“More Discrimination Is Necessary": Race, Risk, and Investment in the 1920s

The destruction of World War One presented American capitalists with unique opportunities to invest in Europe and the developing world. At the same time, a domestic urban building boom offered terrific chances for investment at home. Rivaling the promise of the national and international bond markets, however, was their sheer complexity. How were capitalists to distinguish good investments from bad in the torrent of municipal and sovereign debt issues? This paper draws on the personal papers of financial analysts and the voluminous output of financial forecasting firms like Moody’s and Standard Statistics to explore the strategies American investors developed for coping with the risk and uncertainty of this market. In contrast to today’s bond raters, analysts in the 1920s did not seek to track the behavior of state borrowers, updating their rating according to their most recent activities. Indeed, such surveillance would have far exceeded even the largest forecasting firms’ institutional capacities. Instead, analysts sought to identify indicators of certain value that would transcend the ups and downs of the volatile global economy and deliver steady, predictable returns. By distilling unchanging data about climate, geography, form of government, and especially the racial makeup of cities and nations into a single, stable bond rating, analysts hoped to chart a navigable path through the choppy financial seas. Unpacking how these analytics were developed and used sheds light on the investment culture of the 1920s and, more broadly, on the predictive role race was asked to play in an increasingly financialized economy.