Editor's Note: Following are excerpts from Prof. Calder's address at the 2001 NCBJ meeting in Orlando, Fla., during the ABI Luncheon.

My book about the history of consumer credit in the United States was published in 1999. I didn't expect too much would come from it. I figured the same thing would happen to me that happened to Henry David Thoreau when he wrote his first book, A Week on the Concord and Merrimack Rivers. Thoreau's first book did not sell very well. Eventually his publisher wrote to ask what he should do with the remaining copies that were taking up space in his warehouse. Thoreau asked that they be sent to him—706 copies out of a print run of 1,000. When the copies arrived and were safely stowed away, Thoreau sat down and wrote in his journal, "I now have a library of nearly 900 volumes, over 700 of which I wrote myself." I figured my experience would be the same.

But I miscalculated the deep interest people have in consumer credit and debt. I'm pleased that reporters want my expert opinion on matters relating to debt and credit. But, I'm not always comfortable with the use people make of my ideas. Last year, an alumnus from my college wrote to alert me that my name had come up in a federal court case in Indiana. Apparently a major personal finance company was quoting my authority in a suit that accused them of violations of Truth-in-Lending laws. So there are perils to being an "expert." As you know, an expert is someone who knows a great deal about very little and who goes along learning more and more about less and less until they know practically everything about nothing. Lawyers, on the other hand, are people who know very little about many things and keep learning less and less about more and more until they know practically nothing about everything. As for judges, judges are people who start out knowing everything about everything but end up knowing nothing about anything because of their constant association with experts and lawyers.

A question people ask me a lot is, "What does it mean that people are so much in debt today?" That's a good question to ask a cultural historian. Historians tell stories, and the way we invest meaning in important subjects is by telling stories about them. For this reason, I've left at home my charts, tables and graphs on the history of consumer credit. I was afraid if I brought them that I'd be mistaken for an economics professor. And you know what listening to an economics professor is like. It's like what President Lyndon Johnson once said to John Kenneth Galbraith: "Ken," he said, "Listening to one of your lectures is like pissing down your pants leg. You think it's hot, but nobody else does."

So I've left the economics lecture at home. Instead, I want to talk about the stories we tell when we think about debt and credit. Our notions of how consumer credit came to be, what it replaced and how it has developed over time go a long way toward determining what we understand debt and credit to mean in American life.

I'll begin by telling a simple, quick story that reviews the important highlights of the history of consumer credit. Then I will comment on two leading interpretations of the basic factual narrative, two popular stories one often hears about credit that explain how things came to be the way they are. I will conclude by describing a third interpretation of the history of consumer credit, an interpretation that I have come to favor.

The Basic Narrative: "One Thing After Another"

Credit for consumption is the oldest of all forms of credit, with a history reaching back to antiquity. But our modern system of credit for consumers was created between 1915 and 1935. In this period, a revolution in credit services remade household finance. Three innovations were key.

The first was the widespread adoption of a new method of lending and borrowing: "the installment plan." The second achievement of the credit revolution was the creation of a new array of credit sources. Pawnbrokers and various types of small loan lenders operating outside the law were now joined by personal finance companies, installment sales finance companies, retail installment lenders, "industrial" banks, "Morris Plan" banks, remedial loan societies, credit unions and, by the 1930s, the personal loan departments of commercial banks. The third key development in this revolutionary period was the achievement of a moral legitimacy for consumer borrowing. In the 1920s, what had once been referred to in a prejudicial way as "consumptive debt" became one of the most heavily promoted consumer services of the decade. Consumptive debt was by 1940 replaced by the new, more positive term, "consumer credit."

When wartime restrictions on credit were lifted in 1952, a new period in the history of consumer credit began. In this period, a number of trends (such as the Baby Boom, suburbanization and the entry of more women into the workforce) combined to make more consumers more willing than ever before to use credit for household consumption. The apparent debt wish of 1950s consumers was symbolized by a major innovation of this period: the creation of a new lending instrument for revolving credit called "the credit card." Few used credit cards in the 1950s, but today, thanks to aggressive marketing of bankcards, about 43 percent of consumer installment credit is charged on plastic. With four billion credit cards in circulation worldwide, consumers seem to have taken the television commercial to heart: very few ever leave home without one.

A third watershed in the development of consumer credit came in the late 1960s. Since the wave of usury law reforms of the 1920s, government had turned a blind eye to the field of consumer lending and borrowing, leaving it one of the least regulated sectors of the economy. But in the 1960s, government representatives at the national level began listening to demands for protective legislation, demands prompted by the somewhat contradictory concerns that, thanks to credit cards, some Americans were too much in debt, while other Americans, particularly women and minorities, were not able to be in debt enough. One result of these demands was the Consumer Credit Protection Act of 1968, which inaugurated this new period in the development of consumer credit. This period has been marked by closer government regulation at both state and federal levels by deregulation of the banking industry, and by a flowering of new and old means of lending, such as pawnbroking, payday loans and home-equity lending. Hence, this third period has also been marked by continued growth, the one constant feature in all three periods of the history of consumer credit.

Between 1990 and 2000, consumer debt doubled, rising to $1.5 trillion. Debt burdens also increased, especially for those earning under $50,000. By 1999, debt service payments reached and exceeded 100 percent of Americans' disposable income, the highest ratio ever recorded.¹

The sort of story I have been telling just now matches a British journalist's famous description of history in general. History, he wrote, "is just one damn thing after another." Hearing this, a wit has commented, "It's worse than that; it's the same damn thing after another." In the story of credit so far, the recurrent theme appears to be more: more credit, more lenders, more methods, more regulations, ever more debt.

The Myth of Credit as the Great Democratizer

In 1951, the president of the National Consumer Finance Association gave a speech titled, "Consumer Credit—Man's Greatest Invention." In this speech, Barney Lenihan praised consumer credit—"the miracle of the Twentieth Century"—for making a greater contribution to human welfare than the wheel, the railroad engine, radio, even atomic energy. Lenihan believed that, because of consumer credit, the average American "lives longer, works less, produces more, possesses more, enjoys more, travels more, and is healthier, better educated, and better developed physically and mentally" than even the most pleasure-sated kings of long ago. I call this story the myth of credit as the great democratizer.

It's true that the American standard of living was bought on the installment plan. Recognizing this truth, however, does not compel us to celebrate consumer credit with the exaggerations of Barney Lenihan. A problem with the story of "credit the great democratizer" is not that it is not historical, but that it is not historical enough. It does not remember, for example, that the business of personal finance was originally conceived by its founders not as a way to give Americans more freedom of choice to exercise in the marketplace, but as an exercise in social welfare that would liberate workers from the unfreedom of wage labor. The lenders and reformers who organized the licensed small loan industry viewed themselves as upholders of the American Dream, but not the consumerist dream of easy living on a high standard. They had in mind an older dream that pictured America as a country where wage laborers who worked hard and saved their money could rise up in the world and become independent producers.

Historically, the story of how consumer credit built a great democracy of goods has never been popular outside of the credit industry. This is not because it is so difficult to convince Americans that they live in a land of democratic abundance where almost everyone is "middle class;" this is a fairly conventional belief. The problem is that the peddling of debt, like the selling of caskets and body parts, makes people nervous. Hence, the public has looked elsewhere for stories that make sense of the rising levels of indebtedness in this century. The most popular way of understanding it has been a story I call "the myth of lost economic virtue."

The Myth of Lost Economic Virtue

The myth of lost economic virtue interprets the rise of consumer credit as a radical departure from a thrifty past when most people never got into debt and always lived within their means. "In the good old days," we hear it said, "economic life for the average person was conducted on a cash-and-carry basis." But now, as the story goes, "baby-boomers routinely [go] into debt for restaurant meals or new shoes." Narratives of moral decline like this are often used to summarize the economic history of the United States in the 20th century.²

The evidence for this view seems abundantly obvious. The inconceivably large expansion of credit since the 1920s makes it easy to believe in a golden age of thrift before the rise of consumer credit, an age whose pocketbook prudence has been abandoned by a contemporary generation demanding instant gratification.

A problem, though, is that those who tell the story of credit this way cannot agree on a consistent periodization. Every generation seems to believe it is the first to discover indebtedness. For example, in the 1920s, people understood the golden age of financial responsibility to be the late 19th century, yet this was a time that Mark Twain memorably described as the era of "beautiful credit!" The Gilded Age was hardly a time that was innocent of debt. The spirit of the Gilded Age was summed up by Twain as a time when a man could be overheard on the street to remark, "I wasn't worth a cent two years ago, and now I owe two millions of dollars." In the 1950s, the baseline for measuring decline was moved from the late 19th century to the penny-pinching years of the 1930s. Penny-pinching there was, but it is often forgotten that the 1930s also witnessed the final years of a credit revolution that drove consumer debt levels to new highs. Recent versions of the myth date the triumph of instant gratification over thrift to the 1970s, unaware that in 1958 John Kenneth Galbraith was wondering if the central figure in the affluent society was not the bill collector.³

In our time, the myth of lost economic virtue continues to be the conventional wisdom. Few have made more out of the myth than sociologist Daniel Bell. In The Cultural Contradictions of Capitalism, Bell asserts that "the greatest single engine in the destruction of the Protestant ethic was the invention of the installment plan, or instant credit."⁴ This is the myth of lost economic virtue in a pure and concise form.

In the beginning of my research, I thought I was going to write a book about the decline of economic virtue. I subscribed fully to the two key notions that make up this story: first, that before consumer credit, people "rarely went into debt and always lived within their means," and second, that consumer credit destabilized traditional moral values by making it easier for people to live lives devoted to instant gratification and consumeristic hedonism. But the more I learned about the history of consumer credit and its effects on personal money management, the harder it became to accept the myth's central presumptions.

It is simply not true that the invention of consumer credit was the invention of the indebted American. Debt, in fact, was a "heavy burthen" for the Pilgrims, a chronic headache for colonial planters (including George Washington and Thomas Jefferson, who died owing $107,000), and a common hardship for 19th century farmers and workers.⁵ Nor were Americans of the distant past perfect disciples of the gospel of thrift. Everyone remembers Father Abraham's warnings about debt in Poor Richard's Almanac: "He who goes a-borrowing, goes a-sorrowing." A river of red ink runs through American history. Occasionally, it has overflowed its banks to inspire political movements like the Revolution, Shay's Rebellion and the Populist Movement. At other times indebtedness has flowed underground, concealed in the grocer's book and the pawnshop ledger, in the butcher's tab and the memory of friends. But from colonial days into the 21st century, life in the United States has required financing, which meant debt.

My View: Regulated Abundance

In light of this, how should we tell the story of consumer credit? I propose a third interpretation that builds on the first two I've just described.

Both of these stories perceive a truth: consumer credit has enabled the American public to purchase expensive durable goods that, without credit, most of them could not or would not have bought. Credit, in short, has made consumers of the millions.

But to stop the story here is to take a seriously truncated view of how consumer credit operates. Both those who celebrate credit as the Great Democratizer and those who denounce it as the destroyer of thrift focus exclusively on a single moment in time—the moment of purchase when desire is satisfied—and ignore the months and years following the day an installment contract is signed. Thus, they overlook a second and less obvious contribution consumer credit makes to American society: the way it enforces discipline, hard work and the channeling of one's productivity toward durable consumer goods. Once consumers step onto the treadmill of regular monthly payments, it becomes clear that consumer credit is about much more than either instant gratification or access to a democracy of goods. In reality, it is about "budgetism," a word coined in 1956 by Fortune editor William H. Whyte Jr. to describe the way in which Americans tie themselves to a tight regimen of enforced savings, budgeting themselves by means of various installment plans so that almost no unappropriated funds are left over to burn a hole in their pockets.⁶ Budgetism, thought Whyte, was the "opiate of the middle class."

Viewing consumer credit this way changes our perception of the ultimate significance of consumer credit. How has the consumer economy survived the subversive doctrines of consumer culture, a culture which would seem to wear down workplace productivity with its libertinism, its insatiable devotion to "wants," its hedonistic concern with play, fun, pleasure and leisure?

The most effective solution has been worked out in the domain of household financial management. Practically speaking, consumer credit has actually worked to make most modern credit users at least as disciplined in their finances as the generations that lived before the credit revolution. The installment plan of repayment forces typical credit users to adopt disciplines of money management that would have impressed even Poor Richard. Installment credit imposes on borrowers financial regimens requiring discipline, foresight and a conscious effort to save income in order to make payments on time.

We should not be insensitive to the plight of borrowers who have succumbed to the allure of "buy now, pay later" and been overloaded with debt. But historically, the numbers who are delinquent with payments or default on their loans have been very small compared to the numbers who pay their bills on time. Most installment borrowers, for the duration of their repayment periods, have been forced to cut out expenditures on momentary fancies, put aside money for the monthly installment bills, and work diligently at one or more jobs to guarantee a dependable supply of income. This is not necessarily a story with a happy ending for everyone involved. In a recent survey of 827 workers at Atlanta's BellSouth, almost 70 percent of those polled wished to work fewer hours but felt they could not afford it. When asked why they could not cut back on their hours, the greatest single response was not that they were not paid enough or that their current spending was too high, but that they had so many debts (53 percent).⁷ So much for easy payments.

The history of consumer credit reveals a truth known to all bargain-hunters, coupon-cutters, overtime workers and, indeed, to anyone who has ever stayed up late working over personal accounts: Life in a consumer society is a lot of work. Consumer credit has had the paradoxical effect of expediting the rise of a culture of consumption while limiting its potentially subversive effects on the economic realm of work and production. A bumper sticker sums it up accurately: "I owe, I owe; it's off to work I go!"

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Footnotes

¹ Yoo, Peter, "Still Charging: The Growth of Credit Card Debt between 1992 and 1995," Federal Reserve Bank of St. Louis Review 80 (Jan/Feb 1998): 19-27. Return to article

² For examples of the myth expressed in various contexts, see Sen. Paul H. Douglas's memories in In Our Time (New York: Harcourt, Brace & World, 1968), pp. 101-102; "The American Way of Debt," Time, 31 May 1982, pp. 46-49; Business Week, Oct. 30, 1989, p. 18; Clayton, James L., "Why Can't We Hear the Distant Thunder?," Vital Speeches, Nov. 15, 1984, pp. 92-93; Malabre Jr., Alfred J., Beyond Our Means: How Reckless Borrowing Now Threatens to Overwhelm Us (New York: Random House, 1987), pp. 6-7, 16-18, 123, 144; Caplovitz, David, Consumers in Trouble: A Study of Debtors in Default (New York: Free Press, 1974), pp. ix, 1; Nisbet, Robert, The Present Age: Progress and Anarchy (New York: Harper and Row, 1988), p. 90; Curran, Barbara A., Trends in Consumer Credit Legislation (Chicago: University of Chicago Press, 1965), p. 1; "Dumping the Assumption," Isthmus, Nov. 23, 1990, p. 8; Ryan III, Franklin W., Family Finance in the United States, p. 415. Return to article

³ David Frum's forthcoming book, How We Got Here: America from 1968 to Now (Basic Books, 2000), argues that consumer debt drowned thrift in the 1970s. The Galbraith quote is from The Affluent Society, p. 201. Return to article

⁴ Bell, Daniel, The Cultural Contradictions of Capitalism, (New York: Basic Books, 1976), p. 21. Return to article

⁵ A bibliography on debt in early America could start with Bradford, William, Of Plymouth Plantation, 1620-1647 (New York: Random House, Modern Library, 1967), pp. 36-46, 93-96, 184-188, 194-200, 213-215, 399-403; Breen, T. H., Tobacco Culture: The Mentality of the Great Tidewater Planters on the Eve of Revolution (Princeton, N.J.: Princeton University Press, 1985), pp. xii-xiv, 93-106, 127-129, 161-175; Szatmary, David P., Shay's Rebellion: The Making of an Agrarian Insurrection (Amherst, Mass.: University of Massachusetts Press, 1980), pp. 19-36; Schlesinger, Arthur M., The Age of Jackson (New York: Little, Brown & Co., 1945), pp. 131-136; Bogue, Allan G., Money at Interest: The Farm Mortgage on the Middle Border (Lincoln, Neb.: University of Nebraska Press, 1969); Atherton, Lewis E., The Frontier Merchant in Mid-America (Columbia, Mo.: University of Missouri Press, 1971), pp. 142-153. Return to article

⁶ Whyte Jr., William H., "Budgetism: Opiate of the Middle Class," Fortune 53 (May 1956), p. 172. Return to article

⁷ Unpublished data shared with the author from a survey conducted by Juliet Schor (other results from the survey are reported in her book, The Overspent American (New York: HarperPerennial, 1999)). Return to article

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Journal Date:  Saturday, December 1, 2001 © American Bankruptcy Institute. All rights reserved. ABI is a (501)(c)(3) non-profit business (52-1295453)