Philip Payton Jr.—The Crusading Capitalist Who Outwitted New York’s Racist Landlords: New at Reason

The former residents of two square blocks at West 98th and 99th Streets in Manhattan have been holding annual neighborhood reunions since the mid-1950s, when the federal government bulldozed their homes in a "slum clearance project" spearheaded by Robert Moses.

This formerly all-black enclave was home to an A-list of black artists and intellectuals, including singer Billie Holiday, historian Arturo Schomburg, poet James Weldon Johnson, and actor Robert Earl Jones. Bordering Central Park, the community was settled in 1905 in an area with modern housing and easy access to the city's brand new subway.

The founder of the community was an African-American realtor named Philip Payton Jr., also known as "the father of Harlem." His role in the formation of what would later become the cultural capital of black America is well established. Less appreciated is the economic philosophy that guided his life's work.

Payton was an unabashed free-marketeer whose approach, as one headline writer put it, was "to make the color line costly." He believed that property owners participating in racial covenants could be forced to pay a penalty in a competitive marketplace, and that even bigoted landlords might choose "profit over prejudice" when faced with the choice.

"Race prejudice is a luxury, and like all other luxuries, can be made very expensive in New York City," Payton wrote in his company prospectus.

Payton anticipated by more than half a century some of the insights in Gary Becker's The Economics of Discrimination (1957), part of a body of work that earned Becker a Nobel Prize. He observed, as did Payton, that in a market economy, bigots who discriminate against blacks must "either pay or forfeit income for this privilege."

Just as a refusal to hire blacks means that an employer must forgo worthy employees and pay higher salaries, refusal to rent to blacks means that a landlord must forgo worthy tenants and accept less in rent. "The man who exercises discrimination pays a price for doing so," as Milton Friedman wrote in his landmark Capitalism and Freedom (1962).

Payton understood that he could exploit this market reality to buy buildings at a discount, and to sway even bigoted landlords to rent to blacks to maximize their incomes. In a racist society, with fewer options open to them in the housing market, blacks tended to pay higher rents for equivalent properties. Payton recognized he could use this regrettable fact to undermine racial covenants. "The very prejudice which has heretofore worked against us can be turned and used to our profit," he wrote.

Through competition, in theory, race-based price differentials would narrow over time. As Friedman wrote in Capitalism and Freedom, "there is an economic incentive in a free market to separate economic efficiency from other characteristics of the individual."

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