The Economic Case for Reparations

By Imara Jones May 28, 2014

In his sweeping, data-driven piece published last week, Ta-Nehisi Coates asks if it’s time to consider far-reaching compensation for those wronged by America’s formal system of economic oppression beginning in slavery and rolling on until almost 1970. 

Not surprisingly, his gritty cover story in The Atlantic titled "A Case for Reparations" is already generating controversy on the right and elsewhere.  The conservative National Review ran a reply that argues that Coates’ article shows "that there is not much of a case for reparations." But this derision is misplaced. The truth is that there is a strong rationale for renumeration grounded in airtight economic principals at the the heart of the free market system: access to capital. This precept is so essential that it gives our modern economic way-of-life its name. We call it capitalism.

In fact, Coates’ case for reparations is one that Adam Smith, the Scottish philosopher who birthed the theory and mechanics of capitalism during the same year that the Declaration of Independence was declared, would recognize. Smith’s "An Inquiry into the Nature and the Causes of the Wealth of Nations" details how capital in all its forms is the source of revenue from which all profit is "ultimately derived." The bottom line is that capital is what individuals and entities use to produce the stuff that they ultimately take to market and sell. The gap between the costs of capital and the price that products sell for is profit. Profits piled up over time create wealth. This is all pretty straight forward.

But the key to absorbing the core of Coates’ argument is the recognition that capital takes four primary forms: physical, intellectual, labor and financial. Physical capital is composed of the buildings and equipment necessary to produce an item. Labor capital is the sweat equity–i.e., the work of actual people who do so. Intellectual capital is made up of the ideas, innovations and knowledge that allow for an item to be made. Financial capital is the money that makes all of this possible.

The center of gravity of Coates’ argument is that the current gap in wealth between blacks and whites–the highest on record–can be explained by the wholesale transfer of African-American capital in each of these forms to an economic system which has redistributed them in a way such that whites have overwhelmingly benefited.

A Singular Story

The micro illustration of this macro point is the life of Clyde Ross. Ross’ 91 years serve as the emotional center for Coates’ piece.

When Ross was a boy, his family was dispossessed of their farm–their physical capital–due to racist local officials. Without a way to make ends meet they were forced into sharecropping which took away the benefits of their labor and devoted them to the output of a cotton plantation. Because Ross’ family’s sharecropping wages were as close to slave wages as one could imagine, his parents could not afford to send him to school. This diminished Ross’ intellectual capital. And the constant cheating of the family by plantation owners of what they had earned made the accumulation of financial capital virtually impossible. Ross mother wasn’t able to save enough over the course of one year to buy him a $7 suit.

But the capital transfer didn’t only occur only in Ross’ youth. It continued well into adulthood and far outside the Deep South. Over the course of decades in Chicago, Ross’ labor and financial capital were diminished further still in order to pay for a house that had been sold to him at twice its value and in what can only be described as a dodgy "rent-to-buy" program. The economic injustice occurs solely because he is black. Because Ross is African American both traditional mortgages and houses at market prices were unavailable to him.

Ross and his neighbors describe the ways in which "contract buying" was so onerous that thousands lost homes for which they had paid on time for years. They also point out how the necessity of taking up extra work to cover exorbitant home costs meant that they invested less in their children’s education. Yet while these families were barely hanging on, the person who sold Ross and the other black residents their homes became a millionaire from his technically legal but morally reprehensible practices. In so many ways Ross embodies the American story.

An American Tale

Of course capital dispossession for people of African descent did not begin with Ross nor his generation. As I have written before, it actually is the foundation for the modern world. The mass destruction of societies in Africa and the movement of their labor and intellectual capital across the Atlantic created the pathways for modern globalization.

The emergence of cities like New York and London into financial and transportation powerhouses; banking institutions like J.P. Morgan Chase and New York Life; and the Industrial Revolution itself would not have been possible without the removal of capital from black people. And as Ross’ story illustrates, this capital transfer did not end with slavery nor the beginning of the end of American apartheid in the 1950s, but in the 1970s.

This is the core argument for reparations. The impact of the 400-year dispossession and exploitation of black capital didn’t end in four decades. Indeed, as Adam Smith argues, wealth accrued over time creates inherent advantages. Therefore the only true way to give AfricanAmericans an equal shot is through the opportunity of mass capital formation. You can call it reparations or something else; either way there is a need for it.

Though Coates essentially advocates that reparations be formally studied to determine whether they are both just and feasible, the economic case for them is sound. For those wondering how we would pay for them, it’s important to note that the United States has fought two wars over the past 13 years. Together their costs exceed that of what experts say a reparations pay out could be, $2.5 trillion for reparations versus $4 trillion for the wars in Iraq and Afghanistan. Each war has been paid for on the nation’s credit cards. The bottom line is that large wealthy nations have the capacity to do what they want.

This means that the case for reparations largely boils down to a test of America’s political, ethical and moral fiber. In this still-new millennium are we willing to face up to some of the darkest chapters of the old one? Perhaps a reason for resistance to the idea is that signing off on reparations for African-Americans means doing so for Native Americans and others such as the Chinese who were forcibly removed from the United States after they had helped to complete the TransContinental Railroad. But we’re a grown up country which means it’s time to do the adult thing and own up to the past. In his article, Coates details why that time is now.