week 6

African Americans and other minorities hold far less wealth than whites. But
why should the wealth gap be so large, greater even than the racial income
gap? It turns out that government has played a central role. Throughout U.S.
history, countless specific laws, policies, rules, and court decisions have made
it more difficult for nonwhites to build wealth, and transferred wealth they
did own to whites. Activist Meizhu Lui spells out the story.

Doubly Divided
The Racial Wealth Gap

Race—constructed from a European vantage point—has always been a
basis on which U.S. society metes out access to wealth and power. Both
in times when the overall wealth gap has grown and in times when a
rising tide has managed to li� both rich and poor boats, a pernicious
wealth gap between whites and nonwhite minorities has persisted.
Let’s cut the cake by race. If you lined up all African-American families by
the amount of assets they owned minus their debts and then looked at the
family in the middle, that median family in 2001 had a net worth of $10,700
(excluding the value of automobiles). Line up all whites, and that median
family had a net worth of $106,400, almost 10 times more. Less than half
of African-American families own their own homes, while three out of four
white families do. Latinos are even less wealthy: the median Latino family in
2001 had only $3,000 in assets, and less than half own their own homes.
We do not know how much Native Americans have in assets because
so little data has been collected, but their poverty rate is 26% compared to
8% for whites, even though more than half own their own homes. Nor is
much information collected about Asian Americans. What we do know is
that their poverty rate is 13%, and that 60% of Asian Americans own their
own homes, compared to 77% of whites.
Almost 40 years a�er the passage of the 20th century’s major civil rights
legislation, huge wealth disparities persist. However, the myth that the play-

The Causes of Inequality 43
ing field was leveled by those laws is widespread. For anyone who accepts
the myth, it follows that if families of color are not on an economic par with
whites today, the problem must lie with them.

But the racial wealth gap has nothing to do with individual behaviors
or cultural deficits. Throughout U.S. history, deliberate government poli-
cies transferred wealth from nonwhites to whites—essentially, affirmative
action for whites. The specific mechanisms of the transfer have varied, as
have the processes by which people have been put into racial categories in
the first place. But a brief review of American history, viewed through the
lens of wealth, reveals a consistent pattern of race-based obstacles that have
prevented Native Americans, African Americans, Latinos, and Asians from
building wealth at all comparable to whites.
When European settlers came to what would become the United States,
Indian tribes in general did not consider land to be a source of individual
wealth. It was a resource to be worshipped, treasured, and used to preserve
all forms of life. Unfortunately for them, that concept of common owner-
ship and the way of life they had built around it would clash mightily with
the idea that parcels of land should be owned by individuals and used to
generate private profit.
A�er the American Revolution, the official position of the new U.S. gov-
ernment was that Indian tribes had the same status as foreign nations and
that good relations with them should be maintained. However, as Euro-
pean immigration increased and westward expansion continued, the set-
tlers increasingly coveted Indian land. The federal government pressured
Native Americans to sign one treaty a�er another giving over land: In the
United States’ first century, over 400 Indian treaties were signed. Indians
were forcibly removed, first from the south and then from the west, some-
times into reservations.
Eventually, the Indians’ last large territory, the Great Plains, was essen-
tially handed over to whites. In one of the clearest instances of land expro-
priation, the 1862 Homestead Act transferred a vast amount of land from
Indian tribes to white homesteaders by giving any white family 160 acres
of land for free if they would farm it for five years. Of course, this massive
land transfer was not accomplished without violence. General William Te-
cumseh Sherman, of Civil War fame, wrote: “The more [Indians] we can kill
this year, the less will have to be killed the next year, for the more I see of
these Indians, the more convinced I am that they all have to be killed or be
maintained as a species of paupers.” (Ironically, the Homestead Act is o�en

44 The Wealth Inequality Reader
cited as a model government program that supported asset-building.)
Out of the many treaties came the legal concept of the U.S. government’s
“trust responsibility” for the Native nations, similar to the relationship of a
legal guardian to a child. In exchange for land, the government was to pro-

vide for the needs of the Native peoples. Money from the sale of land or
natural resources was to be placed in a trust fund and managed in the best
interests of the Indian tribes. The government’s mismanagement of Indian
assets was pervasive; yet, by law, Indian tribes could not fire the designated
manager and hire a better or more honest one.
The Dawes Act of 1887 was designed to pressure Indians to assimilate
into white culture: to adopt a sedentary life style and end their tradition of
collective land ownership. The law broke up reservation land into individual
plots and forced Indians to attempt to farm “western” style; “surplus” land
was sold to whites. Under this scheme, millions more acres were transferred
from Native Americans to whites.
A�er 1953, the U.S. government terminated the trust status of the tribes.
While the stated purpose was to free Indians from government control, the
new policy exacted a price: the loss of tribally held land that was still the
basis of some tribes’ existence. This blow reduced the remaining self-suffi-
cient tribes to poverty and broke up tribal governments.
Thus, over a 200-year period, U.S. government policies transferred Native
Americans’ wealth—primarily land and natural resources—into the pockets
of white individuals. This expropriation of vast tracts played a foundation-
al role in the creation of the U.S. economy. Only in recent years, through
the effective use of lawsuits to resurrect tribal rights assigned under the old
treaties, have some tribes succeeded in building substantial pools of wealth,
primarily from gaming businesses. This newfound casino wealth, though,
cannot make up for the decimation of Native peoples or the destruction
of traditional Native economies. Native Americans on average continue to
suffer disproportionate poverty.
From the earliest years of European settlement until the 1860s, African
Americans were assets to be tallied in the financial records of their owners.
They could be bought and sold, they created more wealth for their owners
in the form of children, they had no rights even over their own bodies, and
they worked without receiving any wages. Slaves and their labor became
the basis of wealth creation for plantation owners, people who owned and
operated slave ships, and companies that insured them. This was the most
fundamental of wealth divides in American history.

The Causes of Inequality 45
At the end of the Civil War, there was an opportunity to create a new
starting line. In the first few years, the Freedmen’s Bureau and the occu-
pying Union army actually began to distribute land to newly freed slaves:
the famous “40 acres and a mule,” a modest enough way to begin. But the
Freedmen’s Bureau was disbanded a�er only seven years, and the over-

whelming majority of land that freed slaves had been allotted was returned
to its former white owners. Unable to get a foothold as self-employed farm-
ers, African Americans were forced to accept sharecropping arrangements.
While sharecroppers kept some part of the fruits of their labor as in-kind
income, the system kept them perpetually in debt and unable to accumu-
late any assets.
In 1883, the Supreme Court overturned the Civil Rights Act of 1875,
which had given blacks the right to protect themselves and their property.
By 1900, the Southern states had passed laws that kept African Americans
separate and unequal, at the bottom of the economy. They began migrat-
ing to the North and West in search of opportunity.
Amazingly, some African-American families did prosper as farmers and
businesspeople in the early 20th century. Some African-American commu-
nities thrived, even establishing their own banks to build savings and in-
vestment within the community. However, there was particular resentment
against successful African Americans, and they were o�en targets of the vigi-
lante violence common in this period. State and local governments helped
vigilantes destroy their homes, run them out of town, and lynch those “up-
pity” enough to resist, and the federal government turned a blind eye. Some-
times entire black communities were targeted. For example, the African-
American business district in north Tulsa, known as the “Black Wall Street”
for its size and success, was torched on the night of June 21, 1921 by white
rioters, who destroyed as many as 600 black-owned businesses.
The Depression wiped out black progress, which did not resume at all
until the New Deal period. Even then, African Americans were o�en barred
from the new asset-building programs that benefited whites. Under Social
Security, workers paid into the system and were guaranteed money in retire-
ment. However, domestic and agricultural work—two of the most signifi-
cant black occupations—were excluded from the program. Unemployment
insurance and the minimum wage didn’t apply to domestic workers or farm
workers either. Other programs were also tilted toward white people. The
Home Owners’ Loan Corporation was created in 1933 to help homeowners
avoid foreclosure, but not a single loan went to a black homeowner.
Following World War II, a number of new programs provided a ladder
into the middle class—for whites. The GI Bill of Rights and low-interest

46 The Wealth Inequality Reader
home mortgages provided tax-funded support for higher education and for
homeownership, two keys to family wealth building. The GI Bill provided
little benefit to black veterans, however, because a recipient had to be ac-
cepted into a college—and many colleges did not accept African-American
students. Likewise, housing discrimination meant that homeownership op-

portunities were greater for white families; subsidized mortgages were o�en
simply denied for home purchases in black neighborhoods.
In The Cost of Being African American, sociologist Thomas Shapiro shows
how, because of this history, even black families whose incomes are equal
to whites’ generally have unequal economic standing. Whites are more like-
ly to have parents who benefited from the land grants of the Homestead
Act, who have Social Security or retirement benefits, or who own their own
homes. With their far greater average assets, whites can transfer advantage
from parents to children in the form of college tuition payments, down pay-
ments on homes, or simply self-sufficient parents who do not need their
children to support them in old age.
These are the invisible underpinnings of the black-white wealth gap:
wealth legally but inhumanely created from the unpaid labor of blacks,
the use of violence—o�en backed up by government power—to stop black
wealth-creating activities, tax-funded asset building programs closed to
blacks even as they, too, paid taxes. The playing field is not level today. For
Thirty-five blocks in Greenwood, a prosperous African-American business district in Tulsa,
were destroyed by white rioters on June 1, 1921.

The Causes of Inequality 47
example, recent studies demonstrate that blatant race discrimination in hir-
ing persists. But even if the playing field were level, the black/white wealth
gap would still be with us.
At the time of the American Revolution, Spain, not England, was the larg-
est colonial landowner on the American continents. Unlike the English,
the Spanish intermarried widely with the indigenous populations. In the
20th century, their descendents came to be identified as a distinct, nonwhite
group. (In the 1800’s, Mexicans were generally considered white.) Today, La-
tinos come from many countries with varied histories, but the relationship of
Mexicans to the United States is the longest, and people of Mexican descent
are still the largest Latino group in the United States (67% in 2002).
Mexico won its independence from Spain in 1821. Three years later, the
Monroe Doctrine promised the newly independent nations of Latin America
“protection” from interference by European powers. However, this doctrine
allowed the United States itself to intervene in the affairs of the entire hemi-
sphere. Ever since, this paternalistic relationship (reminiscent of the “trust”
relationship with Native tribes) has meant U.S. political and economic domi-
nance in Mexico and Central and South America, causing the “push and pull”
of the people of those countries into and out of the United States.
Mexicans and Anglos fought together to free Texas from Mexican rule, cre-
ating the Lone Star Republic of Texas, which was then annexed to the United

States in 1845. Three years later, the United States went to war against Mex-
ico to gain more territory and continue fulfilling its “manifest destiny”—its
God-given right—to expand “from sea to shining sea.” Mexico lost the war
and was forced to accept the 1848 Treaty of Guadalupe Hidalgo, which
gave the United States half of Mexico’s land. While individual Mexican
landowners were at first assured that they would maintain ownership, the
United States did not keep that promise, and the treaty ushered in a huge
transfer of land from Mexicans to Anglos. For the first time in these areas,
racial categories were used to determine who could obtain land. The Eng-
lish language was also used to establish Anglo dominance; legal papers in
English proving land ownership were required, and many Spanish speak-
ers suffered as a result.
In the twentieth century, government policy continued to reinforce a
wealth gap between Mexicans and whites. The first U.S.-Mexico border patrol
was set up in 1924, and deportations of Mexicans became commonplace.
Like African Americans, Latino workers were disproportionately represent-
ed in the occupations not covered by the Social Security Act. During World

48 The Wealth Inequality Reader
War II, when U.S. farms needed more agricultural workers, the federal gov-
ernment established the Bracero program, under which Mexican workers
were brought into the United States to work for subminimum wages and
few benefits, then kicked out when their labor was no longer needed. Even
today, Mexicans continue to be used as “guest”—or really, reserve—work-
ers to create profits for U.S. agribusiness.
The North American Free Trade Agreement, along with the proposed Cen-
tral American Free Trade Agreement and Free Trade Agreement of the Ameri-
cas, is the newest incarnation of the Monroe Doctrine. Trade and immigra-
tion policies are still being used to maintain U.S. control over the resources
in its “back yard,” and at the same time to deny those it is “protecting” the
enjoyment of the benefits to be found in papa’s “front yard.”
The first Asian immigrants, the Chinese, came to the United States at the
same time and for the same reason as the Irish: to escape economic distress
at home and take advantage of economic opportunity in America. Like Eu-
ropean immigrants, the Chinese came voluntarily, paying their own pas-
sage, ready and willing to seize the opportunity to build economic success
in a new land. Chinese and Irish immigrants arrived in large numbers in
the same decade, but their economic trajectories later diverged.
The major reason is race. While the Irish, caricatured as apes in early car-
toons, were soon able to become citizens, the Naturalization Act of 1790
limited eligibility for citizenship to “whites.” Asians did not know if they

were white or not—but they wanted to be! The rights and benefits of “white-
ness” were obvious. Other Americans didn’t know whether or not they were
white, either. Lawsuits filed first by Chinese, then by Japanese, Indian (South
Asian), and Filipino immigrants all claimed that they should be granted
“white” status. The outcomes were confusing; for example, South Asians,
classified as Caucasian, were at first deemed white. Then, in later cases, courts
decided that while they were Caucasian, they were not white.
A series of laws limited the right of Asians to create wealth. Chinese im-
migrants were drawn into the Gold Rush; the Foreign Miners Tax, however,
was designed to push them out of the mining industry. The tax provided
25% of California’s annual state budget in the 1860s, but the government
jobs and services the tax underwrote went exclusively to whites—one of the
first tax-based racial transfers of wealth. And with the passage of the Chi-
nese Exclusion Acts in 1882, the Chinese became the first nationality to be
denied the right to join this immigrant nation; the numbers of Chinese-
American citizens thus remained small until the 1960s.

The Causes of Inequality 49
The next wave of Asians came from Japan. Excellent farmers, the Japanese
bought land and created successful businesses. Resentment led to the pas-
sage of the 1924 Alien Land Act, which prohibited noncitizens from owning
land. Japanese Americans then found other ways to create wealth, includ-
ing nurseries and the cut flower business. In 1941, they had $140 million
of business wealth.
World War II would change all that. In 1942, the Roosevelt administra-
tion forced Japanese Americans, foreign-born and citizen alike, to relocate
to internment camps in the inland Western states. They had a week to dis-
pose of their assets. Most had to sell their homes and businesses to whites
at fire sale prices—an enormous transfer of wealth. In 1988, a successful
suit for reparations gave the survivors of the camps $20,000 each, a mere
fraction of the wealth that was lost.
Today, Asians are the group that as a whole has moved closest to eco-
nomic parity with whites. (There are major variations in status between
different Asian nationalities, however, and grouping them masks serious
problems facing some groups.) While Asian immigrants have high poverty
rates, American-born Asians have moved into professional positions, and
the median income of Asians is now higher than that of whites. However,
glass ceilings still persist, and as Wen Ho Lee, the Chinese-American nuclear
scientist who was falsely accused of espionage in 2002, found out, Asians
are still defined by race and branded as perpetual foreigners.
The divergent histories of the Irish and the Chinese in the United States
illustrate the powerful role of race in the long-term accumulation of wealth.

Irish-Americans faced plenty of discrimination in the labor market: consider
the “No Irish Need Apply” signs that were once common in Boston store-
fronts. But they never faced legal prohibitions on asset ownership and citi-
zenship as Chinese immigrants did, or the expropriation of property as the
Japanese did. Today, people of Irish ancestry have attained widespread ma-
terial prosperity and access to political power, and some of the wealthiest
and most powerful men in business and politics are of Irish descent. Mean-
time, the wealth and power of the Chinese are still marginal.
* * * * *
Throughout history, federal policies—from constructing racial categories,
to erecting barriers to asset building by nonwhites, to overseeing transfers
of wealth from nonwhites to whites—have created the basis for the current
racial wealth divide. If the gap is to be closed, government policies will have
to play an important role.
It’s long past time to close the gap.

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