes to whites spent 17 percent less on education, and 32 percent more (an extra $2300 per year in 2005 dollars) on ‘visible goods’ — defined as cars, jewelry, and clothes. What’s more, “after controlling for visible spending,” they concluded that the “wealth gap between Blacks and Whites, conditional on permanent income, declines by 50 percent.” To be clear, that 50 percent figure doesn’t pertain to the total wealth gap, but to the proportion of the gap that remains after income is taken into account — which was 40 percent. The upshot: the fact that blacks spent more on cars, jewelry, and clothes explained fully 20 percent of the total racial wealth gap.

To make matters worse, spending patterns are just one part of a larger set of financial skills on which blacks lag behind. Researchers at the Federal Reserve Bank of St. Louis followed over 40,000 families from 1989 to 2013, tracking their wealth accumulation and financial decisions. They developed a financial health scale, ranging from 0 to 5, that measured the degree to which families made “routine financial health choices that contribute to wealth accumulation” — e.g., saving any amount of money, paying credit card bills on time, having a low debt-to-income ratio, etc. At 3.12, Asian families scored the highest, followed by whites at 3.11, Hispanics at 2.71, and blacks at 2.63.

Next, they asked if education accounted for the differences in financial habits by limiting the comparison to middle-aged families with advanced degrees. Surprisingly, they found that the racial gap in financial health-scores didn’t shrink; it widened. Highly-educated Asian families scored 3.49, comparable whites scored 3.38, comparable Hispanics scored 2.94, and comparable blacks remained far behind at 2.66. Thus, the study authors concluded, neither “periodic shortages of time or money” nor “lower educational attainment” were the driving forces behind the differences in financial decision-making.

Mercantilism was never about economics, Ben Landau-Taylor explains:

I believe mercantilist policies were the central government’s solution to the problem of taxation. While modern governments can impose taxes almost arbitrarily, early modern governments could not. Royalty made money from the farmland they owned, but as the economic center of gravity moved from the farms to the towns, this became less important, and they needed more money. The royalty lacked the local knowledge and “boots on the ground” to collect taxes outside of their demesne, and so had to act through the local power holders. In the manors, this meant acting through the nobility. (That’s a complicated topic beyond the scope of this piece, so I’ll just gesture at the British Parliament and the civil wars that accompanied its origins as an example of the power struggles this provoked.) In the towns, this meant acting through the guilds.

It wasn’t practical to simply extort money from the guilds, so they ended up in a more symbiotic relationship with the state. Essentially, the deal was that that the state would use force to shut down the guild’s competition, and in return the guild would pay taxes and help administrate their collection. In other words, the state would sell a monopoly to the guild. The guild would then submit to the collection of tariffs, or to paying duties on their merchandise, or some other tax on their transactions. (Notably, I know of no cases in this period where income or wealth were taxed directly. States couldn’t get away with that until later.) Jean-Baptiste Colbert pursued this policy more brazenly and systematically than anyone else I’ve looked at.

Through this lens, the mercantilist policies make more sense. The focus on money was because the purpose was to collect money, and so the central government wanted to bring more money into the country and track it as precisely as possible. The hodgepodge of regulations follows no systematic rule of economics, but does follow the pattern of a symbiotic trade between the state and the guilds. For example, a punitive tariff on imported wine will raise some money for the state, and more importantly, it is a favor to the domestic winemaker’s guild (which pays taxes, unlike foreign winemakers). Granting a monopoly to a favored shipping company makes no sense as an economic policy, but does make sense as a taxation policy.

Of course, whenever the state is pursuing a course of action, there will arise a demand for intellectual arguments that the state policies serve the common good, and thinkers will arise to fill this demand. Such thinkers made arguments for mercantilist policies, and some then generalized these arguments and made further recommendations. However, I have seen no evidence that these thinkers were influential or their recommendations adopted, and suspect that they had negligible effects.

Nevertheless, these intellectuals made a convenient foil for Adam Smith and his peers. By casting them as his foes, Smith was able to demolish them and demonstrate his superiority, thereby associating his own program with progress and rationalism, and leaving his opponents no intellectual ground to retreat to. (Smith was a capable persuader with sophisticated models of his audience, although many of his peers were not.) I think the real story is that Smith’s program was possible because his true foes, the guild merchants, were no longer necessary to the state due to the institutionalization of taxation infrastructure and/or the nascent factory system. However, because every historian of economics has read Smith, his account is widely known; and because his narrative of progress and rationalism matches modern sensibilities, his account is widely accepted.