Sample text for Financing the American dream : a cultural history of consumer credit / Lendol Calder.

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Counter Chapter One

Beautiful Credit!
The Foundation of Modern Society

Consumer credit is an invention of the early twentieth century, but borrowing and lending are not. Before there were loan offices and credit unions, before there were charge cards and "easy payment plans," what did people do when they needed things or simply wanted things but lacked money to pay for them?

    It is a mistake to think they always saved up for the things they wanted, or did without. We remember nineteenth-century Americans as living in a golden age of thrift, savings, and economic self-discipline. But humorists of the time knew better. Charles Farrar Browne, otherwise known as Artemus Ward, drew hearty guffaws and knowing winks when he mock-lectured his audiences, "Let us all be happy, and live within our means, even if we have to borrer money to do it with.” This was advice late nineteenth-century Americans took very seriously. It was "the golden age of mutual trust, of unlimited reliance on human promises," wrote Mark Twain. Looking for an anecdote to express the essential character of what he termed "the Gilded Age," Twain found one in a "familiar” newspaper story about a speculator overheard to boast on the street, "I wasn't worth a cent two years ago, and now I owe two millions of dollars." This was business debt, of course, but the point and meaning of the story also touched the "thousands of families in America" obtaining "prosperity and luxury" the same way: with "Beautiful credit! The foundation of modern society.”

    It is true that thrift, frugality, and the delay of gratification were important cultural ideals in eighteenth- and nineteenth-century America; later, it will be necessary to examine such ideals closely. But exaggerated ideas about the thriftiness of nineteenth-century Americans and their alleged hatred of debt make it difficult to explain how consumer credit, when it did appear, caught on so quickly and spread so fast. For now, it is worth remembering that in the Victorian era saving, frugality, and self-denial were ideals practiced by some, popular with many, but only in retrospect credited to all.

    Long before the credit revolution of the 1920s, credit for consumption played an important role in American household economies. It is generally recognized that nineteenth-century producers—farmers, say, or shopkeepers, or entrepreneurs—floated on a vast sea of credit. Credit made it possible to buy land, conduct business, put in a crop, and start new enterprises. But nineteenth-century consumers depended on credit, too—credit obtained from a subterranean network of formal and informal lending sources. Appreciating this fact will help us understand better how consumer credit came to be invented and why it took some of the forms that it did.

    It will be the simple task of this chapter to examine the available figures reporting the indebtedness of late nineteenth-century Americans and, looking beyond them, to reconstruct from other sources the essential features of the Gilded Age credit system serving the consumption needs of individuals and households. Late nineteenth-century households sought financial assistance from five major credit sources: pawnbrokers, illegal small-loan lenders, retailers, friends and family, and mortgage lenders. Which households relied on which sources of credit depended a great deal on the borrower's economic standing and social class; the system conformed to patterns of gender, race, and ethnicity as well. This was the ancien regime whose inadequacies led to a credit revolution.


Just how much personal debt was on the books in the late nineteenth century? It is hard to know. The audiences who laughed at the quips of Artemus Ward are not available for questioning; even if they were, they would not answer queries about such a private matter as their debts. The "beautiful credit" of Mark Twain's day was intensely personal, extremely private, and therefore, at least for historians, frustratingly off-the-record. Modern lenders keep good records, but their predecessors did not. In this respect the credit system of the Gilded Age was not so different from that of the seventeenth century, a system R. H. Tawney described as "spasmodic, irregular, unorganized, a series of individual, and sometimes surreptitious, transactions between neighbors.” So it remained over two centuries later.

    But that borrowing and lending were prevalent practices in late nineteenth-century America is clear enough based on contemporary estimates of the private indebtedness of the American people. Perhaps the first to make such an estimate was the celebrated orator and statesman Edward Everett. Seeking to explain the cause of the panic of 1857, Everett blamed it on "a mountain load of debt" taken on by the entire country—individuals and communities, businesses and governments. Putting aside business debt, Everett estimated the nation's total household indebtedness in 1858 to be $1.5 billion, or $300 per household. The figure was conjectural, based solely on Everett's observation and experience, but it is relevant that Everett observed everywhere around him a "natural proclivity to anticipate income, to buy on credit, to live a little beyond our means." He at least was confident his estimate was not far off the mark.

    Estimates compiled thirty years later by the United States Census Bureau confirm that long before credit cards many Americans bought the good life, or at least a life, on credit. The 1890 census survey of personal debt was a response to demands made by people in the 1880s who wanted to know how badly the nation's private citizens were "over head and ears" in debt. In an address to the National Board of Trade, J. A. Price gave as his opinion that private indebtedness amounted to around $6 billion in 1888. But farmers' and workers' associations, joined by Single Taxers, Greenbackers, Christian Socialists, and other dissenters, alleged the amount was much higher, perhaps as high as $25 or $30 billion. With little hard information available, guesses became assertions, and assertions passed as statements of accepted fact. Data from a handful of states were not enough to answer the question at hand: could Americans produce enough wealth to pay back the principal on their debts, or even the interest? For this purpose Congress directed the Eleventh Decennial Census to "collect the statistics of, and relating to, the recorded indebtedness of private corporations and individuals.”

    For our purposes, it would have been fortunate if the census had been able to comply with its charge. But the undertaking was simply too large, too intrusive, and too unprecedented. The problem lay in finding a suitable method. One way to determine the total private debt of the nation would have been to print questions about indebtedness in a schedule, hand it to enumerators, and send them house to house. But would people answer truthfully questions about their financial affairs? Robert Porter, the census superintendent, "feared that the people regarded their debt ... as a part of their private affairs, and that they would resent any inquiries in regard to it." The image was not a pleasant one: unarmed census workers thrown out of the homes of angry debtors resentful of governmental prying into their personal affairs. Porter concluded that any attempt to ask the people about their debts would cause collateral damage to the rest of the survey, enough to wreck the entire 1890 census. For this reason, census officials decided to calculate the private debt of the nation on the basis of public records. But even this undertaking proved to be too ambitious. In the end, due to matters of expense and practicability, the only debts assayed were private real estate mortgages.

    This in itself was a large achievement. But the census did not entirely sidestep the charge laid upon it by Congress. Mixing hard figures on mortgages with round numbers and educated guesses as to other types of consumption debt, Robert Porter's census staff estimated the minimum private debt of the people of the United States in 1890 to be $11 trillion.

    The 1890 census figure would apportion to each household in the United States about $880 of debt. The amount is striking when it is considered that the average annual wage of nonfarm workers that year was $475. Of course, many were not in this deep and some owed no money at all, while others owed more. But census officials admitted that their figures almost certainly underreported the true amount of household debt. After all, they could hardly estimate the unrecorded debts of the people, the debts owed to pawnbrokers, loan sharks, retailers, and friends and family members. Still, taking the figure as it stands, the census estimate confirms what has often been forgotten. Large numbers of late nineteenth-century households were familiar—perhaps, from their perspective, all too familiar—with debt. And even before the consumer credit revolution, wealth, as a journalist put it in 1876, was "shouting itself hoarse in the effort to get itself loaned."

    Estimates of total private debt say nothing about who went into debt, for what purposes, or with the aid of what creditors. But with the help of other sources, it is possible to reconstruct the outlines of the credit system preceding consumer credit. In the late nineteenth century, where a person went to secure a loan or to get credit depended to a great extent on the social identity of the borrower: whether one was male or female, white or black, Italian or native-born American, Jewish or Catholic, a resident of New York City or San Francisco. But at the highest level of generalization the major boundary in the social organization of credit was social class. There was overlap, of course, but poor and working-class households tended to rely on certain types of lenders for certain types of credit for certain types of needs. With middle-class households it was a different story.


"I buy everything on credit until I get no more, then I go to another store and do the same there," a German American housewife wrote to the New Yorker Volks-Zeitung in December 1882, when the German American newspaper, the second largest German American daily in New York City, asked its working-class readers to comment on the costs and expenditures of their family budgets. From the discussion that followed, it became clear that most working-class families in the 1880s with three to four children and a wage earner making up to thirteen dollars a week were barely scraping by, and many were in debt. The stories of those who wrote to the Volks-Zeitung were not untypical for late nineteenth-century workers' households. Households with low and irregular incomes regularly used credit to manage the exigencies of poverty.

    In the Gilded Age, families at the large base of the working-class pyramid struggled daily to make ends meet, and stood desperately in need of credit assistance. Budget studies conducted in the early years of the new century show that at least half of working-class families in large cities waged a constant, teetering effort to match income with expenses, while a little over a quarter experienced deficits at some point in a year. Nor was this a problem limited to workers in large cities. In Buffalo, New York, the president of the carpenters union reported in 1897 that "in 72 cases out of 100 our members are not able to earn enough to pay for actual necessaries of life." In Lynn, Massachusetts, Alan Dawley has found that "most [i.e., four out of five] self-supporting factory workers lived at the knife-edge of poverty in constant fear that an increase in their needs would make the blanket too small to cover essentials." On a national scale, workers' average wages rose modestly yet steadily from the Civil War to World War I, but Peter Shergold's extensive research has shown that the fruits of economic growth were mostly out of reach for those outside the highly paid ranks of the highly skilled. Thus, what Melvyn Dubofsky has said holds true, "Poverty remained a fact of life for most working-class families and a condition of existence for many." The slightest disturbance in the balance between income and expenses, whether brought on by illness, unemployment, injury, or simply the desire to help a relative in need, sent families looking for money. In these situations, children could be put out to work, meals could be cut back, boarders could be taken in, and charity solicited, but sometimes borrowing money was the only way to pay the bills.


When working-class wage earners in large cities needed money, one important source of credit they could turn to was "my uncle," the pawnbroker. Much of what we would like to know about pawnbrokers cannot be known; American pawnbrokers, unlike their English brothers in trade, left almost no records in which they speak for themselves. But fortunately the middle class's fascination with urban poverty in the late nineteenth century ("Could this happen also to me?") made pawnbroking a favorite topic of journalists and writers, who wrote detailed descriptions of pawnshops for newspapers and the mass-circulation magazines. Their investigative reports are of much help in recreating the world of the pawnshop, which was a familiar feature in almost all working-class districts and played a vital role in the lives of urban working-class families. "The city can no more dispense with the pawnbroker," claimed one reform-minded journalist, "than it can with the baker or the milkman."

    The testimony of laboring people themselves confirms this. Maria Ganz, a Jewish immigrant from Galicia who grew up on New York's Lower East Side during the turn of the century, remembered the critical role of the pawnshop in her neighborhood's life. Her family lived next to a widow, a Mrs. Zulinsky, who one day found that her entire life's savings of six hundred dollars had been stolen from her mattress. Charity could not support three children, so Mrs. Zulinsky was forced to become, in the slang of the day, "a furniture dealer." Her table, her two beds, all her chairs, and "even the marble clock surmounted by a bronze horseman armed with a spear" were hauled down to the pawnshop and "put up the spout." When night fell, Mrs. Zulinsky's family was "sitting on boxes and sleeping on the floor," but the immediate emergency had been bridged.

    Incidents like this suggest the important role pawnbroking played in the life of working-class families. A wide variety of people found their way into pawnshops, including salesmen and travelers with emergency needs for cash, and petty shopkeepers in need of a quick loan to pay off creditors. But the pawnbroker's principal patrons were the families of industrial wage earners. In Robert Chapin's 1909 budget study of 318 families in New York City, 23 families admitted they had articles in pawn. But this hardly represented the actual number, as Louise More, director of a similar study two years before, found the shame of pawning made it likely that the practice was "more common than [her respondents] would admit." She observed that pawning was "typical of every workingman's neighborhood." In the Bowery of New York one journalist estimated that almost the entire population held at least one pawn ticket at all times, and most had a dozen or more during the slack winter months. In Pittsburgh, Peter Shergold has estimated that in 1898 pawnbrokers made one loan for every 11.6 city dwellers.

    Located in low-rent areas like New York's Bowery district, pawnbrokers conducted their business under the familiar sign of the three golden balls. Large pawnshops in some cases looked almost like banks, with impressive facades and clean, uncluttered interiors. But most were small and dingy. The front entrance opened into a dim hallway or directly into the room where business was transacted (some had side entrances for customers who did not want to enter from the public street). Across one end of the room ran a long, narrow counter. One end of the counter was partitioned by narrow stalls capable of holding one person each. These allowed shy customers a measure of privacy. Behind the counter a case of pigeonholes rose from floor to ceiling, for temporary storage of parcels wrapped and ticketed. Clerks made appraisals—on clothing, one-fifth to one-third of the value; on valuable items, two-thirds of what it would get at auction—and wrote up tickets from behind the counter. After the transaction was completed, clerks placed the pawn into a dumbwaiter that transported it "up the spout" to storage rooms located above the shop.

    If we take everything written by Victorian journalists at face value, the shelves of the pawnbroker's shop were filled mostly with pawned wedding rings, family Bibles, and the baptismal gowns of dead infants. But in fact the most common pawns were items of clothing—shawls, bonnets, undergarments, dresses, suits, shoes—and jewelry. Specialization in one or the other types of pawns occurred early and by late in the century was common. Other items commonly pawned were bedding, musical instruments, clocks, silver cutlery, guns, household furniture, flatirons, dishpans, and pictures. Then there were the unusual pawns: coffins, false teeth, wooden legs, anvils, anchors, and eventually, even automobiles.

    The first American pawnshops appeared in the early decades of the nineteenth century. Before 1800 merchants occasionally lent money on pledges of personal property, but pawnbroking as a business was not possible until industrial cities brought together large numbers of wage earners who needed credit and had little opportunity to get it. In New York City pawnbrokers were legally recognized in the 1803 city charter, and first regulated by city ordinances in 1812. Six years later the mayor licensed ten pawnbrokers; by 1897, 134 licensed pawnbrokers operated in New York City. In the same year there were 92 in Philadelphia, 86 in Boston, 11 in Pittsburgh, 68 in Chicago, 7 in New Orleans, 22 in Omaha, and 243 in San Francisco, where the absence of state usury laws encouraged a flourishing business catering to the city's large numbers of migratory workers and seamen. In 1911, when pawnbroking neared the height of its business, 2,000 pawnshops did business in 300 cities, in the hands of 400 owners.

    Pawnbrokers were known as the "poor man's banker," but this was a misnomer. The typical pawner was female. Pawnshop investigators observed that three-quarters of the patrons in a shop were women and children. Why were most of the pawnbroker's customers women? In working-class families it was usually the wife's responsibility to see that paychecks lasted to the next payday. Strategies for stretching an income included homework, boarding, scavenging, and even petty thievery, but many housewives found they could supplement their meager allowances by pawning household items for cash, with or without their husbands' knowledge. If hocking a suit of clothes or a piece of jewelry was the best available strategy for getting through a difficult midweek, it was nevertheless a costly strategy. But as Louise More's settlement survey discovered, once in debt to a pawner it was hard to give up the practice.

    And pawning, for many, was a regular practice. A large portion of the pawnbroker's business came from regular weekly customers who counted on the pawnbroker's loan as an integral part of the family budget. These customers made Mondays and Saturday nights at the pawnshop the busiest times of the week. A common practice was to put a suit in "to soak" on Monday, redeem it Saturday, wear it Sunday, and then pawn it again on Monday. The rhythm of pawning intensified during the winter because of seasonal layoffs and higher expenses. In addition to clothing, workmen's tools were often left with the pawnbroker during periods of unemployment, inspiring yet another of the pawnbroker's many nicknames: the "mechanics depot." In this way, pawnshops functioned as a "storage and loan" for working-class families.

    Pawning offered advantages over other remedies for distress. Compared with charity, it was more convenient, and did not require the humiliation of an interview. Unlike straight cash lending, no elaborate contract was needed. In addition, the pawnshop provided quick money on unused collateral. Waiting for charity or a cash loan extended the borrower's distress, and help might not come until after the need had passed.

    But, of course, there was a large disadvantage. While "usury" was considered to be any rate of interest above 6 percent per year, interest on pawn loans could reach as high as 300 percent, or even higher, on the smallest loans. The high rate was explained less by the pawnbroker's greed than by the nature of small lending. Most pawn loans were small, around five dollars or less. Yet lending one dollar required the same time and labor as lending a hundred dollars. At 250 pawns per day, pawnbrokers had to charge higher rates on small loans in order to receive a return that would make them profitable. Legal interest rates were laid down by a patchwork quilt of state and municipal laws regulating pawnbroking. New York City, for example, fixed a sliding rate of interest that allowed a high of 3 percent per month on loans under one hundred dollars, and 2 percent per month on larger loans. But extra charges for insurance and "hanging up" clothing could make the actual rate much higher.

    In the second half of the nineteenth century, concern over high rates prompted the establishment of charitable pawnshops, but they played a small role in the credit system. Inspired by the French monts-de-piété, philanthropic pawnshops in the United States were private and semipublic businesses that aimed to lend money at low rates, with secure storage, honest dealings, and in dignified settings that philanthropists hoped would save the "self-respect" of female pawners. Rates ranged from 1.5 percent per month at the Pawner's Bank of Boston, established in 1859 and the oldest of the charity pawnshops, to an even lower rate of 1 percent offered by the Provident Loan Society of New York, the largest and best organized of this type of lender. But lending at low rates could only be profitable if philanthropic pawnbrokers lent higher amounts on items of higher value. In fact, charitable pawnshops made loans averaging five times the amount loaned by regular pawnbrokers. By century's end, the principal effect of philanthropic pawning was to encourage a dual pawnbroking system. High-grade pawnshops catered mostly to skilled workers, offering loans on jewelry and other small, high-value items. Low-grade pawnshops continued to lend very small amounts on clothing and items of personal value.


Library of Congress subject headings for this publication: Consumer credit United States History, Consumption (Economics) United States History, Consumers United States History