Credit

Modern Credit Expansion

Changed attitudes toward lending accompanied modern credit expansion, signaled by the replacement of the morally tainted term usury, Latin for the charging of interest on a loan, with credit. Modern writers, such as merchant Daniel Defoe, shaped the meaning of credit, embracing it, albeit ambivalently, and insisting interest was an acceptable and necessary agent of economic growth. Debtor's prison for Defoe, who spent time there, was overly harsh treatment for honest businessmen experiencing a streak of bad investment luck. Building on this positive redefinition of credit, legal reformer Jeremy Bentham crafted arguments that abolished antiusury canonical law in 1694, establishing the free, rational individual's right to draft credit contracts. Credit emerged in a context of intensive capital exchange—more a phenomenon of affluence than poverty—advanced legal, technological, and institutional networks. Modern notions of money marketing, secularism, and individualism also empowered credit networks.

Although corner shop accounts, the traveling salesperson, and visiting the pawn shop had long saved families from ruin, twentieth-century credit networks drew consumers and producers into fateful institutionalized union. The corporate model dominated credit networks that had once been diversely organized by cooperatives, workers' collectives, and credit unions. Automobile manufacturers were some of the first to understand that by smoothing consumers' purchasing patterns, credit extended, regularized, [Page 379]and heightened the speed of mass-production cycles. Western Europe became a branch plant for U.S. cars, and U.S. style credit, which expanded as domestic businesses replicated the credit practices and governments promoted credit believing it might stimulate national economies. In the 1960s, U.S. financial institutions, such as Visa, built powerful revolving credit monopolies that linked banks, retailers, and consumers. In 1983, two-thirds of Visa cards circulated domestically, yet, a decade later, U.S. consumers accounted for less than half of the total number of Visa cards in circulation. By 2000, Visa cards circulated throughout Eastern Europe, Asia-Pacific, Central and South America, the Caribbean, Africa, and the Middle East.

The extension of credit to previously untapped markets fueled the phenomenal growth and profit of the credit sector since the late-twentieth century. New lending formulas and management of financial risks by charging higher rates contributed to credit expansion at the same time as it systematically ensured that the poor and young pay more for credit than the wealthy and established. As credit networks became ubiquitous, those who paid in cash were disadvantaged, because retailers bury in the price of goods the 2 to 3 percent levy credit networks demanded on each credit transaction. In the 1980s and 1990s, several governments' liberalization of financial markets and relaxation of credit restrictions, along with significant sums of capital looking for investment opportunities, increased the sums available for household lending. Between 2000 and 2008, U.S. household lending increased from US$7.1 trillion to US$15.3 trillion; the United Kingdom from US$1 trillion to US$3 trillion; Germany from US$1.4 trillion to US$2.1 trillion; and France from US$486 billion to US$1.3 trillion (Economists Intelligence Unit 2009). The combined U.S. and European consumer debt load reached $4.4 trillion. From Turkey to India to China, consumer credit and consumer debt increased globally (Worthington, Stewart, and Lu 2007).

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