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The relation between capitalism and racism is both intimate and complex. In order to analyze this complex and contradictory relation, it is important to distinguish between the standard bourgeois model of capitalism and the historical development of capitalism. Given the space limitations, I can only develop the barest outline of the argument regarding the conflict between these two descriptions of capitalism —the model scenario and historical capitalism—and the acute contradictions of historical capitalism as such leading to racism in various forms. The historical and analytical plurality of forms of racism require their own extensive treatment as well. Here I will develop just the distinction between biological and sociological forms of racism and discuss briefly at the end what some French scholars have called “differential racism” under modern/postmodern capitalism (Balibar and Wallerstein 1991). There are other forms of neo-racism that are not discussed for lack of space (Balibar 1991; Guillaumin 1972). I will first describe the standard classical liberal model of capitalism. I then describe briefly the Hume-Smith version and its technical neoclassical analogue. Taken together, they are—for the most part—actually a deeper scientific defense of an idealized capitalism than the Hayekian/Austrian school version of free market ideology which many libertarians accept.

Racism and the Capitalist Model

The classical theory assumes a state that sets the rules of the game maintaining private property and competition. In the neoclassical formalization, a general rate of profit is obtained through competition leading to equilibrium in every market given the production structure and demand patterns. In this perfectly competitive model with free entry and exit, even when information is imperfect or costly, resources can still be allocated efficiently through the market system. The two welfare theorems state that such allocations are (Pareto) optimal and that through a redistribution of initial endowments, every (Pareto) optimal allocation can be sustained as a competitive equilibrium.

In such a model racism, sexism or other forms of discrimination may arise from imperfect information and will impose a cost on the firm. Thus, in general equilibrium such discriminating firms will disappear. It is clear, therefore, that racism is inconsistent with the long run equilibrium in this model of a capitalist economy (Arrow and Hahn 1994; Debreau 1959; Stiglitz 1994; Osborne and Rubinstein 1994). While the 20th and 21st century Keynesian liberals are aware of the restrictive assumptions of the model and therefore, of its limitations, conservatives like Milton........

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