Financing the American Dream: A Cultural History of Consumer Credit

Published by EH.NET (February

, 2000)

Lendol Calder. Financing the American Dream: A Cultural History of Consumer

Credit. Princeton, NJ: Princeton University Press, 1999. 377 pp.

Illustrations, notes, and index. $29.95 (hardbound), ISBN 0-691-05827-X.

Reviewed for H-Business and E H.NET by Christiane Diehl Taylor,

histaylo@acs.eku.edu, Department of History, Eastern Kentucky University.

If one had a group of historians formulate a list of key themes in twentieth

century United States history, one would be very surprised if most of

the lists did not include some variant of the topic, the emergence and

development of a consumer culture. This pivotal aspect of contemporary society

has had historians grappling with an array of issues ranging from the impact of

mass production and distribution on consumption to the role of consumer

intermediaries in the purchasing process. Yet a critical factor in the

emergence and development of a consumer culture has received less scholarly

attention than such areas as technology or advertising and public relations,

namely, the proliferation of consumer credit, and this is Calder’s focus. While

his subtitle, A Cultural History of Consumer Credit

would lead one to believe that he would deal with such issues as why consumers

became increasingly willing to take on personal debt to acquire consumer goods

or how race, ethnicity and gender affected credit access and usage, such

questions are not his focus. Rather he traces the development of two key

aspects of consumer credit: lending sources and prevailing

“authoritative” attitudes towards credit and debt between 1870 and 1940.

Calder divides his examination of these two credit related areas into three

parts. Part I discusses prevailing sources of consumer credit and financial

experts’ attitudes towards debt during the late nineteenth century. Credit

sources varied by economic class. Working class individuals turned to three

primary institutions: pawnbrokers who exchanged household items for cash;

small loan agencies, which were frequently illegal loan

sharking operations; and retailers, particularly peddlers and borax retailers,

who offered installment plans for purchasing furniture and clothing. According

to Calder, while working class individuals turned to these sources to purchase

items that helped

them maintain their standard of living, the middle class used credit to

acquire goods that improved their standard of living. For purchasing such items

as furniture, pianos, and jewelry, they relied on the book credit systems and

installment plans offered by area retailers and on family and friends. For

financing home purchases, however,

they turned to a variety of sources ranging from family members and mortgage

banks to building and loan associations and real estate professionals.

By the late nineteenth century, certain types of debt no longer carried a

social stigma. While financial advisors still emphasized the Victorian

principles of frugality, thrift, planning, and living within one’s means,

they found the use of productive credit, or credit used

to enhance one’s financial future, as wholly acceptable. In their view,

productive credit included debt incurred in purchasing a home or even such

goods as sewing machines, furniture, or pianos. In contrast, the use of

consumptive credit,

or credit which

satisfied an immediate need or wish that had little to no future value, was

unacceptable. The only exception to this condemnation of consumptive credit was

in the case of working class individuals who through no folly of their own had

to go into debt in order to acquire basic necessities.

In Part II, Calder argues that by the 1920s, the mass production of automobiles

and a wide array of consumer durables as well as increased competition between

local outlets and mass retailers spurred the expansion and legitimization of

two sources of consumer credit, personal finance companies and installment

plans. Recognition of the ever-increasing need for small personal loans and the

working class’s reliance on small loan agencies as a credit source spurred

Progressive period reformers to seek ways to eradicate the loan sharks who

comprised the majority of small loan agencies. To accomplish this, they lobbied

for states to enact Uniform Small Loan Laws that allowed small lenders to

charge slightly more than the general loan rates in exchange for accepting the

risk inherent in short-term lending. By 1932, 25 states had such laws. They

also helped to establish the American Association of Small Loan Brokers, which

in 1929 became the American Association of Personal Finance Companies. This

organization fought for state regulation of the credit industry and established

industry standards including uniform loan application forms and procedures and

advertising guidelines. Moreover, these efforts at professionalization on the

part of small loan agencies expanded their customer base to include members of

the middle class. While installment purchases of such items as farm machinery,

pianos and sewing machines were well established by the 1880s, installment

buying remained the

province largely of the working class. Yet by 1920, installment buying lost

its

class stigma and became the standard method for financing household purchases

regardless of class due to the increased demand for such expensive items as

cars and household appliances and the rising number of local retailers and

even catalog houses that responded to the burgeoning number of chain stores by

offering installment plans.

The social acceptability of consumer debt accompanied the rapid growth of

“legitimate” small

loan agencies and installment purchase plans. In Part III, Calder argues that

during the 1920s, E.R.A. Seligman served as the key figure in reinventing

consumptive credit as consumer credit and convincing financial authorities that

debt incurred for acquiring consumer goods was legitimate and worthwhile. In a

study commissioned by John J. Raskob, head of General Motors, Seligman argued

that credit purchases were now an integral part of the modern economy and

installment buying was vital to stimulating further economic growth and

productivity. The concepts of productive and consumptive credit were no longer

valid. The correct classifications were now producers’ credit and consumers’

credit, and both allowed borrowers to do things they could not otherwise do and

required individuals to pay for things as they used them. Consumer credit

required individuals to work harder and practice thrift and good financial

management since they had to make regular payments. One could not condemn

individuals for making luxury purchases since the definition of luxury varied

by individual. There was, however, such a thing as foolish borrowing, which

entailed running up debt for which one could not pay.

While the onset of the Great Depression and arguments over the role of debt in

causing the severe economic downturn slowed acceptance of Seligman’s

assertions, three depression-related events led to the eventual acceptance of

his arguments by the end of the 1930s: the further of adoption of installment

plans by hold-out retailers such as Macys, the establishment of small,

short-term loan departments within commercial banks, and the expanded role of

the federal government as a consumer lending institution through such programs

as the Reconstruction Finance Corporation, the Farm

Credit Administration, and FHA.

While Calder provides insight into the development of consumer lending

institutions and changing attitudes towards consumer debt, his study is not a

comprehensive cultural history of consumer credit because too many critical

cultural aspects are either not examined or only noted in cursory fashion. The

consumer credit sources discussed in Part I would not have existed or been able

to expand without consumer demand. Yet Part I does not explain why working and

middle class

individuals were increasingly willing to incur debt to purchase ready-made

clothing or such items as sewing machines and pianos. How did the notions of

increased affordability and accessibility due to mechanized production and

expanded distribution affect

their willingness? Did certain items become more desirable, more of a

life-necessity as individuals actually had access to the items and their costs

could be covered within a seemingly reasonable time-frame? In fact,

were individuals’ views of life’s necessities changing? How did the period’s

increased emphasis on the importance of leisure time, and the emerging notions

of time-savings and efficiency affect consumers’

willingness to buy such items as pianos through installment plans and in the

face of continuing admonitions about thrift, sound financial planning and the

avoidance of consumptive debt? Were consumers’ perceived need gratification

time-frames changing and why?

There is also the issue of power. Access to credit is not just a critical

component of purchasing power but power in general within modern day society.

While Calder indicates throughout his analysis that credit access expanded

during the late nineteenth and early twentieth centuries and suggests that

individuals were screened for credit worthiness on an informal basis or

through such formal means as credit applications, he never deals with the issue

of who and what determined credit worthiness?

How did prevailing notions about one’s economic status, race, ethnicity or

gender affect one’s ability to get consumer credit? While Calder discusses the

credit sources used by recently arrived immigrants during the late nineteenth

century, he does not deal with how the replacement of immigrant community based

loan shark operations and retailers with mass retailers and professional small

lending institutions affected recently arrived immigrants’ credit access. More

importantly, the relationship between such racial groups as African-Americans

and consumer credit is totally absent from his analysis.

Calder, however, does pay some attention to the issue of gender. In fact,

his discussion of the role of women in nineteenth century small loan operations

and how critics of consumer credit viewed women’s credit worthiness raises

intriguing questions. Calder points out that loan sharking operations often

used women to deal with

potential customers and to gain financial background information on customers.

Why women? Did women lend respectability to their operations? Were women seen

as less intimidating?

Why would they hire women when later credit operations, such as small loan

agencies viewed women as only suitable for filling clerical positions?

Moreover, as Calder points out in Part III, critics of consumers’ increased

reliance on credit saw women as both primary purchasers and abusers of credit.

They argued that women had no financial sense and therefore used credit

unwisely for unnecessary whimsical purchases or purchases that put undue

burdens on families’ financial wherewithal. Since men were rational and the

primary producers, they needed to take charge of family finances and its use of

credit. This seemingly contradictory attitude of being receptive to women as

buyers but not creditors needs more exploration since it is key to

understanding the discrimination women faced throughout the twentieth century

in financial dealings and access to capital.

While Calder’s study of

the emergence and development of consumer credit

institutions and financial authorities’ attitudes towards consumer credit

reminds historians that an examination of consumer credit is critical to

understanding twentieth century mass consumer society, it also indicates that

such an examination is incomplete unless one deals with such cultural aspects

of consumer credit as the role of race, ethnicity, and gender in credit access

and usage and underlying reasons for individuals’ increased willingness to

incur debt . Hopefully, Calder will continue to pursue the cultural dimensions

of consumer credit in future work and deal with such important issues.