The legacy of racism pervades the financial system to this day – African-Americans are still discriminated against on the basis of a long-disproven methodology.
Frederick Hoffman’s conclusion was decisive: black Americans were better off under slavery, and three decades following its abolition, were moving towards «gradual extinction», he wrote in 1896. The statistician’s research was funded by U.S. insurer Prudential – and was gobbled up by academics and business leaders at the time.
Hoffman, a 27-year-old German immigrant when he penned the 330-page «Race Traits and the Tendencies of the American Negro», laid much of the mathematical basis for how insurance policies are calculated. A prolific academic writer on public health issues, Hoffman’s legacy is tinged with racist views: he argued, for example, that African-Americans had a higher rate of mortality because they were more dangerous and violent than white Americans.
Academia Meets Industry
Hoffmann (pictured below) peppered his statistical findings with demographics of African-Americans and those of mixed race with data from hospitals and correctional facilities. His aim, he said, was to illustrate «the powerful influence of race in the struggle for life».
Ultimately, Hoffman fell prey to the simple tautology that plagued other scientists and researchers at the turn of the last century: black Americans died earlier because they are inferior and inversely, they are inferior because they die earlier than their white counterparts. 

Prudential, a U.S. insurer founded in 1875, found in Hoffman what it had hoped for: a seemingly objective analysis that African-Americans were «uninsurable,» underpinned with statistical and mathematical arguments. The move legitimized a widespread view in the insurance industry that writing policies for African-American clients would impede their competitiveness and growth prospects.
Flawed Methodology
The methodology popularized by Hoffman in «Race Traits» drew some criticism soon after its publication: he had neglected to embed socioeconomic data as well as «conditions of life». Had he done so, Hoffman would have found vastly divergent mortality rates among African-Americans.
However, the overarching response to Hoffman’s book was favorable, and it allowed Pru and other insurers as well as banks to deny coverage or banking services like credit to African-Americans. It also laid the foundation for other mathematicians and statisticians in the insurance industry to argue that the U.S. had a «negro problem» which effectively curbed the competitiveness of the burgeoning economic superpower.
Paving the Way for Industry
Hoffman’s book is drawing renewed scrutiny in the wake of George Floyd’s violent death in Minneapolis two weeks ago. Hoffman’s views that African-Americans are predisposed to higher rates of crime echo in current events, and ignores that the statistics of crime among middle-class whites and blacks are largely comparable.
Newark, NJ-based Prudential paved the way to tie the ideas introduced in Hoffman’s «Race Traits» to rational, profit-oriented economic thinking. The hallmarks of this school of thought remain an economic reality for many Americans to this day (one need only take in a December expose by the «New York Times» on J.P. Morgan’s private bank).
Systemic Discrimination
Countless anecdotes of everyday racism – such as the Detroit bank which called police on a man trying to cash a check – undermine efforts to dismantle inequality. Those include the 1968 Fair Housing Act which prohibits discriminatory lending, and the «Community Reinvestment Act» in 1977, which sought to eliminate «redlining,» or practices that put services like banking out of reach for residents of certain areas based on race.
The legislation proved effective at the time, but racial protests in the U.S. make clear that vestiges of racism still seep through the financial system. A recent investigation by «Citylab» illustrated that banks are still differentiating «black neighborhoods» versus those with predominantly white residents in their lending practices, for example.
Accentuating the Gap
U.S. consulting firm McKinsey highlighted in a 2019 study that African-Americans are underbanked – and pay more for the services they draw. And think-tank demonstrated how the super-wealthy growing richer accentuates the racial wealth divide.
Black American families are about 20 times more likely to have zero or negative wealth (or bottom-line debt) than they are to have $1 million or more in assets, according to a 2016 study. One hundred twenty-four years after Hoffman’s «Race Traits» was first published, finance is still beset with its troubling ideology.

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