“Capitalism is structurally racist.”
You’ve probably seen this claim in think pieces, academic papers, or social media debates. The argument suggests that capitalism, as an economic system, inherently creates and perpetuates racial inequality. It’s a serious charge that deserves serious examination.
But before we dive into whether capitalism promotes or prevents racism, we need to establish something important: racism describes thoughts, feelings, and behaviors—things that only individuals possess. Systems don’t have thoughts, feelings, or behaviors. They don’t possess the agency required to be “racist” or “not racist.”
Yes, this might sound like we’re splitting hairs. And no, pointing this out doesn’t change the very real experiences of discrimination that people face every day. But the distinction matters enormously when we’re trying to understand where problems actually come from and, more importantly, how to fix them.
Individuals can certainly be racist. They can use various systems—economic, political, or social—to impose rules and laws that have racist intent and lead to discriminatory outcomes. But the system itself? It’s a tool, not an actor. Blaming the hammer for hitting the nail crooked might feel satisfying, but it won’t help you build a better house.
Now, let’s apply this understanding to capitalism. As we’ve established throughout this series, capitalism is an economic system based on private ownership, voluntary exchange, and individual decision-making. It implies certain legal protections for individuals, their choices, and their property.
Capitalism doesn’t—and can’t—force interpersonal interaction. As a system, it can’t care about anything because systems can’t care. What it does do is create incentives. And here’s where things get interesting.
Capitalism incentivizes individuals to solve other people’s problems effectively. If you can provide something people want at a price they’re willing to pay, you succeed. If you can’t, you don’t. The system rewards value creation, not identity characteristics.
Milton Friedman captured this perfectly: “The great virtue of a free market system is that it does not care what color people are; it does not care what their religion is; it only cares whether they can produce something you want to buy.”
This is just practical economics. In competitive markets, discrimination is expensive.
Think about a restaurant owner who refuses to serve customers based on race. What happens? They’re literally turning away money. Their competitors, who serve everyone, capture that lost business. Over time, the discriminating restaurant either changes its practices or goes out of business.
The same logic applies to employment. An employer who refuses to hire qualified workers based on race artificially limits their talent pool. They end up with less capable employees than competitors who hire based on merit. This makes them less competitive, less profitable, and ultimately less likely to survive in the market.
History backs this up. During the Jim Crow era in the American South, many segregation practices required government enforcement precisely because market forces pushed against them. Streetcar companies opposed segregation laws, not out of moral enlightenment but because segregated seating reduced ridership and profits. Many businesses wanted to serve all customers, but were legally prohibited from doing so.
This reveals something crucial: discrimination often persists not because of capitalism but despite it. When governments step in to enforce racial preferences—whether through Jim Crow laws, apartheid, or other discriminatory policies—they’re overriding market incentives that push toward inclusion.
Consider how different market systems are from political systems in this regard. A politician can win by appealing to 51% of voters while completely ignoring or even antagonizing the other 49%. But a business that ignores 49% of potential customers? That’s leaving enormous profits on the table. Even small minorities represent profitable market segments that businesses compete to serve.
Of course, none of this means markets magically eliminate all racism or that discrimination doesn’t create real economic harm. When we look at persistent racial wealth gaps, we need to examine what’s actually causing them.
Often, the biggest barriers aren’t market failures but market restrictions. Occupational licensing laws disproportionately exclude minorities from various professions. Zoning laws prevent more-affordable housing development in areas with good schools and job opportunities. Minimum wage laws can price inexperienced workers out of entry-level jobs that provide crucial first steps up the economic ladder.
These aren’t features of capitalism; they’re obstacles to it. They represent government interventions that, whatever their intent, create barriers to economic participation.
The historical record shows competitive markets have been powerful forces for breaking down racial barriers. Jewish merchants faced severe discrimination but found success in competitive industries where performance mattered more than prejudice. Asian immigrants, despite facing legal discrimination and even internment, built thriving businesses by identifying market needs and meeting them efficiently.
This pattern repeats globally: markets create spaces where marginalized groups can succeed despite prejudice because customers ultimately care more about getting value than about the vendor’s identity.
So, where does this leave us? If our goal is reducing racial economic disparities, we should focus on removing barriers to market participation rather than condemning markets themselves. This means, based on economic understanding, eliminating unnecessary licensing requirements, reforming exclusionary zoning laws, and removing regulations that make it harder to start businesses in underserved communities.
The path forward isn’t to abandon capitalism but to actually let it work. When people can freely exchange goods, services, and ideas based on mutual benefit rather than racial categories, prejudice becomes a costly indulgence that competitive pressures discourage.
In other words, insofar as it’s possible to ascribe human qualities to any system, capitalism is the opposite of racist. It creates powerful incentives for people to work together across racial lines, rewarding those who serve others effectively regardless of race.
This doesn’t mean we should ignore real discrimination or pretend markets solve everything automatically. But we should recognize that many racial economic disparities stem not from too much capitalism but from too little, from barriers that prevent people from fully participating in the market economy.
Because when markets are truly free and competitive, discrimination isn’t just morally wrong, it’s economically stupid. And in capitalism, stupid tends to be self-correcting.
Learn more about capitalism here.