Like any good Wall Street exec, when Sallie Krawcheck realized there was a problem she immediately saw dollar signs, not an excuse to strengthen the already-long arm of Uncle Sam.

As Wilma Soss noted some seven decades ago, women are not men, even when it comes to investing. Soss gave up her lucrative career in PR to make investing more female-friendly through her nonprofit organization, the Federation of Women Shareholders in American Business. She made enough progress to inspire a Broadway play and Hollywood movie but ultimately found it difficult to improve the stubborn status quo.

Krawcheck’s for-profit reproach to male domination of the brokerage business, Ellevest, is essentially a robo advisor that tailors portfolios specifically with women in mind. It turns out that the average woman’s income peaks at age 40, while the average man’s income peaks at age 55, and that should mean a big difference in terms of investment strategies.

You can read all about Krawcheck’s vision on the Ellevest website, if you are interested in the details. What interests me about Ellevest is something much more profound: the notion that financial discrimination can be better tackled by market forces than by government fiat.

New Companies

From the birth of the nation’s modern financial system in the early 1790s until the 1960s, consensus held that the best way to reduce financial discrimination was to allow people who felt discriminated against to form their own financial institutions and then sink or swim.

Irish immigrants felt they faced discrimination and proved it by profitably operating their own savings banks and insurers. When Jews found their access to securities markets blocked, they formed their own investment banks, several of which did pretty darn well. Similarly, middle and upper class African Americans tired of paying double premiums to white-owned life insurers started their own insurance companies that thrived for decades.

Not all minority-owned and minority-operated financial-services firms succeeded, but nobody should expect that they would in a competitive environment. Some were simply unneeded because discrimination was not as prevalent as their founders believed. Others experienced bad luck. And some, like the ones destroyed by white rioters in Tulsa, Oklahoma, failed because they faced racism too pervasive to overcome.

Community Reinvestment

Failures caused by ingrained bigotry were lamentable but not really within the purview of financial regulators. In the 1960s and 1970s, however, some politicians and regulators grew impatient with the seemingly slow progress of the traditional self-help, open-entry model of combating discrimination, especially in America’s deteriorating and riot-prone inner cities. So they began to implement rules and regs, like the Community Reinvestment Act, that tried to “carrot and stick” banks into lending more freely to low-income groups.

This rightly scared the bejesus out of bankers, who went on a quest to reduce the extra risks the government cajoled them into taking. Unfortunately, some bankers actually fooled themselves into believing that they had found a way around the risk-return tradeoff by losing their bearings in the fancy mathematics of newfangled asset-backed securities. That’s right: Uncle Sam’s well-intentioned meddling with lender incentives began the sequence of events that led to the financial fiasco of 2008.

Krawcheck, and others like her, have rediscovered a better way to combat injustice: the old way. She is effectively saying that if you are a member of a group that feels that its interests are not being served by banks, insurers, brokers, and so forth, mobilize your group’s savings and start your own financial-services provider, or buy an existing one and run it as you see fit. If you are right, you’ll have lots of loyal customers and you will “do well by doing good.” If you are incorrect and members of your group are not being irrationally underserved by incumbent financial institutions, you’ll probably lose your shirt, which is exactly the way it should be.

If the champions of social justice understood that markets can be much more effective tools than government fiat, they could achieve realistic goals much more quickly than trying to legislate heaven on earth. Complaining about injustice is cheap; bona fide progressives, like Soss and Krawcheck, put their money where their ideals are, and reap as they sow.