Does the high indebtedness of households signal a moral
decline relative to previous generations? Not according to this look at how
consumer indebtedness has changed over time:
The American Way of Debt, by Jackson Lears, NY Times: Americans are awash in red ink. Consumer indebtedness is soaring, the savings
rate is down to zero and people are filing for bankruptcy at record rates. To
many observers, these are symptoms of cultural decline, from sturdy thrift to
flabby self-gratification...
The equation of debt and decline assumes that once upon a time Americans
lived within their means and saved for what they bought. This is fantasy: there
never was a golden age of thrift. Debt has always played an important role in
Americans' lives — not merely as a means of instant gratification but also as a
strategy for survival and a tool for economic advance.
Yet our moral traditions have concealed this complexity. "Owe no man
anything," St. Paul warned... Indebtedness signified a sin against the
Protestant ethic of self-control; it also threatened the ideal of independent
manhood that underwrote the founders' vision... The indebted man "must smile on
those he hates, he must extend his hand where he would strike, he must speak
pleasantly with a curse in his throat," a Harper's contributor wrote in 1894.
"He wears dependence like a yoke." Benjamin Franklin coined similar lessons..:
"The Borrower Is a Slave to the Lender." "Be frugal and free." The link with
lost freedom was more than metaphorical: you could still be imprisoned for debt
in many places (including New York City) down to the early 1900's.
Still, the case against debt was more principled than practical. Every
generation of moralists imagined the same fall... In their novel "The Gilded
Age" (1873), Mark Twain and Charles Dudley Warner mourned the disappearance of
the antebellum "horror of debt"... In 1924, the editor of The Saturday Evening
Post complained that "the firmly rooted aversion to debt ... has almost
completely evaporated." In 1958, John Kenneth Galbraith noticed that "there has
been an inexplicable but very real retreat from the Puritan canon that required
an individual to save first and enjoy later."
In fact, debt is as American as cherry pie. ... Among ... rural folk, through
most of the 19th century, cash was scarce, and country-store ledgers carried
local peoples' debts for years, sometimes forever. Factory workers and laborers
used debt to make ends meet, resorting to pawnshops, loan sharks, relatives and
friends. Even moralists admitted distinctions between good ("productive") debt
and bad ("consumptive") debt. ...
After 1900, the proliferation of mass-marketed products encouraged a more
open tolerance for consumer debt. By the 1920's, millions of middle-class
Americans bought durable goods on time payments — sewing machines, washing
machines, radios, automobiles, houses. Lenders acquired legitimacy...
Indebtedness could discipline workers, keeping them at routinized jobs in
factories and offices, graying but in harness, meeting payments regularly. Good
consumers would be good producers. The economist who proposed this idea was
Simon Nelson Patten, in "The New Basis of Civilization" (1907). ... He predicted
that workers' desires for things would not undermine their capacity for
disciplined achievement, as generations of moralists had claimed...
Patten was onto something. The disciplining power of debt was undeniable.
Even during the Depression, while Americans cut back on new borrowing, they also
denied themselves food and clothing to avoid repossession of refrigerators or
real estate. ... In 1932, a Harper's contributor observed that the middle-class
homeowner "no longer has possessions but only obligations." This homeowner did
not exactly represent an ethos of self-gratification.
The true fulfillment of Patten's vision depended on an economically secure
working population. These conditions awaited the rise of strong industrial
unions and the comparative prosperity of the post-World War II era. The
acquisition of appliances, cars and houses was often financed on the installment
plan or with the assistance of government agencies like the Federal Housing
Administration. Thanks largely to union power, more fortunate workers could
depend on steady wages that allowed them to pay off big-ticket items over time.
Patten would have been pleased.
The upward spiral of earning and spending survived until the 1970's, when the
midcentury ideal of corporate citizenship evaporated in the harsher climate of
renewed international competition. Fearing foreign rivals, American business
ended its implicit social contract with unions by seeking cheap labor in
overseas markets.
During the 1980's, ... Reagan's rhetorical refusal of limits combined with
the deregulation of the lending industry to detach dreams of luxury from
previous constraints. As money worship mounted, job security disappeared and
inequalities widened, pundits spoke of a new Gilded Age.
By the 1990's, bloated icons of affluence proliferated: the gargantuan
pseudo-military vehicle, the 10,000-square-foot hacienda. A bigger standard
package of household goods demanded deeper debt and accelerated the pace of the
consumer treadmill. No one wanted to look like a "loser."
But for many borrowers, debt has not been just about keeping up appearances.
Less-affluent Americans have resorted to borrowing for groceries as well as
cars. Public policies have intensified their plight. The freezing of the minimum
wage, the tightening of unemployment insurance and workmen's compensation
programs, the shifting of the tax burden from the rich to the rest — these
changes have starved public services while leaving ordinary Americans more
dependent than ever on debt. One of the most consistent statistical findings of
recent years is that about half of all personal bankruptcies have been caused by
medical bills. Whatever else our current indebtedness may signify, it is hardly
a riot of hedonism.
