Debtor Nation: The History of America in Red Ink

Debtor Nation: The History of America in Red Ink

Debtor Nation: The History of America in Red Ink

Debtor Nation: The History of America in Red Ink


Before the twentieth century, personal debt resided on the fringes of the American economy, the province of small-time criminals and struggling merchants. By the end of the century, however, the most profitable corporations and banks in the country lent money to millions of American debtors. How did this happen? The first book to follow the history of personal debt in modern America, Debtor Nation traces the evolution of debt over the course of the twentieth century, following its transformation from fringe to mainstream--thanks to federal policy, financial innovation, and retail competition.

How did banks begin making personal loans to consumers during the Great Depression? Why did the government invent mortgage-backed securities? Why was all consumer credit, not just mortgages, tax deductible until 1986? Who invented the credit card? Examining the intersection of government and business in everyday life, Louis Hyman takes the reader behind the scenes of the institutions that made modern lending possible: the halls of Congress, the boardrooms of multinationals, and the back rooms of loan sharks. America's newfound indebtedness resulted not from a culture in decline, but from changes in the larger structure of American capitalism that were created, in part, by the choices of the powerful--choices that made lending money to facilitate consumption more profitable than lending to invest in expanded production.

From the origins of car financing to the creation of subprime lending, Debtor Nation presents a nuanced history of consumer credit practices in the United States and shows how little loans became big business.


It is difficult to consider debt as having a history, because it seems like debt might be that impossible thing in history, something that has existed forever. in 1917, one popular historian described debt as a “semi-slavery … [which] existed before the dawn of history, and it exists today.” People, in a certain sense, have always lent money to one another: over the dinner table to a wayward brother; across a saloon bar to a good customer; over a lunch pail to a hard-pressed co-worker. But even by 1917, as that popular history was written, the ancient, personal relationship of debt was changing into something that had never happened before.

While personal lending had always existed, before 1917 it had never been legal to charge interest rates high enough to turn a profit and, equally important, lenders had never been able to resell their customers’ debts or borrow against them. in short, personal debt had never been able to be a normal business. Personal debt remained disconnected from the great flows of capital—confined to the margins of the economy. the big money in America was made by turning the hard work of Americans into commodities, not by lending those workers money. the wealthy could get personal loans at banks, alongside their business affairs, but for everybody else credit remained outside the conventional economy. Why would the Carnegies and Morgans of the world want to tie up their capital in loans to steelworkers, when they could make so much more money by building steel plants? When friends and family were tapped out, loan sharks—whose interest rates dwarfed even the most subprime of lender’s rates today—could provide cash, but these small-timers could never compare in power or wealth to the Gilded Age titans of steel and rail. By the end of the twentieth century, however, such petty loans to workers had become one of American capitalism’s most significant products, extracted and traded as if debt were just another commodity, as real as steel. Consumer finance had moved from the shadowy margins of capitalism into its brightly lit boardrooms, remaking, in its wake, the entirety of the American economy. in Debtor Nation, I explain how this financial revolution happened.

Personal debt assumed a new role within American capitalism once it became legal, sellable, and profitable. These developments did not occur . . .

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