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From Loan Sharks to Commercial Banks: Moral Crusades and the Segmentation of the Credit Market in the United States, 1900-1945

Simon Bittmann

Résumés

Si de nombreux travaux soulignent l’existence d’une segmentation de l’offre de crédit aux États-Unis, entre un marché primaire occupé par les banques et un marché secondaire constitué d’agences de crédit allant des payday lenders aux agences de crédit immobilier subprime, peu de recherches s’intéressent précisément à la mise en place d’une telle segmentation ou à ses origines historiques.

Cette thèse propose une telle généalogie à partir de l’histoire d’un type de crédit spécifique, sous forme de prêts de petites sommes d’argent, lors des quatre premières décennies du XXe siècle. Elle étudie, tout d’abord, le déploiement d’un système de crédit au début du XXe siècle, permettant à nombre de travailleurs des classes populaires d’emprunter sur la base de leurs revenus futurs ou de la propriété de biens mobiliers.

À partir de deux études de cas portant sur le Sud et le Midwest, nous proposons une nouvelle conceptualisation, intersectionnelle, de la relation de crédit en soulignant les différentes formes d’encastrement de ce système d’échange ; dans le procès de travail, le système judiciaire et la ségrégation raciale. La thèse analyse ensuite la construction d’une offre légitime de crédit des salariés, à travers l’étude des « croisades » et des controverses autour des « loan sharks », ces créanciers perçus comme des usuriers parasitaires qui gravitent aux marges du capitalisme industriel jusqu’au milieu des années 1940. Ce travail de sociologie économique s’inscrit dans la continuité des études sur les processus de moralisation marchande, mais il propose une extension de ces approches en mobilisant des outils de la sociologie des organisations, de l’action publique, des mouvements sociaux et de sociologie du droit, dans l’optique de comprendre précisément comment la résolution d’un problème public et le droit, ainsi que les cadres normatifs dans lesquels puise l’action politique, peuvent affecter le fonctionnement et la structure du marché. Le cadre théorique construit contribue à faire le lien entre l’analyse des transactions et des relations marchandes et celle de la construction politique et culturelle du marché, une division souvent déplorée.

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Texte intégral

Thèse de sociologie soutenue le 18 mai 2018 à l’Institut d’études politiques de Paris, Centre de Sociologie des Organisations.

Sous la direction de Claire Lemercier et Marion Fourcade

Jury :

Mme Marion Fourcade, Professor of Sociology, University of California, Berkeley (directrice de thèse) ;

M. Gilles Laferté, directeur de recherche à l’INRA, Centre d’économie et de sociologie appliquées à l’agriculture et aux espaces ruraux (rapporteur) ;

Mme Claire Lemercier, directrice de recherche au CNRS, Centre de sociologie des organisations, Institut d’études politiques de Paris (directrice de thèse) ;

M. Pap Ndiaye, professeur des universités en histoire nord-américaine, Institut d’études politiques de Paris ;

M. David Stark, Professor of Sociology, Columbia University ;

Mme Sylvie Tissot, professeure de science politique, Université Paris 8 (rapporteure).

Issue(s)

1The segmentation of the American credit market, between a primary banking market and a secondary “fringe” market, characterized by high-rate services offered by credit agencies ranging from payday lenders to subprime mortgage dealers, is often mentioned and bemoaned, particularly as it would mirror the structure of the dual labor market, and yet very few studies are dedicated to understanding its origins. This dissertation offers such a perspective through the study of one specific type of credit transactions, in the form of small unsecured loans to different types of wageearners. First, we study the emergence of new credit systems at the beginning of the XXth century, which enabled lower-class workers to borrow using their future wages or small property as collateral. Second, our research analyses the moral and political construction of a legitimate market of unsecured lending, through the study of the crusades and controversies targeting “loan sharks”, a certain class of creditors associated with usurious practices and which gravitate on the fringe of industrial capitalism. Unsecured loans made out to wage-earners emerged at the end of the XIXth century and were offered by networks of credit agencies located in industrial cities and operating across different States. These companies, labelled as “loan sharks”, became the target of reformist “crusades” which aimed at moralizing credit practices and resulted, in the early 1920s, in the creation of networks of regulated credit agencies, populated by former converted “loan sharks” who managed to “incorporate” (Boltanski and Chiapello 1999) moral critiques into organizational and institutional practices. The regulated “small loan” business only had a short life span, as in the 1930s commercial banks gradually took over activities of consumer credit and quickly became the legitimate suppliers of unsecured loans to American wage-earners.

Methodology

2How can sociologists track and characterize the creation of a “market”, a “business” or an “economic field”? Is it possible to identify the creation of such entities through the multiplication of a certain type of economic exchanges or are they only categories mobilized by economic and political actors in order to think about and organize economic activities? Rather than offering a single perspective on this problem, this dissertation identifies three different orders of experience of the market: as a set of economic transactions, as a body of ideas relating to the collective organization of exchanges, as an object of public action and law. This topological approach enables us to study some of the possible relationships between these different orders, to combine an analysis of market practices as well as social movements and public policies which seek to regulate and modify them. This perspective opens the possibility of studying the selection of legitimate economic practices by moral entrepreneurs and, in return, the effects of these political processes on market relations.

Results

3Our first section studies the “loan sharks”, a class of lender often criticized but whose practices remain little known so far: it seeks to unravel the organizational structure of these agencies, to understand the type of social and professional categories which resorted to their services and the type of loans they offered. We study two networks of agencies operating respectively in the South-East and the Midwest: these case studies underline the diversity of clients, loans and the needs they were intended to cover. Moreover, this comparative perspective allows us to bring to light the specific credit relationships which developed within racially segregated southern cities in the 1900s and 1910s. White lenders offered small credit lines to African-American clients (often women working in domestic services and men railroad workers) with whom they had frequent interactions and, yet, we cannot conclude that these repeated exchanges entailed closer social ties: in order to insure repayment of debts, agencies relied both on direct, face-to-face exchanges and on formal contracts and garnishment proceedings through lower courts, as part of an “economy of obligations” (Muldrew 1998). Thus, these transactions cannot be uniformly described as formal or informal, as contractual and anonymous or on the contrary based on trust and social ties. Hence, we suggest a new conceptualization of the credit relationship which takes into account this diversity of interaction patterns, focusing on three core moments: the initial transaction and the signature of the contract as a market device (Suchman 2003), the collection process and, thirdly, legal actions in case of default. The credit relationship encompasses more than the lender-borrower dyad, as many intermediary are strategically solicited by lending agencies: employers, judges and bailiffs play equal parts in insuring the stability of this exchange system. The diversity of interactions can be mapped onto a space of possible strategic choices, offered mostly to lenders, underlying a structural imbalance of power in the credit relationship. This thesis thus contributes to the sociology of credit by offering a new methodological framework which can be applied to other cases, just as it underlines the fruitfulness of intersectional analysis for understanding working class credit; taking into account the multiplicity of social ties – of class, race and gender – which characterize these transactions.

4In our second section, we study the social movements which targeted these credit agencies: between the early XXth century and the mid-1930s, more than one hundred “anti-loan sharks crusades” were organized in American cities. Triggered by usury scandals, these campaigns mobilized various political, social and business elites as well the media in order to eradicate immoral market actors. According to these moral entrepreneurs, fighting the “loan sharks” required a triple intervention: they deemed necessary to offer legal aid to “victims” but also to build an alternative supply of “fair” credit through the incorporation of new companies, and to push for the intervention of State governments in order to restore the moral and economic order (Abend 2015). We combine a quantitative approach of these numerous actions and a qualitative analysis of “crusades” carried in Atlanta, New York and Chicago, in order to show that these movements carried a form of market logic (Thornton and al. 2012), rooted in a certain conception of philanthropic intervention, of the social functions of justice and of business ethics: in order to understand the role of market ideas, one has to identify, as Somers and Block (2005) put it, the “ideational regime” in which they emerge. “Crusaders” sought to create a new organizational field, the “small loan business”, defined by unsecured loans of less than $300, and they did so through the stigmatization of certain practices and organizations deemed illegitimate. As a consequence of these actions, “anti-loan shark” bills known as Uniform Small Loan Laws were voted in 28 States between 1917 and 1934. During the 1920s and until the mid-1930s, a second wave of “crusades” specifically targeted lenders offering payday advances. These social movements sought to broaden the spectrum of transactions falling under the new laws and hence eradicate very small loans, whose principal usually amounted to less than $50, solely based on future wages as security. In other terms, if the first wave of market criticisms tried to establish a new economic field, the second one sought to define and clarify its legal, moral and economic boundaries. Dwelling on neo-institutionalist work in the sociology of law (Stryker and Pedriana 2004), we study the public and legal efforts carried by reformers in order to insure that the law would impact market practices. Leaning on an intuition that lower courts are sociologically most interesting, we study the cases selected and defended by “crusaders” and their cause lawyers in order that lower courts would stop rendering decisions in favor of lenders, as they had been since the beginning of the century. In return, these legal processes reveal the racial, gender and class-based ethnocentrism of these elite movements, which contributed to the delegitimization of payday advances -a type of financial instrument routinely used by lower class households -and consistently stigmatized the financial incompetence of poor, especially African-American wage-earners.

5Our third section is devoted to the description of commercial banks’ take-over of the “small loan business” between the late 1920s and the mid-1940s. In the wake of the 1929 financial crisis and in response to the various critiques holding bankers responsible for the economic downturn, American national banks were looking for new sources of profit and legitimacy. Investing in consumer credit enabled bank leaders both to put forth a “community logic”, as opposed to a pure market logic (Marquis and Lounsbury 2007), and to benefit from the first ever federal program designed to stimulate economic growth through consumer credit: the Title I of the Modernization Credit Plan of 1934. However, banks thus found themselves competing with small regulated non-bank lenders, within the nascent field of consumer credit, to become the legitimate intermediaries between wage-earners and their financial needs. We use the notion of “jurisdictional conflict”, within professions (Abbott 1988), in order to describe this market struggle: bankers refused to be associated with working-class credit agencies and sought to define consumer credit as a separate banking activity. To describe this process of organizational distinction, we study three controversies which emerged in the wake of this conflict: these pertained to the method of calculating credit price, the type of security required and the type of clients using these financial services. Finally, we test Abbott’s intuition that “client differentiation” represents one possible outcome of jurisdictional conflicts, which in turn can have profound effects on the market structure. Indeed, banks define their credit model as a type of service designed to serve the needs of the high-end of the middle class, relegating the other sections of the working-class to consumer credit agencies.

6Rather than trying to determine whether unsecured loans are harmful or beneficial to the working class, our work suggests that, on the one hand, future research (including on the current period) draws more links between analyses of the credit market and research conducted on the labor market, on the judicial and prison system and on the social relations of race and gender. On the other hand, it calls future research on credit systems to focus more specifically in the forms of voice around market issues, claiming access to the market or protection from market mechanisms, whether they are formulated by borrowers or by those who defend their cause.

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Bibliographie

Abbott A. (1988), The System of Professions: An Essay on the Division of Labor, Chicago, University of Chicago Press.

Abend G. (2015), The Moral Background: An Inquiry into the History of Business Ethics, Princeton, Princeton University Press.

Boltanski L. & E. Chiapello (1999), Le nouvel esprit du capitalisme, Paris, Gallimard.

Marquis C. & M. Lounsbury (2007), “Vive la Résistance: Competing Logics and the Consolidation of U. S. Community Banking”, Academy of Management Journal, 50(4), p. 799-820.

Muldrew C. (1998), The Economy of Obligation: The Culture of Credit and Social Relations in Early Modern England, St. Martin’s Press.

Somers M.R. & F. Block (2005), “From Poverty to Perversity: Ideas, Markets, and Institutions over 200 years of Welfare Debate”. American Sociological Review, 70(2), p. 260-287.

Stryker R. & N. Pedriana (2004), “The Strength of a Weak Agency: Enforcement of Title VII of the 1964 Civil Rights Act and the Expansion of State Capacity, 1965-1971”, American Journal of Sociology, 110(3), p. 709-760.

Suchman M. C. (2003), “The Contract as Social Artifact”, Law & Society Review, 37(1), p. 91-142.

Thornton P. H., W. Ocasio & M. Lounsbury (2012),The Institutional Logics Perspective: A New Approach to Culture, Structure, and Process, Oxford, Oxford University Press.

Zelizer V.A. (2010, Economic Lives: How Culture Shapes the Economy, Princeton Princeton University Press.

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Référence électronique

Simon Bittmann, « From Loan Sharks to Commercial Banks: Moral Crusades and the Segmentation of the Credit Market in the United States, 1900-1945 », Revue de la régulation [En ligne], 23 | 1er semestre / Spring 2018, mis en ligne le 09 juillet 2018, consulté le 23 juillet 2018. URL : http://journals.openedition.org/regulation/13239

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Auteur

Simon Bittmann

ATER en sociologie, laboratoire IRISSO, Université Paris Dauphine ; simon.bittmann@gmail.com

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