Shelf Life

A history of American borrowing

Kai Ryssdal Jan 30, 2012

Kai Ryssdal: There’s reassuring news on the macro-economic personal finance front today. We learned this morning personal income rose in December by the biggest amount in nine months. And here comes the good part — Americans saved almost all the extra money they brought home. That’s no mean thing in a country where debt is all too familiar. Debt is, in fact, and has been, an American way of life.

Louis Hyman is the author of a new book called “Borrow: The American Way of Debt.” Thanks for being here.

Louis Hyman: Thanks so much for having me on the show.

Ryssdal: So you know, people have been borrowing and lending since basically there were paper, right? I mean it’s been thousands and thousands of years. What, though, is different about the way we do it? The way Americans do it?

Hyman: Yes, it’s one of those rare things in history where it actually has been done since the dawn of time, as so many undergrad essays say. What’s different about debt in the 20th century is that it’s profitable. So if you look at debt in the 19th century, it was either unprofitable or it was illegal. So you have instances like the Singer Sewing machine company, which would sell things on the installment plan. But those plans always lost money for the company. They made up those losses by selling sewing machines. On the other end, you have loan sharks. Loan sharks charge exorbitant rates, but they of course were illegal. In the 20th century you see the emergence of profitable, legal lending. And that’s what the story of “Borrow” is all about — how that changed our culture and changed the way we live.

Ryssdal: Does it become profitable because it becomes impersonal. I mean, nobody knows their banker any more, right?

Hyman: Exactly. I think part of the story is how do you go from a personal relation of debt — whether it’s from your older brother or your bartender — to being something that is done through institutions. That debt, in turn, is resold. It becomes something that is not a personal connection, the way it had been.

Ryssdal: Yeah, which gets us to, writ very large, the banking industry. Right? Depending on who you talk to, banks are either directly responsible for the freeflow of capitalism, and thus the economic glory that is America. Or it is a vampire squid on the face of humanity.

Hyman: Yeah. Either way it’s a monster and it’s impersonal, and it’s treated as if it were something we can’t control. I think what is important to realize is banks, for the most part, follow the rules — rules that we give them and rules we can control. In the book I show that bankers want to do good, they want to help society for the most part. They also want to make a profit obviously. But we can shape the way in which that profit is made.

Ryssdal: So I’m going to come to this next question with the avowed interest of a student of history, which I am. But does knowing how debt changed and morphed in American history, does that help us deal with it today — do you think?

Hyman: I think it does. I think that from a historical perspective, understanding that debt is amoral — that’s it’s not good or bad, but depends on the situation is very important. So much of the discussion of the financial crisis has been in these moral terms, of greed and people are what people are. Bankers have always been greedy. The question is why do we let them hae all our money to play with? Certianly in the last year — with the rise of Occupy Wall Street — you have an increased sense of, oh, people are concerned again about inequality. For me the essential question is: How did inequality produce indebtedness? And in the book I talk about how the people at the top were not willing to pay people at the bottom wages, but they were willing to lend them money.

Ryssdal: Louis Hyman is an assistant professor at the School of Industrial and Labor Relations at Cornell University. His new book is called “Borrow: The American Way of Debt.” Louis, thanks a lot.

Hyman: Thanks so much, Kai.

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