(http://www.nytimes.com/)
The Way We Live Now The American Way of Debt By JACKSON LEARS Published: June 11, 2006 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 — embodied in the current obesity epidemic. The fattest nation on earth is also the greediest consumer of global resources and now is borrowing more than ever to satisfy its appetites. There is a large core of truth to this indictment. But as the history of debt in America shows, condemnations of extravagance can obscure more than they illuminate. 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, and from the New England Puritans forward, legions of Protestant ministers made this their text. Indebtedness signified a sin against the Protestant ethic of self-control; it also threatened the ideal of independent manhood that underwrote the founders' vision of a virtuous republic. 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 in aphorisms later memorized by generations of Victorian-era schoolchildren: "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 from financial rectitude. In their novel "The Gilded Age" (1873), _Mark Twain_ (http://topics.nytimes.com/top/reference/timestopics/people/c/samuel_langhorne_clemens/index.html?inline =nyt-per) and Charles Dudley Warner mourned the disappearance of the antebellum "horror of debt" amid the speculative borrowing of the post-Civil War years. In 1924, the editor of The Saturday Evening Post complained that "the firmly rooted aversion to debt in any form which prevailed a generation ago 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. For George Washington and _Thomas Jefferson_ (http://topics.nytimes.com/top/reference/timestopics/people/j/thomas_jefferson/index.html?inline=nyt-per) , debt was the price they paid to participate in the world of big-spending Southern planters. Among plainer 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. The other side of debt, after all, was credit — "Beautiful credit! The foundation of modern society," as Twain and Warner called it in "The Gilded Age." They had a point. The root of credit was credo — "I believe" — and faith was a necessary component of most transactions in an expanding economy. Borrowing money was "getting trusted," in the argot of Victorian commerce. Among businessmen, indebtedness was a sign that you were "a man of importance in the community," as a euphoric young John D. Rockefeller said after he was "trusted" by a Cleveland bank for $2,000. Not financial obligations but the failure to meet them was what made you "good for nothing." Among the failures in the late 19th century were farmers, whose crop prices fell while they struggled to pay for threshers and combines. Desperate for relief from creditors, they demanded an expansion of the money supply through the free coinage of silver. The "money question" peaked in the election of 1896, when the Northeastern creditors' candidate, William McKinley, defeated William Jennings Bryan, the spokesman of the agrarian South and West. Those last two regions, a writer for The Atlantic Monthly observed, had "nothing in common but a lack of thrift." Imprudent borrowers took on debt "with only a speculative opportunity to pay" — and this, the magazine charged, violated the trust required to maintain the credit system. This rhetoric of "sound money" concealed a clash of interests between bankers and farmers, Wall Street and Main Street. It would not be the last time that moralism would mask class conflict in debates over monetary policy. 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, reinforced by reassuring names like Household Finance Corporation or General Motors Acceptance Corporation. "Acceptance" implied membership in a national community of responsible borrowers. 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). By providing new sanctions for spending, Patten helped create a cultural landscape where consumer debt could find a decent suburban home. He predicted that workers' desires for things would not undermine their capacity for disciplined achievement, as generations of moralists had claimed; rather, the multiplication of wants would become part of the civilizing process, as workingmen and their wives would broaden their horizons and take pride in their accumulating possessions. Patten's New Basis began the project that E.R.A. Seligman would complete in "The Economics of Installment Selling" (1927) — the abolition of the distinction between "productive" and "consumptive" debt. 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. "Oh, the tension in the house," one of Studs Terkel's informants recalled in "Hard Times," "when Pa used to scramble around trying to get enough money to pay that installment loan. That was the one degrading thing I remember." 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, while real income continued to stagnate for most Americans, the ascendancy of _Ronald Reagan_ (http://topics.nytimes.com/top/reference/timestopics/people/r/ronald_wilson_reagan/index .html?inline=nyt-per) gave government sanction to unprecedented consumer spending. 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. ------------------------------------------------------------------- Jackson Lears, editor of Raritan: A Quarterly Review, is the author, most recently, of "Something for Nothing: Luck in America." -- Centroids: The Center of the Radical Centrist Community <[email protected]> Google Group: http://groups.google.com/group/RadicalCentrism Radical Centrism website and blog: http://RadicalCentrism.org
