Racial capitalism — the process of deriving social and economic value from racial identity — is a longstanding, common, and deeply problematic practice. This Article is the first to identify racial capitalism as a systemic phenomenon and to undertake a close examination of its causes and consequences. The Article focuses on instances of racial capitalism in which white individuals and predominantly white institutions use non-white people to acquire social and economic value. Our affirmative action doctrine provides much of the impetus for this form of racial capitalism. That doctrine has fueled an intense legal and social preoccupation with the notion of diversity, which encourages white individuals and predominantly white institutions to engage in racial capitalism by using non-white people to acquire social and economic value. An examination of these consequences is particularly timely given the Supreme Court’s recent grant of certiorari in Fisher v. University of Texas. Racial capitalism has serious negative consequences both for individuals and for society as a whole. The process of racial capitalism requires commodification of racial identity, which degrades that identity by reducing it to another thing to be bought and sold. Commodification also fosters racial resentment by causing non-white people to feel used or exploited by white people. And the superficial value assigned to non-whiteness within a system of racial capitalism displaces measures that would lead to meaningful social reform. In an ideal society, commodification of racial identity would not occur. Given the imperfections of our current society, however, the Article instead proposes a pragmatic approach of reactive commodification. Under this approach, we would discourage commodification of race. But if commodification did occur, we would identify it as commodification, call attention to its harms, and ensure that non-white individuals received compensation for the value derived from their racial identity. This approach will ultimately allow progress toward a society in which we successfully recognize and respect racial identity without engaging in racial capitalism.