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This is from Chapter 6 of All About Asset Allocation: The Easy Way to Get Started, by Richard A. Ferri, CFA.

A History of U.S. Equity Returns

Over the long term, an investment in U.S. equities has delivered exceptionally good returns. As America prospered during the twentieth century, established companies grew and new companies in new industries were established. U.S. industry enjoyed steady earnings growth, even through two major world wars. As a result, U.S. companies paid reliable dividends, stocks increased in value, and shareholders profited.

From 1950 to 2004, the broad market for U.S. stocks returned 12.1 percent annually. That handily beat the 6.2 percent return on five-year Treasury notes and the 3.9 percent level of inflation. Table 6-1 is an after-inflation rate of return over different periods of time. The inflation-adjusted return is also known as the real return because it is the amount of purchasing power the investment created.

Table 6-1: Real U.S. Stock and Bond Returns

	1950–2004	1968–1982	2000–2004	Historic Average Over Inflation
U.S. stocks	8.2%	0.2%	-4.9%	5% to 7%
U.S. five-year T-note	2.3%	0.3%	5.1%	1% to 2%

Source: Standard & Poor’s; St. Louis Federal Reserve.

Real returns reinforce the fact that inflation is an invisible tax on all investments. The portion of return that is related to inflation cannot be counted as investment gain. When creating an asset allocation for your portfolio, you should always consider the expected real return of the investments you are considering.

It is not always easy to make a real return in the U.S. stock market. There have been several periods of time between 1950 and 2004 when U.S. equities did not perform well. For 15 years, from 1968 to 1982, the inflation-adjusted return of U.S. equities was barely above the rate of inflation. From 2000 to 2004, U.S. stocks lost 4.9 percent annually after accounting for inflation. If U.S. stocks average a real return of 5 percent from 2005 to 2010, over the entire 10-year period from 2000 to 2010, stock returns will return slightly greater than zero percent after inflation, and negative after income taxes.

Investors must expect periods of time when equities do not make money after inflation. That is the nature of investment risk. However, patience is a virtue. In the long run, equities have outpaced inflation by a wide margin, and they are expected to be one of the investments with the best real return in the future.

U.S. Equity Market Structure

When a company sells stock to the public for the very first time, it is distributed through a tightly controlled initial public offering (IPO). Investment bankers are hired to bring the company public and promote the shares. Investors who get the new shares tend to be large institutions that do significant business with the investment banker and friends of the officers of the company that is coming public. Individual investors who do relatively little business with large Wall Street firms and have no influence with management generally do not get access to the hottest IPOs. This is not the fairest system of distribution, but that is the way it works.

Once a stock is issued under the IPO process, it begins trading on the secondary market. Which stock exchange carries a new company depends on the company’s financial history and the value of the company. There are about 8,000 U.S. stock that trade actively in the U.S. equity market; however, only about half meet the criteria to trade on a major exchange. Companies must meet certain listing requirements to be eligible to trade on the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), or the National Association of Securities Dealers Automatic Quote System (Nasdaq). Companies that do not qualify for listing on the NYSE, AMEX, or Nasdaq are called bulletin board stocks or pink sheet companies.

Table 6-2: Approximate Number of Stocks on Each Exchange

Stocks Sorted By Exchange	Number of Companies	Percent of Total Market Value
New York Stock Exchange	1,665	80%
American Stock Exchange	375	<1%
Nasdaq	3,015	19%
Bulletin board stocks	3,500+	<1%

Source: Wilshire Associates.

Table 6-2 is a breakdown of where stocks trade in the United States. The table includes only individual U.S. common equities. It does not include listed bonds, preferred stocks, exchange-traded mutual funds, or foreign stocks listed on U.S. exchanges.

You can buy bulletin board stocks through a broker that has access to that dealer market. Years ago, dealers who were members of the National Quotation Bureau (NQB) would publish weekly bid and ask prices on bulletin board stocks on long sheets of pink paper, thus the name pink sheets. The list would be distributed to all brokerage firms. Brokers now refer to electronic pink sheets if one of their clients wants to buy or sell a nonlisted security.

The Broad Stock Market

Wilshire Associates is a privately owned investment firm with headquarters in Santa Monica, California. Since its founding in 1972, the company has developed a wide variety of U.S. indexes, one of which is the Dow Jones Wilshire 5000 Composite Index. The Wilshire 5000, as it is commonly known, was the first U.S. equity index to capture the return of the entire market of listed U.S. stocks. Those are the companies that are listed on the NYSE, AMEX, and Nasdaq. Bulletin board stocks are not included in Wilshire indexes.

When originally introduced in 1974, the Wilshire 5000 Index held 5,000 stocks, thus the name. Today, the number of stocks in the index depends on the number of stocks trading on the major U.S. stock markets, which equals about 5050.

The major criteria for inclusion in the Dow Jones Wilshire 5000 Composite Index are as follows:

• The company must be headquartered in the United States. Nondomiciled U.S. stocks and foreign issues (ADRs) are excluded.

• The stock must trade in the United States on the New York Stock Exchange, the American Stock Exchange, or Nasdaq.

• The stock must be the primary equity issue for the company.

• Common stocks, REITs, and limited partnerships are included.

• Bulletin board issues are excluded.

The Dow Jones Wilshire 5000 Composite is the most complete broad market index; however, there are several other broad market indexes. They include the MSCI US Broad Market Index (~3,800 stocks), Russell 3000 (~3,000 stocks), Dow Jones Total Market Index (~1,625 stocks), Morningstar Total Market (~2,000+ stocks), and Standard & Poor’s 1500 (~1,500 stocks). There are several low-cost index funds available that attempt to match the return of these broad market indexes. A partial list of those funds is available at the end of this chapter.

Size and Style Opportunities

An investment in a total U.S. stock market fund is a solid foundation on which to base a stock allocation. From there, you can analyze various sectors of the U.S. stock market to possibly find an opportunity to add greater diversification through selectively overweighting one or more sectors. To do sector analysis, investors need a system for segmenting the market so that the sectors do not overlap.

Morningstar, Inc., in Chicago is a widely respected mutual fund and stock research company. The company has developed a comprehensive strategy for categorizing stocks that includes 97 percent of the U.S. equity market. The system is called the Morningstar Style Box. The nine-box grid divides stocks into three distinct size factors and three valuation factors. See Figure 6-1 for an illustration of the style box methodology. For a complete description of Morningstar’s methodology, refer to the Rulebook at http://indexes.Morningstar.com/.

Figure 6-1: Morningstar Style Box Methodology with Micro-Cap Added

Value	Core	Growth
LV	LC	LG	Large Cap
MV	MC	MG	Mid Cap
SV	SC	SG	Small Cap
Ultra Small			Micro Cap

One limitation of the Morningstar Style Box methodology is that it covers only about 2,000 of the largest stocks, thus overlooking more than 3,000 very small micro-cap issues that trade on U.S. exchanges. Accordingly, Figure 6-1 adds an extra micro-cap stock portion to the bottom of the Morningstar box to increase the coverage to 99% of the U.S. equity market.

The Morningstar Style Classification System

The Morningstar size classification system categorizes companies according to their free float market value. The free float market value is defined as a company’s outstanding market value less private block ownership. In other words, the free float market value of Microsoft stock does not include the value of the shares owned by Bill Gates. Free float is a common method of index construction that is widely becoming the standard for index providers.

The three Morningstar size classifications plus an extra micro-cap size cover 99 percent of the stock on the U.S. market. The four categories are:

• Large cap = largest 70 percent of investable market cap
• Mid cap = next 20 percent of investable market cap (70th to 90th percentile)
• Small cap = next 7 percent of investable market cap (90th to 97th percentile)
• Micro cap = remaining 2 percent of investable market cap (97th to 99th percentile)

As a reminder, the micro-cap portion is not a Morningstar style. I took the liberty of adding the box to show where that size category would fit if it were included in the Morningstar classification system. The micro-cap box completes the classification system so that it includes all stocks listed on the NYSE, AMEX, and Nasdaq. The only stocks not included are bulletin board stocks.

The Morningstar Style Classification System

All index providers classify companies by style as well as size. Different index providers determine value and growth using different methodologies. Some providers divide their indexes between growth and value. Morningstar divide theirs into three categories depending on fundamental characteristics. These categories are value, core, and growth. Morningstar categorizes companies using a multifactor model that consists of five variables. Table 6-3 highlights those five factors. The most influential factors in the equation are the stock’s price compared to its past earnings and price compared to projected earnings.

Table 6-3: Variables and Weights Used by Morningstar in Style Analysis

Value Factors	Growth Factors
Price/projected earnings (50%) Price/book (12.5%) Price/sales (12.5%) Price/cash flow (12.5%) Dividend yield (12.5%)	Long-term projected earnings growth (50%) Historical earnings growth (12.5%) Sales growth (12.5%) Cash flow growth (12.5%) Book value growth (12.5%)

Morningstar first calculates a company’s value score, then its growth score, and finally its overall style score by subtracting the value score from the growth score. If the result is strongly positive, the company is classified as growth If the result is strongly negative, the company is classified as value. If the value score minus the growth score is not sufficiently different from 0, the stock is classified as core.

Breakpoints for value, growth, and core are set so that over a three-year rolling period, each style represents one-third of the investable universe within each capitalization class. That keeps a nearly equal number of stocks in each style box. Morningstar reconstitutes each index twice annually (adding or removing stocks). It also rebalances the indexes quarterly (adjusting constituent weights).

Based on this methodology, the Wilshire 5000 Composite Index falls roughly into the boxes illustrated in Figure 6-2. Each box contains the number of stocks in that particular box and the percentage of the index represented by the box.

Figure 6-2: Average Number of Stocks in the Morningstar Style Boxes

Value	Core	Growth
81 23%	76 24%	68 23%	Large Cap (225—70%)
203 6%	230 7%	239 6%	Mid Cap 672—20%
342 2%	379 3%	352 2%	Small Cap 1073—7%
3080—3%			Micro—3%

The large-cap row holds 225 stocks, which is only 5 percent of the stocks in the Wilshire 5000 Composite Index. Yet those 225 stocks represent 70 percent of the free float market value of the entire listed U.S. stock market. It is interesting to note that it takes more than 3,000 micro-cap stocks to make up 3 percent of the listed market.

Performance by Size

The weighted-average market value of the stocks in an index has a profound effect on that index’s long-term performance. In the late 1970s, two academic researchers, Rolf Banz and Marc Reinganum, independently found that micro-cap stocks had a long-term return close to 5 percent per year higher than large-cap stocks. That fact was not a great revelation, since smaller stocks had much higher volatility than large stocks and were expected to return more. However, using new financial models of risk and return developed by William Sharpe, researchers Banz and Reinganum found that micro-cap stocks had higher-than-expected returns even after accounting for the extra volatility. Something else was going on in the micro-cap marketplace that was not being picked up by the return volatility numbers.

It was also interesting to Banz and Reinganum that sometimes the prices of micro-cap stocks moved in the opposite direction from large-cap stocks. That meant that the return on micro-cap stocks did not always correlate with the returns on the rest of the market. As a result, there may be a diversification benefit to owning micro-cap stocks in greater weight than the 3 percent position inherent in a total stock market index fund.

Table 6-3 offers excellent insight into the difference in return between the broad market and micro-cap stocks. The Russell 3000 Index is composed of the largest 3,000 stocks traded in the United States. The micro-cap index in Table 6-4 is derived by the Center for Research in Security Prices (CRSP). The CRSP Stock File Indices contain historical market summary data on all stocks traded no the NYSE, AMEX, and Nasdaq back to 1926.

Table 6-4: Comparing Micro-Cap Stocks to the Broad Market

	Russell 3000 Index	CRSP Micro Cap Index	CRSP Micro Cap Return minus the Russell 3000
1995	36.8	33.3	-3.5
1996	21.8	19.1	-2.7
1997	31.8	24.1	-7.7
1998	24.1	-7.9	-32.0
1999	20.9	32.2	11.3
2000	-7.5	-13.4	-5.9
2001	-11.5	34.2	45.7
2002	-21.6	-14.1	7.5
2003	31.6	78.4	46.8
2004	12.5	16.8	4.3

Notice the large differences in return between the CRSP Micro Cap Index and the Russell 3000 during 1998, 2001, and 2003. These differences are surprising considering that both indexes hold thousands of publicly traded U.S. companies. Generally, academics believe that in a broadly diversified portfolio, individual company risk is diversified away, leaving only market risk. Therefore, a random portfolio of 3,000 stocks diversified across several industries is expected to return very close to the same performance as another portfolio of 3,000 stocks diversified in the same manner. Clearly, that is not the case when one portfolio is made up of only micro-cap stocks. Micro-cap indexes have a unique risk factor above and beyond indexes of larger stocks that cannot be diversified away by adding more micro-cap stocks.

Figure 6-3 reflects the 36-month rolling correlation between the CRSP Total U.S. Market return, CRSP mid-cap stocks, and CRSP micro-cap stocks. The CRSP Total U.S. Market returns are almost exactly the same as those for the Dow Jones Wilshire 5000 Index, only the data go back further. The CRSP Mid-Cap Index is highly correlated with the broad market. Consequently, a separate portfolio of mid-cap stocks has not been a good diversifier for investors who own a total stock market index fund. Micro caps are a different story. At times there is a high positive correlation between micro caps and the total stock market, and at other times the correlation is lower. The varying correlation signals diversification potential.

A portfolio that has an overweighting in micro-cap stocks acts differently from a total stock market portfolio. Figure 6-4 illustrates the theoretical diversification benefit that was achieved by adding 10 percent increments of CRSP micro-cap stocks to a total stock market index fund.

Had it been possible, over the 30-year period from 1975 to 2004, a portfolio of 80 percent in a total stock market index fund and 20 percent in a micro-cap index fund would have increased U.S. returns by 1.1 percent with a small increase in risk. However, the returns in Figure 6-4 are theoretical because there were no total market index funds or micro-cap index funds in 1975. That is not the case today. You can now purchase a low-cost no-load total stock market index fund and a micro-cap index fund.

The more than 3,000 micro-cap stocks that trade actively on U.S. exchanges count for only 3 percent of the value of the entire listed market. Accordingly, the performance of micro-cap stocks does not have a large impact on the performance of the broad market. Overweighting micro-cap stocks in a portfolio as a separate U.S. stock category has had diversification benefits in the past and may add diversification benefits in the future.

Finding a Micro Cap Fund is Difficult

Now the bad news: It is very difficult to find a low-cost broadly diversified micro-cap fund that is still open to the public. Most micro-cap index funds are closed to new investors or are available only through a paid investment advisor. Sometimes a closed fund will reopen to the public for a short period of time. When that occurs, you have to be ready to invest. That means monitoring certain funds for potential opening dates.

There are micro-cap funds that are open to all investors all the time, but be careful in your selection. Some of these funds have a high sales commission, others have exorbitant management fees, and still others invest only a portion in micro-cap stocks and the rest in small- and mid-cap stocks.

If a brand new fund is open, make sure the average market weight of the companies in the fund is less than $300 million and that it will be widely diversified, with at least 500 companies. Also ensure that the total expense is below 1 percent and that there is no commission to buy or sell shares.

–Richard A. Ferri, CFA, All About Asset Allocation: the Easy Way to Get Started (2006), pp. 84-95

The following essays have been newly transcribed for our online edition of Benjamin Tucker’s Instead of a Book, by a Man Too Busy to Write One, offering an exchange between Benjamin Tucker and J. Greevz Fisher over money, banking, the gold standard, and the labor theory of value:

• Government and Value
• The Power of Government Over Values
• Free Trade in Banking
• Currency and Government
• The Equalization of Wage and Product

This is from David Lewis’s Philosophical Papers, Volume I (1983):

C. Fiction in the Service of Truth

There are some who value fiction mostly as a means for the discovery of truth, or for the communication of truth. Truth in Fiction had nothing to say about fiction as a means to truth. But the topics can indeed be connected.

Most simply, there may be an understanding between the author and his readers to the effect that what is true in his fiction, on general questions if not on particulars, is not to depart from what he takes to be the truth. (Indeed, such an understanding might extend to particular matters as well. Imagine a scandalous political exposé, by an insider, with characters called Nicksen, Hague, Wagoner, Bondsman, ….) Then the audience, if they know that the author is well informed, could learn the truth by figuring out what is true in his fictions. Further, the author might discover some truth in the course of trying to keep his side of the bargain.–Doubtless this is not quite what people have in mind when they speak of the cognitive value of literature! Let us find something a bit loftier for them to mean.

Fiction might serve as a means for discovery of modal truth. I find it very hard to tell whether there could possibly be such a thing as a dignified beggar. If there could be, a story could prove it. The author of a story in which it is true that there is a dignified beggar would both discover and demonstrate that there does exist such a possibility. An actor or a painter might accomplish the same. Here the fiction serves the same purpose as an example in philosophy, though it will not work unless the story of the dignified beggar is more fully worked out than our usual examples. Conversely, note that the philosophical example is just a concise bit of fiction.

More importantly, fiction can offer us contingent truths about this world. It cannot take the place of nonfictional evidence, to be sure. But sometimes evidence is not lacking. We who have lived in the world for a while have plenty of evidence, but we may not have learned as much from it as we could have done. This evidence bears on a certain proposition. If only that proposition is formulated, straightaway it will be apparent that we have very good evidence for it. If not, we will continue not to know it. Here, fiction can help us. If we are given a fiction such that the proposition is obviously true in it, we are led to ask: and is it also true simpliciter? And sometimes, when we have plenty of unappreciated evidence, to ask the question is to know the answer. Then the author of the fiction has made a discovery, and he gives his readers the means to make that same discovery for themselves.

Sometimes the proposition learned may be one that we could formulate, once we have it in mind, without reference to the fiction that drew our attention to it. Not so in general. Sometimes reference to a fiction is the only way we have, in practice if not in principle, to formulate the truths that the fiction has called to our attention. A schlemiel is someone such that what is true of him strikingly resembles what is true in a certain fiction of a certain character therein, Schlemiel by name. Temporarily or permanently, first for those who know the story and then for others (like myself) who don’t, the word schlemiel is indispensible in stating various truths.

So fiction can indeed serve truth. But we must beware, for also it can spread error. (1) Whatever understandings to the contrary might prevail, what is true in an author’s fiction might not be true, either because the author is mistaken or because he wishes to deceive those who rely on the supposed understanding. (2) Under the method of union, several things might be true together in a fiction, but not really compossible. Then the fiction might persuade us of a modal falsehood, leading us to believe in a possibility that doesn’t really exist. (3) If we have plenty of misleading evidence stored up, there may well be falsehoods that need only be stated to be believed.

–David Lewis, Truth in Fiction (1978), in Philosophical Papers, Volume I (1983), pp. 278–279.

The first issue of the journal Mind: A Quarterly Review of Psychology and Philosophy (Vol. 1, No. 1, January 1876), is now available in full at the Fair Use Repository. Featured articles include:

• Prefatory Words, by the editor, George Croom Robertson, discussing the context and aims of the new journal
• The Comparative Psychology of Man, by Herbert Spencer
• Physiological Psychology in Germany, by James Sully
• Consistency and Real Inference, by John Venn
• The Theory of Evolution in its application to Practice, by Henry Sidgwick
• Philosophy and Science, I by Shadworth Hodgson
• Philosophy at Oxford, by Mark Pattison, Rector of Lincoln College
• The Early Life of James Mill, by Alexander Bain
• Critical Notices, Reports on journals, short Notes on research, New Books, and News.

This is from Chapter 2, The Political Economy of Slavery and Secession, of J. R. Hummel’s overview history of the American Civil War, Emancipating Slaves, Enslaving Free Men, in a section entitled Overworking the Slaves.

Nearly three-quarters of America’s slaves toiled on plantations or farms in 1860, and the proportion was climbing. Most of these bondsmen were in the South’s cotton belt; others grew sugar in lower Louisiana, rice along the coast of South Carolina and Georgia, or tobacco in Virginia. For the greater number of them, self-purchase was almost certainly unfeasible even had it been legal. Large plantations were the one place where free white labor could not compete effectively against black slave labor. The reason? The threat of the lash compelled field hands to work longer, or perhaps harder, than anyone would for market wages.

During peak seasons, black drivers herded gangs of men and women into agricultural assembly-lines that labored from sunup to sundown. Edmund Ruffin, a militant apologist for the peculiar institution, saw this as the source of its superior productivity: Slave labor, in each individual case, and for each small measure of time, is more slow and inefficient than the labor of a free man…. But the slave labor is continuous…. Free laborers, if to be hired for the like duties, would require at least double the amount of wages to perform one-third more labor in each day. Planters moreover put women into the fields, even when pregnant or soon after childbirth, and children beginning around ages eight to twelve. Slaves too old for field work took over the care of infants along with other light household duties. As a result of the plantation’s full employment regime, two-thirds of slaves participated in the labor force, compared with only one-third for free populations, North and South.

These slaves were being worked well beyond the point where the value of their output could cover a wage that would attract free laborers. One implication of Robert William Fogel and Stanley L. Engerman’s well-known and much-criticized study of American slavery is that a single field hand’s labor on large plantations was worth $52 per year more than the cotton he produced. If free and receiving the full value of their output, these blacks would have done less work and consumed more leisure, or perhaps done work that produced less but was more fun or interesting or had other non-pecuniary rewards.

In these instances, where planters compelled laborers to give up leisure or on-the-job rewards, slavery did raise the economy’s physical output. This, too, however, represented a misallocation of labor, a misallocation that made aggregate production too high rather than too low, because the extra output came at the expense of total well-being. Each additional hour of labor was producing less than its value to the laborer as leisure. In other words, for every dollar that slavery drove up southern output it drove up deadweight loss as well. Fogel and Engerman put this loss for the South overall at $7 million in 1850 alone.

The ultimate gainers from this increased cotton production were primarily consumers. Higher output drove down cotton prices and caused a redistribution from black slaves to American, English, and continental wearers of clothing. But since there were many more of them, these benefits were thoroughly dispersed. One estimate is that every dollar gained by the typical user of cotton cloth imposed a welfare loss of $400 on some individual slave. Although the planter usually earned a competitive return on his chattels, American blacks were being deprived of leisure so that millions of workers elsewhere could live slightly better.

To summarize, so long as we concentrate on the behavior of blacks, the peculiar institution pushed the South’s aggregate production of goods and services in two conflicting directions. Insofar as slavery forced laborers to work at less valued jobs, it lowered output. Insofar as slavery forced laborers to work more hours or more intensely, it raised output. Since increased output predominated in southern agriculture, it undoubtedly swamped the reduction in output, which must have been most common in the South’s urban areas. The adverse impact on aggregate well-being was unambiguous, however. For calculating slavery’s deadweight loss, the two tendencies, rather than counteracting each other, add together. And while bondsmen bore most of this burden, their effective exclusion from mor highly valued jobs hurt some white Southerners as well.

–Jeffrey Rogers Hummel, Emancipating Slaves, Enslaving Free Men: A History of the American Civil War (1996). 45–47.

This is from the fifth chapter, Eugenic Solutions, in Diane Paul’s summary history, Controlling Human Heredity: 1865 to the Present.

Eugenics did enjoy support from some socialists, most notably members of the Fabian Society, who rejected laissez-faire in favor of a planned economy and establishment of a National Minimum–a guaranteed level of health, education, wages, and employment. Founded in 1900, the society was committed to reform from above rather than revolution from below. While the Fabians condemned capitalism, their ideal was a scientifically planned society that would empower experts rather than workers. The Fabians envisioned a nation managed by people much like themselves: middle-class, professionals, such as doctors, scientists, teachers, and social workers. The society also attracted a number of important literary figures, including George Bernard Shaw, who believed that there is now no reasonable excuse for refusing to face the fact that nothing but a eugenic religion can save our civilisation, and H. G. Wells, who argued for the sterilization of failures on the grounds that the way of Nature has always been to slay the hindmost, and there is still no other way, unless we can prevent those who would become the hindmost being born (Wells 1905, 60; Shaw 1905, 74). Plays like Shaw’s Man and Superman (1903) and novels like Wells’s A Modern Utopia (1905) probably did more than any academic studies to popularize the concept of selective breeding.

Fabian socialism and eugenics shared the conviction that laissez-faire was a bankrupt philosophy that should be replaced by planning based on social needs. The geneticist Lancelot Hogben noted: Negative eugenics is simply the adoption of a national minimum of parenthood, and extension of the principle of national minima familiarized in the writings of Sidney and Beatrice Webb. It is thus essentially en rapport with the social theory of the collectivist movement (1931, 210). Sidney Webb himself enthusiastically endorsed the claim: No consistent eugenist can be a Laisser Faire individualist unless he throws up the game in despair. He must interfere, interfere, interfere! (1910–11, 237).

Fabians were often nationalist and imperialist, though few went as far as Wells, who bluntly asserted that there is only one sane and logical thing to be done with a really inferior race, and that is to exterminate it (quoted in Trombley 1988, 32; see also Coren 1993, 65–67). But they vacillated in their attitudes toward the poor, viewing them sometimes with sympathy, sometimes with contempt. The tension between two images of the poor–as exploited and as unfit–was reflected in the Fabian political program, which promoted eugenics simultaneously with measures for improved health, education, and welfare (Kramnick and Sheerman, 1993, 37).

Fabians tried to resolve this tension by strongly distinguishing the prudent working class from its residuum. They were as alarmed as conservatives at the purported fecundity of the lower classes. Thus the Fabian theorist Harold Laski (who worked briefly in Karl Pearson’s laboratory) warned that the unfit were outbreeding the fit and that society must learn to regard the production of a weakling as a crime against itself if it were not to commit race suicide (1910, 25–34; see also Kramnick and Sheerman, 1993, 30–48). Many others agreed. Laski’s alarmist view was echoed by Eden Paul: Unless the socialist is a eugenicist as well, the socialist state will speedily perish from racial degradation (1917, 139), while Wells asserted that we cannot go on giving you health, freedom, enlargement, limitless wealth, if all our gifts to you are to be swamped by an indiscriminate torrent of progeny (1922, xvi).

However, there was often a large disparity between the Fabians’ extreme rhetoric and their milder policy proposals, which rarely extended beyond segregation. Very few (other than Wells) supported coercive sterilization. Thus Havelock Ellis invoked terrifying images: When we are able to control the stream at its source we are able to some extent to prevent the contamination of that stream by filth, and ensure that its muddy floods shall not sweep away the results of our laborious work on the banks. But he repeatedly rejected coercive sterilization (Ellis 1914, 15–16, 30). In Ellis’s view, eugenics would be effective only if developed from a broader sense of social responsibility. Harold Laski had argued that any action with national consequences may be regulated by the state and urged that the unfit be prevented from breeding. But when it came to public policy, he asked only that the state influence the climate of public opinion. In the end, Laski would counter the threat of race suicide with education. In Britain, that was the best eugenicists could do.

Their inability to pass laws may lead us to dismiss the British eugenicists’ importance. But legislation is not the only–or perhaps even the best–measure of success. The eugenicists were extremely effective in popularizing a new Galtonian vocabulary. Whole sections of British society now took for granted that talent and character were inborn and fixed. Edgar Schuster and Ethel Elderton of the Galton Laboratory remarked, At the time of the first publication of Mr. Galton’s Hereditary Genius, in 1869, the belief in the hereditary nature of inborn natural ability was held by very few; but so great has been the influence of that and other works that at the present time it would be almost impossible to find an educated person to dispute it (1907, 1). This assumption had consequences far beyond programs of eugenical selection. It shaped policy in respect to medicine, law, and education.

In the United States, eugenicists did enjoy some legislative triumphs, although even here the greatest impact was probably ideological. As many scholars have noted, eugenics was congruent with the scientific and reformist spirit of the Progressive Era, a period of vast economic and social change between the collapse of Reconstruction and the start of the First World War (Allen 1989; Freeden 1979; Pickens 1968). When the Civil War ended in 1865, the United States was an agricultural country, which imported most of its technology. By the end of the century, its industrial output had tripled, with steel production exceeding the combined output of Britain and Germany (Painter 1987, xvii). The United States was now a major exporter of industrial equipment and consumer goods. Business and industry became highly consolidated, as small-scale competition gave way to a new system of corporate capitalism in which most sectors of the economy were dominated by a few giant firms. At the same time, the population became increasingly urban. In 1880, about a quarter of Americans lived in cities; by 1900, the figure was 40 percent. These cities now filled with immigrants from Europe and poor migrants from the rural South while middle-class residents moved to new streetcar suburbs.

The wealth so visibly created was very unequally distributed. At the turn of the century, the average workweek was about 60 hours, and the conditions in mines, mills, and factories were wretched; industrial discipline was harsh, and the work was exhausting and often dangerous. Widespread unemployment accompanied frequent and sometimes prolonged depressions. Signs of social disorder were everywhere: in strikes and walkouts that often ended in violence, in highly visible urban slums, in municipal corruption, in rising rates of crime, prostitution, alcoholism, and infectious diseases, in overcrowded prisons, and in asylums for the insane and feebleminded. The middle class demanded reforms that would both relieve distress and restore a stable social order. They called for factory inspection, child labor laws, a shortened workday, community clinics, probation and parole, a federal income tax, workmen’s compensation, the direct election of U.S. senators, prohibition. And eugenics.

The Progressive reforms involved a vast expansion in governmental authority. Whether Democrat or Republican, the Progressives shared a faith in the virtues of planning and the benevolence of the state. Their bywords were organization, cooperation, systematic planning, efficiency, and social control. Julia Lathrop, Hull House resident and later chief of the Children’s Bureau, summarized their credo: The success of our future civilization lies in government adding to their responsibility and taking on work which people have not hitherto been willing to entrust to them (quoted in Rothman 1980, 6). That work would be the province of disinterested experts.

To the Progressives, science provided a model of impartial expertise. Moreover, science, being disinterested, could provide unity to a society that seemed to be culturally disintegrating. Above all, science could supply the tools to manage humans and their environment efficiently (Tobey 1971, 12–19). Science could also address the root causes of social problems and not just their symptoms, like the state, it was assumed to be wholly benevolent. The Progressive attitude was expressed by Charles R. Van Hise, president of the University of Wisconsin:

We know enough about agriculture so that the agricultural production of the country could be doubled if the knowledge were applied. We know enough about disease so that if the knowledge were utilized, infectious and contagious diseases would be substantially destroyed in the United States within a score of years; we know enough about eugenics so that if the knowledge were applied, the defective classes would disappear within a generation. (quoted in Haller 1985, 76)

Van Hise was also active in the conservation movement, as were a number of prominent eugenicists such as Theodore Roosevelt, Gifford Pinchot, Madison Grant, and Charles Goethe. Both movements emphasized the need for planning and the welfare of future generations. Progressives, like Fabians (whom they resembled in many respects), vacillated between sympathy and contempt for the poor, supporting measures both to ameliorate their plight and to prevent them from breeding. Like the Fabians also, they tried to resolve the tension by distinguishing workers from what in America were called the defective or dangerous classes (those in Britain called the social residuum).

–Diane B. Paul, Controlling Human Heredity: 1865 to the Present (1995), pp. 75–78.

Critics of feminism from the Right have often painted all feminist demands in terms of liberal feminist claims for equity (for example, in the workplace), and caricatured those demands as a liberal demands that women simply become like men—the women’s own desires, the particularities of women’s lives, the needs of the family, and anything else that gets in the way be damned. Critics of feminism from the Left have often portrayed all feminist demands in terms of radical feminist opposition to sexual harassment, prostitution, pornography, and other objections to the sexualized denigration of women, and caricatured those demands as little more than kill-joy Right-wing puritanism, dressed up in progressive clothing. Catharine MacKinnon has argued that this double-bind may simply be the result of the male Right and the male Left’s inability to see any issue except on men’s terms, and so mistake feminist opposition to the Right as liberalism and feminist opposition to the Left as reaction. Consider, for example, how she illustrates her points of agreement, and conflict, with liberalism and conservatism—and draws out the vital importance of understanding feminism on its own terms, on women’s terms instead of men’s terms—in Not by Law Alone:

I speak as a feminist, although not all feminists agree with everything I say. Mrs. Schlafly speaks as a conservative. She and I see a similar world, but we portray it differently. We see similar facts but have very different explanations and evaluations of those facts.

We both see substantial differences between the situations of women and of men. She interprets the distinctions as natural or individual. I see them as fundamentally social. She sees them as inevitable or just—or perhaps inevitable therefore just—either as good and to be accepted or individually overcomeable with enough will and application. I see women’s situation as unjust, contingent, and imposed.

In order to speak of women as a feminist, I need first to correct Mrs. Schlafly’s impression of the women’s movement. Feminism is not, as she implicitly defines it, liberalism applied to women. Her attack on the women’s movement profoundly misconstrues feminism. Her critique of the women’s movement is an artifact, an application, of her long-standing critique of liberalism, just as her attack on the ERA is an artifact of her opposition to the federal government. Women as such are incidental, a subplot, not central, either to liberalism or to her critique. Liberalism defines equality as sameness. It is comparative. To know if you are equal, you have to be equal to somebody who sets the standard you compare yourself with. According to this approach, gender difference is the evil of women’s situation because it enforces the nonsameness of women and men. Feminism—drawing from socialist feminism lessons about class and privilege, from lesbian feminism lessons about sexuality, from the feminism of women of color lessons about racism and self-respecting communities of resistance—does not define equality this way. To feminism, equality means the aspiration to eradicate not gender differentiation, but gender hierarchy.

We stand for an end to enforced subordination, limited options, and social powerlessness—on the basis of sex, among other things. Differentiation, to feminism, is just one strategy in keeping women down. Liberalism has been subversive for us in that it signals that we have the audacity to compare ourselves with men, to measure ourselves by male standards, on male terms. We do seek access to the male world. We do criticize our exclusion from male pursuits. But liberalism limits us in a way feminism does not. We also criticize male pursuits from women’s point of view, from the standpoint of our social experience as women.

Feminism seeks to empower women on our own terms. To value what women have always done as well as to allow us to do everything else. We seek not only to be valued as who we are, but to have access to the process of definition of value itself. In this way, our demand for access becomes also a demand for change.

Put another way, Mrs. Schlafly and I both argue that in a sense, women are not persons, but but with very different meanings. When the right affirms women as women, it affirms woman’s body as a determinant of woman’s existing role, which it sees as her rightful place. Feminists criticize the social disparities between the sexes that not only exclude women from personhood as that has been defined, that noy only distort woman’s body and mind inseparably, but also define personhood in ways that are repugnant to us. Existing society’s image of a person never has represented or encompassed what we, as women, with women’s experience, either have had access to or aspire to.

Mrs. Schlafly opposes feminism, the Equal Rights Amendment, and basic change in women’s condition, as if the central goal of the women’s movement were to impose a gender-free society, as if we defined equality as sameness. This is not accurate. Our issue is not the gender difference but the difference gender makes, the social meaning imposed upon our bodies—what it means to be a woman or a man is a social process and, as such, is subject to change. Feminists do not seek sameness with men. We more criticize what men have made of themselves and the world that we, too, inhabit. We do not seek dominance over men. To us it is a male notion that power means someone must dominate. We seek a transformation in the terms and conditions of power itself.

—Catharine MacKinnon, from Not by Law Alone: From a Debate with Phyllis Schlafly (1982), reprinted in Feminism Unmodified (1987), pp. 21-23.

The following essays have been newly transcribed for our online edition of Benjamin Tucker’s Instead of a Book, by a Man Too Busy to Write One:

• Economic Hodge-Podge, on Henry George and the Georgist view of interest
• An Unwarranted Question, on Auberon Herbert and the English Individualist criticism of Anarchist views on interest
• An Alleged Flaw in Anarchy, continuing the dialogue with Auberon Herbert on interest
• Shall the Transfer Papers Be Taxed?, a discussion with J. Herbert Foster on banking discount and interest
• Money and Capital, continuing the dialogue with J. Herbert Foster on money, capital, and interest
• To-day’s View of Interest, discussing an article in the English Individualist journal To-day defending interest
• To-day’s Excellent Fooling, criticizing To-day‘s response to the prior article as an evasion
• Government and Value, arguing, in response to a claim by J. Greevz Fisher, that government monopoly inflates the value of gold and silver, and suppresses the value of other commodities that might be used for money.

This is from the first chapter, Living Underground, in Sudhir Alladi Venkatesh’s Off the Books:

Though you wouldn’t know it by looking at the dilapidated streets and empty lots, Maquis Park has a storied history. From the neighborhood’s beginnings in the mid-nineteenth century until the early 1900s, working-class Irish immigrants populated the community. The region as a whole changed in the mid-twentieth century. African Americans pushed southward from areas near the central business district in search of cheaper rents and better neighborhood conditions. They moved into communities like Maquis Park that had been largely closed off due to segregation, real estate discrimination, and redlining by banks. Migrants also came from the sharecropping American South, and their arrival by the thousands in Chicago meant that the ghetto was always on the verge of bursting at its seams. Maquis Park’s white homeowners had used restrictive covenants to prevent the sale of homes to blacks, but such resistance was futile in the face of overwhelming population growth and the expansion of the black community.

As their numbers grew, black Chicagoans built a Black Metropolis. Maquis Park became part of a broad area of black Southside settlement where migrants and native black Chicagoans could find comfort, opportunity, and a place of their own in the bustling city. But largely they were shunted off from much of that city due to the racism of their white neighbors and the ruling white machine. While they lobbied, protested, and struggled for their share, as a partial response they turned their energies inward. Maquis Park and its neighboring areas became a parallel urban world, integrated into Chicago yet set off because its inhabitants developed institutions that mirrored those of the larger metropolis but served mostly black Chicagoans. They forged what at the time was called a city within a city.

The Southside Black Metropolis would be alternatively celebrated and criticized. It held a thriving black press, prominent black businesses, healthy and active civic associations, and the kind of diversity and spontaneity one would expect to find in an urban milieu. It was known as Bronzeville, a term that honored the unrelenting spirit and commitment of black Americans to forge the good life. On the other hand, its residents were cut off from many political and economic resources, and they were largely unable to acquire homes or run businesses in white neighborhoods. Thus the Southside suffered overcrowding and inadequate housing, limited commercial development, high unemployment, and severe blight. A mansion might adjoin a transient hotel, and a row of shacks might sit opposite a thriving entertainment district. The most prosperous black Americans were reminded daily of the ceiling on social mobility that kept them segregated and that forced them to fend for themselves when the city’s institutions failed them. For this, they shouted at both the ruling political elites and their own black political representatives who worked in the city machine.

In their drive to provide for themselves, black Chicagoans developed an alternate, underground economy–one interrelated to, but distinct from, the wider urban political economy. Even though black laborers were a significant part of the city’s industrial and service sector labor force, there were not enough jobs available for black job seekers. So they worked for menial, off-the-books wages, often in their own community, as janitors and cleaners, waiters and entertainers, shoe shiners, tailors, house-painters, and general laborers. Whites would not hire black contractors for home repair, but they would turn to black women for domestic help, housecleaning, and child care, and they typically paid them under the table. Although black businesses flourished, there was inadequate financial assistance available from white-owned banks. So those starting businesses and those needing cash to survive a downturn went to unregulated creditors, loan sharks, and political bosses for a loan–for which they faced not only high interest rates but also physical harm if they were unable to repay. A significant share of this parallel economy involved criminal work, like numbers running and vice, in which not only were the earnings unreported but the activities themselves were illegal.

The outcome of all these practices was the emergence of a vibrant shady economy in Chicago’s Southside. Well into the postwar era, the Black Metropolis boasted a vibrant alternative sphere of exchange and trading that supplanted the mainstream commercial sphere. It was not only a necessity, it was also a core part of the cultural life of the region. Politicians grew famous by dispensing patronage in the form of city contracts and off-the-books work–sometimes for a kickback and always for a vote on election day. In entertainment and gambling, unreported income was always available if one had connections to the ward boss, madam, or loan shark who controlled numbers, betting, local lotteries, brothels, and gambling parlors. Storied films like Uptown Saturday Night and Cotton Comes to Harlem spoke to the flattering view that many people, not just in black America but the country as a whole, held of the shady aspirant. For centuries, the outlaw, fighting both government and the entrenched powers to rise above the fray and accumulate wealth, has been an American hero, and in the mid-twentieth century this figure found an avatar in the black ghetto hustler.

After the civil rights era, Maquis Park suffered the fate of many American inner cities. Its wealthier classes left and moved into previously segregated areas, while its working and poor households remained. The area lost whatever mitigating effect on poverty the better-off households once contributed–to ensure that some streets were cleaned, that some parks were maintained, that some schools were kept in decent condition–and blight overwhelmed the physical landscape. Many of the beautiful brownstones reached a level of disrepair that required attention beyond the financial resources of their owners. Apartment buildings became abandoned due to neglectful landlords and the out-migration of the middle- and upper-class families. Sanitation services grew insufficient, and one saw litter and refuse everywhere. The homeless set up camp in the abandoned buildings but also in shanties alongside roads and in parks. People sat idle and out of work nearly everywhere.

But the alternate economy continued to thrive. Indeed, the underground economy was fast becoming a primary economy for black ghetto dwellers. Buying goods cheaply, whether on the street or in the alley, behind closed doors or outside of the neglectful state, was still part of their recipe for household survival. Off-the-books services, from tax preparation and general labor to security and entertainment, were plentiful.

Hustling was the word coined in popular discourse to refer to the indefatigable and creative attempts by the down-and-out to find work, make a buck, and make ends meet. But importantly, hustling included not only the labor to find illicit earnings, but also the work entailed in dealing with the consequences of living by shady means. Hustling meant insecurity, crime, and exploitative behavior, to which people had to respond. And in a time period when policing was inadequate and law enforcement relations with inner-city neighborhoods throughout black urban America were colored by neglect and distrust, it meant people sometimes had to take matters into their own hands. Thus, the hustle also involved a diverse set of strategies to make sure that the shady world did not completely ruin the social fabric. These strategies were often as creative as the illegal activities themselves. Whether they settled disputes or enforced underground contracts, people hustled not only to put food on the table, but also to maintain order in their streets and communities.

In time, the coexistence of despair and the outlaw lifestyle would draw the attention of those in the wider world. A wellspring of public scrutiny arrived at the doorstep of communities like Maquis Park in the eighties, after nearly two decades of poverty, unemployment, business failure, and high crime had swept through and ravaged the social and physical landscape. In academic and press reportage, critics and scholars tried to make sense of the apparently marked remove of the black ghetto from the mainstream. In The Truly Disadvantaged, sociologist William Julius Wilson diagnosed the presence of a subclass of black Americans living not only in conditions of extreme impoverishment, but also in relative remoteness from their surrounding city. More than their inability to find work marked their social isolation, Wilson argued. They suffered from inadequate integration into many urban institutions, from the police and schools to philanthropy and the press. And, he pointed out, unlike the mid-twentieth century there were no middle-class persons to serve as role models or provide social controls over unruly and delinquent behavior that was now growing out of control.

Following Wilson’s essay, a flurry of critical assessment arose over the black ghetto. Scholars focused on the household as the root cause of isolation, deploying all kinds of statistical data–such as the alarming rate of teenage pregnancy, high rates of welfare dependency, absentee fathers and mother-led families–in an effort to isolate the role of black family formation in the reproduction of poverty. Detailed press reports, like Ken Auletta’s The Underclass, spoke of the cultural pathologies, such as a lack of work ethic and a predilection for unruly behavior, that had been spawned in areas seemingly forgotten by time and morality. Human interest reportage, like Alex Kotlowitz’s There Are No Children Here, pointed out the limited mental horizons of inner-city youth and young adults; few of these young people could envision a life for themselves beyond the ghetto, in marked contrast to the yuppies who were defining the renewed American spirit in the era of globalization. By the beginning of the eighties, when cities initiated revitalization programs to attract middle- and upper-class residents, the ghetto was pitied for what it lacked (normal families, good schools, working adults) and criticized for what it boasted (gangs, drugs, and crime).

In a way, this kind of attention to the urban underclass was nothing new. From the late nineteenth century onward, Chicago’s black communities (and those in other major industrialized cities) were the repositories for public indignation and, eventually, some type of social reform. The clarion call of distress over a population living outside the social mainstream occurred every two or three decades. Depending on the political climate (conservative or progressive), policies like mass arrest and incarceration, urban renewal and housing construction, philanthropic investment and community development, would follow to integrate the disenfranchised. America’s concern in the nineties for the dispossessed black inner city, seeing in it a form of existence that must be razed and then restored, is really part of a long history of inveighing against and expressing moral outrage at how the minority poor live.

In the midst of this public clamor and sometimes self-righteous inspection, Maquis Park and many other alienated and poor black communities perdure. Though not always in full measure and in comfort and security, households manage. Parents feed and clothe children, chaos does not rule, and people experience joy and see beauty. Residents deal with problems, like crime and delinquency, even if their ways of coping and maintaining social order do not receive much attention. And, as this book contends, an important dimension of their daily struggle to create a habitable place to live and work has occurred behind the scenes. Their labor takes place with resources amassed in the underground economy. Their work to restore order and keep Maquis Park safe and secure takes place often outside government agencies that can be, at varying times, neglectful and begrudging in allocating resources, yet spiteful in the drive to police and punish. Their collective labors have coalesced largely outside the watchful eye of media and scholars, for whom the tragedies of poverty have perhaps justifiably attracted more attention than the simple and remarkable ways in which people actually tend to their affairs in such environs. This book is about making visible these everyday shady efforts by Maquis Park residents to maintain their community.

–Sudhir Alladi Venkatesh, Off the Books: The Underground Economy of the Urban Poor (2006), pp. 14–20.

Here’s the rules:

1. Pick a quote of one or more paragraphs from something you’ve read, in print, over the course of the past week. (It should be something you’ve actually read, and not something that you’ve read a page of just in order to be able to post your favorite quote.)

2. Avoid commentary above and beyond a couple sentences, more as context-setting or a sort of caption for the text than as a discussion.

3. Quoting a passage doesn’t entail endorsement of what’s said in it. You may agree or you may not. Whether you do isn’t really the point of the exercise anyway.

Here’s the quote. This is from chapter 4, There Will Be No End of It, in Lynn Hunt’s new book, Inventing Human Rights: A History. The chapter has to do with the expansive logic of natural rights, and the way in which the universalizing ideal gradually (though, in the French case, fairly rapidly) to encompass demands for religious freedom, the emancipation of the Jews, rights for free blacks, the abolition of slavery, and the liberation of women. Unfortunately, in the end, the self-styled vanguard of the Revolution was more willing to recognize the rights of their brothers than they were with certain other of their siblings.

In September 1791, the antislavery playwright Olympe de Gouges turned the Declaration of the Rights of Man and Citizen inside out. Her Declaration of the Rights of Woman insisted that Woman is born free and remains equal to man in rights (Article 1). All citizenesses and citizens, being equal in its [the law’s] eyes, should be equally admissible to all public dignities, offices, and employments, according to their ability, and with no other distinction than that of their virtues and talents (Article 6). The inversion of the language of the official 1789 declaration hardly seems shocking to us now, but it surely did then. In England, Mary Wollstonecraft did not go as far as her French counterparts in demanding absolutely equal political rights for women, but she wrote at much greater length and with searing passion about the ways education and tradition had stunted women’s minds. In Vindication of the Rights of Woman, published in 1792, she linked the emancipation of women to the explosion of all forms of hierarchy in society. Like de Gouges, Wollstonecraft suffered public vilification for her boldness. De Gouges’s fate was even worse, for she went to the guillotine, condemned as an impudent counterrevolutionary and unnatural being (a woman-man).

Once the momentum got going, women’s rights were not limited to the publications of a few path-breaking individuals. Between 1791 and 1793, women set up political clubs in at least fifty provincial towns and cities as well as in Paris. Women’s rights came up for debate in the clubs, in newspapers, and in pamphlets. In April 1793, during the consideration of citizenship under a proposed new constitution for the republic, one deputy argued at length in favor of equal political rights for women. His intervention showed that the idea had gained some adherents. There is no doubt a difference, he granted, that of the sexes [sic —RG] … but I do not conceive how a sexual difference makes for one in the equality of rights. … Let us liberate ourselves rather from the prejudice of sex, just as we have freed ourselves from the prejudice against the color of Negroes. The deputies did not follow his lead.

Instead, in October 1793, the deputies moved against women’s clubs. Reacting to street fights among women over the wearing of revolutionary insignia, the Convention voted to suppress all political clubs for women on the grounds that such clubs only diverted them from their appropriate domestic duties. According to the deputy who presented the decree, women did not have the knowledge, application, devotion, or self-abnegation required for governing. They should stick with the private functions to which women are destined by nature itself. The rationale hardly sounded new notes; what was new was the need to come out and forbid women from forming and attending political clubs. Women may have come up least and last, but their rights did eventually make the agenda, and what was said about them in the 1790s—especially in favor of rights—had an impact that has lasted down to the present.

—Lynn Hunt (2007): Inventing Human Rights, pp. 171–172.