1920s. Consumer credit as a percentage of income doubled between 1920 and 1930, from 4.5 percent to 9.5 percent, and the use of credit of various sorts continued to increase for the remainder of the century (Olney 1991). In 1933, according to Columbia sociologist Robert S. Lynd (1933, p. 862), installment purchases amounted to between 12 percent and 15 percent of total retail sales, including 60 percent of furniture sales, 50 percent of electrical household goods, 75 percent of radios sold, and 60 percent of automobile sales. Robert and Helen Lynd found ethnographic evidence of a new attitude to credit in their study of the economic life of “Middletown” (Muncie, Indiana): “People don’t think anything nowadays of borrowing sums of money they’d never have thought of borrowing in the old days,” Lynd was told by one of his informants (Lynd and Lynd 1929). Even during the economic downturn of the 1930s, the Lynds found that the demand for credit continued unabated. They were informed by “a discerning Middletown woman” that “most of the families I know are after the same things today that they were after before the depression, and they’ll get them the same way—on credit” (Lynd and Lynd 1935, p. 203). The expansion of credit continued into the post–World War II period. Consumer credit grew elevenfold between 1945 and 1960, while credit through installment payment plans increased nineteenfold. Moreover, a new form of credit emerged in the late 1940s with the appearance of the first consumer credit cards.42
One of the reasons why credit took of was the failure of savings to increase in line with wages. Despite increasing productivity and wages, the static savings rate meant that for many consumers it was not possible to pay for bigticket items without borrowing money, and so, from the later nineteenth century onward, new institutions developed to provide credit. Of course, this raises the question of why savings did not increase to fund spending on the consumer durables that were becoming increasingly available. One possible answer is that credit is a kind of saving after the fact of a purchase, such that, rather than saving first to fund a purchase, the purchase is made on credit, then money is “saved” to make payments on the debt incurred. Avner Ofer (2006) has suggested that the appeal of this strategy is that it is psychologically easier to make payments on credit owed than it is to save, since failure to do the former results in very visible financial penalties.43 Yet taking on a commitment to “save” via credit payments has definite downsides. The obvious one is the financial risk entailed by making use of credit. While wage earners accounted for only 35 percent of personal bankruptcies in 1935, by 1958 this number had increased to 85 percent, according to the National Retail Credit Association—an increase directly resulting from the expansion of consumer credit (L. Cohen 2003, p. 124). Moreover, given the rate at which new, and supposedly superior, products become available under capitalism, unless the demand for an item is quite urgent, the consumer would arguably do better by saving up for expensive items rather than using credit. By saving instead of using credit, consumers would likely have more choice when they finally get to the point of making a purchase, because, in all probability, new products would have appeared. Of course, the drawback of saving, as opposed to using credit, is that it entails forgoing immediate consumption. But it is not self-evident that avoiding the frustration of delayed gratification outweighs the benefits of saving, especially given the substantial interest typically paid with credit or installment payments.
Empirical Pattern in the United States
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