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2/18/2019 "The Black Economy 50 Years After The March On Washington"

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Wall St. And Business Wednesdays: Understanding Black America's "Capital To Labor Ratio" II

When thinking over the concept of the capital to labor ratio it is our intention to advance the idea that the ratio in Black America should be ever-larger in keeping with the premise that labor, as the denominator, in its most physical or manual sense - has been the most bountiful and visible in quantity as human beings have physically manifested a full-range of it in the extraction of natural resources from the earth, farming, manufacturing and service work. Black America's capital, as the numerator in the ratio, is the least developed of the two categories, in keeping with our general definition that all capital is one of the following - assets, money, wealth and potential. In a national sense, economic growth in Black America could still be advanced by the increase of labor - the denominator in the capital to labor ratio - but largely only as the result of efforts of those outside of the Black community, as Black labor is overwhelmingly employed in the service of non-black "capital." If the numerator - capital, in the Black community - were to stay the same, while its labor grew, by default the effort would serve to expand capital in non-Black communities. This is because the wages earned by the Black community - would soon become savings or consumption, and would find their way back into non-Black communities and entities, as the producers of goods and services along with banking institutions, who would receive the greatest portion of the financial capital - money - that was originally exchanged for Black labor and creativity. This process can best be understood if one thinks of the Black community in terms of a human body that is not fully developed, still unable to suffice its own needs or wants, or even to extract the nutrients present in the diet that it is provided from another source - like a baby inside of the womb of a mother. Indeed, the description that Blacks in America are a nation within a nation has real meaning in the economic world.

There are four factors (among many others) to consider in order to understand the Black capital to labor ratio:

The Federal Reserve. As the entity now in control of the creation of currency, its volume, and the regulation of the largest entities that intermediate it - Federal Reserve monetary policy and its regulatory powers are fundamental to any discussion of the state of the Black economy and its capital to labor ratio. The idea that has long been held by the Federal Reserve that inflation and unemployment are correlated is an important factor of consideration. The "Phillips Curve" theory or NAIRU which holds that more employment leads to more inflation has caused many who control monetary policy at the Federal Reserve to attempt to slow the growth of labor by making financial capital scarce or more expensive, in terms of interest rates. The institution has slowed the economy down in order to maintain a structural level of unemployment. With Blacks in the most precarious negotiating position due to their traditional experience of being the last hired and first fired, the Phillips Curve ideology, which grows out of the thinking and writing of John Maynard Keynes, has hurt Blacks the worst. In reference to this, here is an excerpt of a letter I wrote to Federal Reserve Chairman Alan Greenspan 2 years ago:

Your refined but continued belief that there is a correlation between employment and inflation is hurting Black laborers and actually ensuring a structural level of unemployment in the Black community among teenagers and adults which exceeds more than double and triple the national level. As you are aware, in the 1950s A.W. Phillips claimed to have discovered a stable inverse relationship between the level of unemployment and the rate of change in money wages. Over time economists transformed what became popularly known as the "Phillips Curve", into a relationship between the level of unemployment and price inflation. You refer to this relationship in technical language as the non-accelerating inflation rate of unemployment (NAIRU). But by any name - NAIRU or the Phillips Curve - the theory has been resoundingly disproved, beginning in the 1970s when high unemployment rates were accompanied by high inflation and most recently, in the 1990s, when low unemployment has occurred in an era of low inflation and even deflation. Though you have modified your view of the relationship between employment and inflation in recent years, to take into account productivity gains, your continued allegiance to the Phillips Curve/NAIRU implies that economic growth can be bad. As long as this belief is part of your worldview, Black America will continue to hit a "job-creation ceiling" that ensures a higher level of unemployment in the Black community than that which exists in the rest of America.

In addition, the Federal Reserve has permitted the overall inflation of the U.S. dollar relative to gold and other currencies in an especially significant way since the mid to late 1960s and a relative deflation beginning in the mid 1990s. This monetary inflation has especially hurt the Black community because what, in America, used to be earned on one income, then required two incomes, and now requires two incomes plus investments and multiple income streams. With a community where the family has been broken and single-parent homes proliferate, the monetary inflation has had its worst effects on Black America. The relative monetary deflation has meant that Black debtors from 1996 to 2001 had to pay back loans to creditors with dollars that were more valuable than the ones they borrowed.

Black Capital Formation And Accumulation. In his book Black Leadership, Manning Marable writes:

By 1913, fifty years after the abolition of slavery, a substantial black entrepreneurial, professional, and landholding elite had developed. Black Americans owned 550,000 homes and had accumulated $700 million in wealth. The number of black-owned businesses had doubled in only thirteen years, from 20,000 to 40,000. African Americans owned 15.7 million acres of land across the South, and 200,000 of the nation's 848,000 black farmers owned their farms. As economic historian Gilbert C. Fite has noted: "When it is considered that Blacks started out without capital or independent business experience and faced severe racial discrimination...the record of black ownership by the early twentieth century was remarkable."

Also in that same work, Dr. Marable notes, " 1911 there were two black-owned banks in Georgia, eleven in Mississippi, and seven in Alabama. These banks and other black-owned lending institutions in the United States did $22 million worth of business by 1910."

As we noted two weeks ago in, "Black Banks in the Background", the condition of Black banks today is both distressing and promising, marked by great opportunity and impressive expansion across state borders in the case of the nation's largest Black-owned bank, One United Bank. But the reality that as many as one-third of the community does not have a bank account is troubling. Without Black-owned banks to enable Black wage-earners and communities to accumulate money and intermediate it, and use it as the basis of investments in assets like homes and property that can serve as collateral for loans necessary to start businesses; the Black community not only doesn't grow economically, its labor generates money that feeds other communities. In keeping with our reference to the human body, the Black community obtains blood from other communities but has no veins and arteries by which that blood can be transferred throughout, and its essentials converted for the benefit of the entire body. So, as a consequence, the blood exits and is converted for the benefit of others who come among the Black community and do business, or who receive the benefit of Black patronage in their communities.

When the subject of capital accumulation and formation is discussed it quite often starts from the top down and not the bottom up, like it should. The principle involved is not just to have the wealthiest group have its capital trickle down but to have capital formed and accumulated from the bottom up. That is the ultimate anti-poverty effort. The Honorable Elijah Muhammad taught once, in the 1960s, during an Fruit Of Islam (FOI) class, in an exceptionally clear way, that you end poverty by locating the poorest member of the community and lifting that person out of that condition and then quickly locating the next poorest and doing the same until nobody is impoverished. The Jewish community has practiced this principle the best in the modern era, as Steven Silbiger has made clear in his book, The Jewish Phenomenon where he explains, in detail, the manner in which Jewish philanthropy and free loan societies provide money to the poorest members of the Jewish community to enable them to have their basic necessities taken care of. Not just food, clothing and shelter, but money necessary for education and transportation essential for obtaining employment and professional advancement. It is the same principle that is embodied in the concept of "micro-credit" recently popularized by economist Muhammad Yunus, founder of Grameen Bank in Bangladesh. But it is also the same principle that is the genesis of the founding of Bank Of America in California. Until the poorest members of the Black community have access to money and are able to obtain the most miniscule of loans, anti-poverty efforts in the traditional sense will never evolve into economic growth, and money in the Black community will never evolve into other forms of capital.

Lastly, capital is syntax. Assets, contracts, securities, bonds, mortgages, and credit are all forms of syntax and linguistics that allow wealth and potential to be identified, communicated and arranged for trade and commerce. Capital is the most important form of financial literacy that leads to efficiencies in the matching process of a community's human, physical and financial capital, as well as the process of market-making. Black America is still, a significantly financially illiterate community.

Risk To Reward Ratio. The result of a community under the burden of financial illiteracy, as just defined, is that others make bets on its economy but at the costliest of terms. If the community was more well-versed in the syntax of capital it would be able to better commercialize its novelties and engage in trade and commerce in the most lucrative form of capital - ideas. Risk-taking in the Black community is at an anemic level - in the legal economy because of the community's indigenous lack of financial intermediation and its negligence of the syntax of capital that allows natural wealth, potential and assets to serve as the engine of entrepreneurial activity and economic growth.

That is why predatory lending and sub-prime lending abound in the Black community. Many non-Black lending institutions will only risk their capital at exorbitant rates seeking a reward on their risk and often taking advantage of the financial illiteracy of the Black community and its, at times, dire straits, aggravated by the dearth of capital sources. In such an environment where capital markets provide money at high rates and financial illiteracy slows down or prevents trade based upon natural wealth, assets and potential; government and crime become attractive sources of financial capital.

The risk to reward ratio would be reduced by the proliferation of Black banks in Black communities. A recent study, "Do Lenders Discriminate Against Low-Income Borrowers?" by Harold A. Black, Breck L. Robinson, and Robert L. Schweitzer published by The Review of Black Political Economy found that, "black applicants are more likely to have their applications accepted at a black-owned bank than a white-owned bank, regardless of the geographic location of the white-owned bank." There simply is less overall incentive (including political, and cultural factors) to profile, charge more reward for risk, or exploit in transactions that occur in the same community. Accountability and the law of cause and effect are more visible and operate at a higher velocity in intra-community economic activity than in inter-community trade and commerce.

The Black community's lack of indigenous sources for capital formation, accumulation and credit are compounded by two other factors: the community's skewed preference for industries and sectors that are severely limited and narrow and the community's dependence on others to create employment opportunities for it, and lack of what is popularly called, a "do-for-self" mentality.

A classic example of this first factor is the focus and effort that the Black community devotes to modeling sports and entertainment figures and pursuing careers in said professions. This behavior is the inverse of the view taken by the wealthiest non-Black communities who place a premium on sports and entertainment for its recreational value, rather than its economic value. Steven Silbiger argues:

From a purely economic standpoint, this lack of interest in professional sports has been a wise decision for the Jewish people. The probability of becoming one of America's five thousand highly paid professional athletes, two-thousandths of 1 percent (.002 percent) of that population, is pretty small. Take the expected monetary value of that outcome (the payoff multiplied by the probability of success) and you get a very small prize. Compare that to the total population of lawyers, doctors, accountants, business owners and professors. Getting a good education to pursue a higher-paying job seems like a sure thing by comparison.

Of course students can use sports to get a college scholarship, but again the odds are very long. How many star athletes does each high school have? How many high schools are there in this country? If the pursuit of educational excellence comes first and sports come second, the odds of success geometrically increase. With a good academic record - not an exceptional one - students have access to billions of dollars in loans, grants, campus jobs and work studies. These means of financial aid put college within reach of almost all Americans if they are strong students. Again, the "rules" of getting ahead in our society come back into play. An athlete's future is only as strong as his injury-prone bones or tendons, while an education, once earned, cannot be taken away from you.

The disproportionate attention given to Black celebrity in sports and entertainment has had an effect on the economic condition of the Black community and particularly impacts the pursuits of young people in the community. The result, in our view, (setting aside the benefits that sports and entertainment excellence have created for the Black community for a moment), has been the mismatch of human, physical and financial capital in Black America where potential (a form of capital) has been misdirected, misguided and underdeveloped.

The other factor has been the Black community's dependence on others to make jobs for it. One of the legacies of integration has been the devaluation of production and ownership and the exaltation of consumption and employment as the measure of social progress in America, for Blacks. A Black person proves their worth more by following a career path laid down by Whites rather than by working in their own community - providing the same goods and services and exhibiting the same talents. It is a form of validation that has its root in the dual mindsets of White supremacy and Black inferiority, not pure achievement, as many believe.

In the Muslim Program, under point number nine of "What The Muslims Believe," the Honorable Elijah Muhammad put, four decades ago, "We do not believe that America will ever be able to furnish enough jobs for her own millions of unemployed, in addition to jobs for the 20,000,000 black people as well." The Muslim leader had very profound insight as to why this was so. But any economist should be able to determine, by now, that, with the monetary policy of the United States over the last four decades that has mandated a structural level of unemployment; the rate of Black unemployment consistently double that of the general rate; and the incarceration of Black males fueling a prison-industrial complex; absolutely prevents "full employment" for Blacks in the broader American economy. Yet and still, many unionists and "anti-capitalists" within the Black community who understand the Phillips Curve and know that Black unemployment has been endemic, continue to relegate production, ownership and job creation to those outside of the Black community as if Black labor is somehow empowered by "White capitalists" in practice, but only exploited by "Black capitalists," even if just in theory. It is another vestige of the misunderstanding of what Karl Marx taught and an uninformed romanticism with socialism that embraces its rhetoric and sets aside its most redeeming qualities. It also contributes to the problem that the Honorable Elijah Muhammad identified in Message To The Blackman for economists who work with the Black community:

It is very hard for an economist to plan a wise program and see his plans carried out, because the so-called American Negroes' economics are controlled by the white man. The white man owns the country and the industry. He is manufacturer and producer of everything. Now, it is difficult to plan an economic program for a dependent people who, for all their lives, have tried to live like the white man.

While some Black unionists make outstanding critiques about this country's economic system, they seem to be oblivious to the fact that their dependency and advocacy of an almost exclusive focus on a sphere of influence as laborers, within White-owned and controlled industry, aggravates the economic problems of the Black community at the grassroots level. It also unnecessarily diminishes the importance of capital formation and accumulation. By the same token some Blacks preoccupied with financial capital have diminished and even fought against Black labor in ways that serve White-owned and controlled financial and industrial concerns.

All of this results in capital mismatches within the Black community as markets within it are marginalized and ignored in favor of those in other communities or provided by individual members of other communities. The risk to reward ratio expands within the Black economy as outside communities match their capital with Black talent, demanding higher returns, and Blacks risk their own capital (human and financial)pursuing economic activities (in sports and jobs outside the community) that have already reached the point of diminishing returns.

Liquidity. Liquidity is not just simply the quantity of money readily available in an economy as most economists argue. If that were the case then the Black community in America's $500,000,000,000 in spending power would be a source of its own empowerment rather than that for other communities. No, liquidity is a state where the economic body - like the human body - is properly integrated and engaged in full interaction, without disease or state of underdevelopment that affects the flow of blood. In this case, blood is equated with money. It is the activity in organs and veins and arteries that extract from blood and transport what is essential in it, for the benefit of the entire body. Banks, institutions of financial intermediation and capital instruments (backed by law) - contracts, property rights, ownership arrangements, securities, wills, debt, credit etc... do the same for the economic body.

The Black community is an illiquid society largely because of the three major previously mentioned factors. This subject is a bit advanced relative to what we have just considered (and is taken up in more depth at Black Electorate Economics University) but is essential to understanding why the Black capital to labor ratio is what it is in the United States and why it is so important for the Black community to radically adjust its view of political economy, wealth-creation, and race relations. Because the Black community has bought into the destructive dichotomy of capital and labor in its most divisive presentation, it hasn't understood the ultimate unity of capital and labor and more urgently, the reality that the Black community has done little in the last 70 years to advance the potential for the increased financial literacy and capital formation and accumulation that its labor has made possible. Below is the best definition of liquidity that I have encountered. It comes from Dr. Melchior Palyi, written several decades ago:

Liquidity means the preparation - for the avoidance of liquidation. A liquid structure never liquidates; only the illiquid one comes under the pressure of liquidation. "Perfect liquidity" means that for any length of time, all financial obligations are fulfilled without net liquidation of capital. A liquid society has adjusted its obligations to the flow of its income, both in amounts and in time, so that forced sales should not occur, disregarding war or similar extra-economic factors. An open illiquidity means, as different in degree from a concealed one, either the refusal to pay (collective bankruptcies: moratoria and foreign exchange restrictions) or the necessity of forced sales or both. The former method eliminates the problem by uprooting the legal and credit structure; the latter restores liquidity, but at the expense of crises and depressions.

Black America is actually in a state of open illiquidity.


No partisan can solve Black America's economic problems or greatly improve its capital to labor ratio. The problem is not simply political, to be done away with by the right spending programs on job training or infrastructure, lobbying of the Federal Reserve, or through tax cuts on capital. The problem is fundamentally a cultural one and since most political parties have agreed to not discuss race past a certain point, the local, state and federal political mechanism cannot tolerate the full-length discussion that is required to get to the root of the problem and arrive at the radical remedies necessary to solve it. Race is not "permitted" as a valid form of identity, or as a primary worldview in politics when the electorate communicates to the State - only the other way around, when the State's two party-system makes appeals for votes on the basis of race with the most superficial rhetoric and least amount of threat to the status-quo. But cultural identity is the base of wealth-creation in America. What is frowned upon and negated in politics is essential to economics. Unlike politics, communities, and not the individual, are the basic unit in the economic process. So, community development in areas that are segregated or intentionally ethnically-exclusive must take place on the basis of cultural identity and nearness to one another and not simply on government activism or policy-making (no matter how good). If there is to be poverty reduction or economic growth in communities it must grow out of a basic matching of indigenous sources of capital and labor - whether Irish, Italian, Jewish, Mexican or Black. Cultural unity as the base of economic empowerment as the base of the political pursuit of an enlightened self-interest is an avenue that the Black community must travel in the upcoming years. The economic reality of the community must inform the self-enlightened interest of the individual voter within the community. This is virtually impossible when an electorate community, without condition, aligns itself with one political party whose economic agenda is formulated to win the maximum amount of "average" individual votes, lobbied by elite representative coalition partners. Currently the dominating influence disrupting the pursuit of the Black community's economic and even political self-enlightened interest is exercised by elite Black leadership that values passive nearness to partisan power centers more than influencing the entire political process and spectrum through articulating the need for a real diagnoses of, and responsiveness to, the community's overall economic and cultural condition. Its patronage-dependent position is incompatible with an independent (headquartered in Black civil society) advocacy of partisan and non-partisan means, methods and programs that would improve the Black community's economic health.

Cedric Muhammad

Wednesday, February 26, 2003

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