discrimination policy was characterized at that time by "moralistic" and "pseudo-scientific" rhetoric lifted almost verbatim from arguments used to push through the Prohibition Act in the 1920s - arguments that had been discredited by many of those promoting anti-discrimination legislation (Marshall, 1963, pp. 216-229).
The interests of the business community and social-equity advocates have often appeared at loggerheads. When discussing/ condemning/defending discriminatory practices, both sides apparently ignore the basic tenets of Adam Smith's The Wealth of Nations, the bible of capitalism: "The greater the number and revenue of the inhabitants of the town, the more extensive is the market...and the more extensive that market, it is always the more advantageous to a great number" (Smith, 1776, p. 304). It will be one of the intents of this paper to find those points of agreement and disagreement between the theory of capitalist business practice and the reality of social discrimination as exemplified in the redlining practice.
Following are basic definitions of the issues and institutions involved: mortgage, insurance, and redlining. A mortgage is the pledging of property by a borrower to a lender as security for the payment of a debt, after which the debt is paid off by the borrower over a period of determined time. The basic reasoning behind this practice is straightforward for both sides. For the borrower, there is satisfied the need to obtain access to financial resources beyond one's immediate ability. For the lender, profits are derived from interest charged on the loan - with the added security of having real-property to seize in the event that the borrower defaults on the loan. The most common form of mortgages are on home purchase and small-business property purchase. The value of a property is dependent upon several factors, including age, condition, location and negotiation between the borrower and the l...