The History of Consumer Credit: Doctrines and Practices

Published by EH.NET (August 2000)

Rosa-Maria Gelpi and Fran?ois Julien-Labruy?re, The History of Consumer

Credit: Doctrines and Practices. Translated by Mn Liam Gavin. New York: St.

Martin’s Press, 2000. xx + 190 pp. $59.95 (hardbound), ISBN 0-312-22415-X.

Reviewed for EH.NET by Lendol G. Calder, Department of History, Augustana

College, Rock Island, IL.

Is credit good for us? Dante didn’t think so. In his Inferno, we find usurers

consigned to the seventh circle of hell, doomed to “roam round and round” among

their fellow inmates, the blasphemers, murderers, sodomites, and others who

practiced violence against God and nature. Dante doesn’t say so, but he leaves

us free to speculate that moneylenders continue to practice their trade in

hell, lending money at interest to the damned. If so, it would make Visa’s

claim to be “everywhere you want to be” seem a little too modest! But enough of

this credit bashing, plead the authors of this little volume on the history of

consumer credit. According to Rosa-Maria Gelpi and Fran?ois Julien-Labruy?re,

credit is too often made to be a scapegoat during times of social and economic

crises, so that even today when we look more kindly on credit than Dante,

consumer credit continues to be blamed for everything from business recessions

to personal bankruptcies to society’s moral degeneracy. It’s enormously unfair,

argue Gelpi and Julien-Labruy?re, who invite us to accompany them on a “stroll

through history” that will reveal just how good credit really is for us. As

“the cornerstone” of economic growth (p. 84), as “one of the greatest promoters

of social mobility” (p. 171), and as the “single greatest factor of social

integration” (p. 95), they conclude that consumer credit is one of the most

reliable indicators of advanced civilization, if not an important cause of it.

But if all this is true, why has consumer credit had to battle so hard and so

long against a shameful stigma of wastefulness and wrongdoing to achieve a

moral and economic legitimacy? Gelpi and Julien-Labruy?re present their history

as a search for the origins of the cloud of bad feeling that surround this most

crucial institution of modern consumer societies. The crux of their argument is

that present day attitudes about credit-attitudes rarely stated as propositions

but that operate instead as a “mute yet active unconscious”-are outmoded and

debilitating “hangovers” from an earlier era in the history of western

societies, an era when social practices were inspired by theology and ethics

rather than by the economy of free markets, as they increasingly are today. In

other words, consumer credit struggles against a massive case of “cultural

lag.” The volume’s subtitle-“Doctrines and Practices”-neatly summarizes the

tale told in this book. Through the sixteenth century and beyond, legions of

shortsighted theologians and philosophers tried to strangle credit in the noose

of religious dogma, with the end result that credit was “more or less forbidden

but more or less practiced because more or less necessary” (p. 95). But since

the Reformation and Enlightenment, and primarily through the shining example of

the Americans, religious doctrine has been replaced by economic practice as our

fundamental social gyroscope, so that lending and borrowing are increasingly

viewed more properly as economic concepts, free of unnecessary moral baggage.

Today, in societies where economic “practice” is given primacy over moral and

religious “doctrines,” a bright future is being built on the basis of economic

growth, responsible household budgeting and greater “self-actualization”

through credit-financed consumption.

If all this sounds like a textbook case of the “Whig interpretation of

history,” well, it is, though of a refined and smartly written sort. Both

authors are high-ranking officers for Cetelem, the French personal finance

company that over the last five decades has worked to modernize European

household credit on an American model (Gelpi is also Professor of Economics at

the Free University of Lille). Given their day jobs, the authors’ spirited

defense of consumer credit is hardly surprising. Of the criticism of credit

there is no end, which means that Gelpi and Julien-Labruy?re are following a

well-worn path blazed in the United States in the 1930s by the economist Morris

Neifeld, who worked as a credit analyst for Beneficial. Neifeld, whose

Personal Finance Comes of Age (1939) resembles the work under review

here, labored tirelessly though his writings to elevate the status of his

profession. But in terms of eloquence and wit, The History of Consumer

Credit sets a new standard for defenses of consumer credit.

Still, glorifying the present at the expense of the past has its costs, and

they are manifest here. The biggest problem is that the authors never really

succeed in helping us to understand why so many otherwise smart people-from

Aristotle to Ezra Pound-opposed on principle the lending of money at interest,

or why their ideas resonated so long in the public mind. Consider the treatment

given to John Calvin, himself an innovator when it came to new thinking about

credit: “[Calvin’s] work consisted in giving a new faith to the classes who,

through their social skills, were destined to dominate the future. This

supposes a relatively advanced economic organization, and Calvin built his

moral system on such an organization” (p. 50). A page later, we are told, “For

Calvin, the only good deed was worldly success” (p. 51). Reductiveness on this

scale is not easy; one has to work hard at it. When every person and system of

belief is viewed through the narrow lens of what is good for the development of

credit, when economic progress and “social integration” into the wonders of

consumerism are the only ends that count, it becomes impossible to understand

what all the fuss over usury was really about.

If the history is whiggish, it is also mostly recycled, at least through the

first eight chapters. Gelpi and Julien-Labruy?re begin their story in

Mesopotamia, where the Code of Hammurabi (1792-1750 BC) established the first

known law defining and regulating usury. Moving briskly on, they describe the

business of credit in ancient Greece, the Roman Empire, Gothic Catalonia (where

we see the first documented case of a European pawnbroker, 1000 AD), medieval

Italy (which established the first public pawnshops, known as monts-de-pi?t?s,

in the fifteenth century), northern Europe at the time of the Reformation, and

the United States, whose experience is “central” to the history of consumer

credit because, beginning in the nineteenth century, it “offered to build the

future” on the installment plan. Based on standard secondary sources, this part

of the story involves a familiar cast of villains and heroes. Among those who

come off looking particularly stupid or close-minded is Aristotle, who,

declaring money to be sterile, decried interest as being a revolt against

nature (silly old Aristotle, who “has only value judgments to offer when it

comes to economics” (p. 8). Other villains in this tale include the Hebrews,

the first people to condemn interest-bearing loans; the Church Fathers,

especially Saint Basil, who began more than 1000 years of a total ban on

interest by the Church; Charlemagne, who declared the first secular bans on

usury; Dante, of course; the Inquisition at the time of the Councils of Lyon

(1274) and Vienne (1312); and Catholic Europe after the Reformation, which

doomed southern Europe to centuries of economic decadence, thereby offering “a

lesson in how to fail to modernize an economy, while retaining one’s guilt

feelings!” (p. 66)

Opposed to this deadwood are the heroes of modern credit, men who were smart

enough to see through Aristotle and brave enough to relativize the Scriptural

prohibitions against interest, recognizing that a new type of economy was

coming into being where wealth was created, not just plundered or commandeered.

These include Scholastic theologians such as Thomas Aquinas, the Reformers

Luther and Calvin, and greatest of all, Enlightenment champions of reason and

liberty such as Jeremy Bentham and Anne Robert Jacques Turgot. Lengthy

quotations from the latter two figures are included in the text, as Gelpi and

Julien-Labruy?re recommend that all who are interested in contemporary debates

over consumer credit can do no better than to read Bentham’s Defense of

Usury (1787) and Turgot’s Memoir (1770), which will persuade

clear-thinking persons that the strict regulation of credit markets hurt the

poor most of all while making criminals of everyone else.

Beyond the assertive and lively prose (which is marred in this English edition

by a poor job of copy editing that allows too many misspellings and missing

words), the strength of this book lies in the final two chapters. It is only

recently that consumer credit has begun to receive from historians the

attention it deserves. Part of the reason for this is that credit is a commerce

deeply cloaked in confidentiality (as Gelpi and Julien-Labruy?re point out,

until recently the guiding principle of public relations for lenders was “to

live happily you must live in secret”). What Gelpi and Julien-Labruy?re bring

to the history of consumer credit is valuable insiders’ knowledge about the

credit business in Europe over the last hundred years. Much of this information

is interesting and new. For example, I was surprised to learn just how closely

the European development of consumer credit has mirrored the history of credit

in the United States, though with significant time lags between countries.

Great Britain passed its first laws affecting consumer credit in the late

nineteenth century, while Italy only did so in 1992!

This book seems to have been written primarily to influence the opinions of

European policymakers in Brussels, who the authors would like to see taking a

hands off approach to credit markets so governments can treat the causes of

economic woes (e.g., high taxes, low investment) rather than mere symptoms

(e.g., overindebtedness). This is a defensible wish, but there are risks

involved when looking for a usable past, risks the authors seem unaware of.

When packaged with facile claims such as this-“A healthy morality always

coincides with commercial wisdom” (p. 55)-or with shaky historical claims such

as this-“The history of consumer credit in the United States is almost entirely

free of historic influences” (p. 119)-some readers will find even the credible

claims in this book rather suspect.

Lendol Calder, author of Financing the American Dream: A Cultural History

of Consumer Credit (Princeton University Press, 1999) is assistant

professor of history at Augustana College and a Carnegie Scholar with the

Carnegie Academy for the Scholarship of Teaching and Learning.