Author(s): | Calder, Lendol |
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Reviewer(s): | Taylor, Christiane Diehl |
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.
Subject(s): | Financial Markets, Financial Institutions, and Monetary History |
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Geographic Area(s): | North America |
Time Period(s): | 20th Century: Pre WWII |