Borrow
The American Way of Debt
By: Louis Hyman
Published: January 24, 2012
Format: Trade Paperback, 304 pages
ISBN-10: 0307741680
ISBN-13: 978-0307741684
Publisher: Vintage
"Understanding the history of debt gives us a sense of both debt's possibilities and its dangers. Rather than being an always evil bogeyman, credit has the capacity to enrich our lives and make our dreams come true. Misused and misunderstood, though, credit can just as easily become the stuff of nightmares", writes assistant professor in the Labor Relations, Law, and History department at the ILR school of Cornell University, Louis Hyman, in his very insightful and brilliant book Borrow: The American Way of Debt. The author describes the rise in consumer credit, and how it transformed both the economy and the culture of America.
Louis Hyman recognizes the importance that the role of credit played and continues to play in the consumer economy of America. The author also points out that while consumer credit added to the quality of life for many people, it caused great hardship to others. Like anything else, credit is a tool that can be beneficial if used wisely; and a danger if misunderstood or used incorrectly. The culture of America changed in the 1920s as agriculture began to be replaced by the new industrialization of the economy. As people became employees, who also held hopes of higher future incomes, those expected earnings replaced cash in hand as the reason for purchases. While credit without interest represented a danger to business in the nineteenth century, the commoditization of interest bearing credit offered a boon to business in the twentieth century.
Louis Hyman (photo left) outlines the benefits and calamities that resulted from this transition in credit and its role in the economy. The author applies solid historical research to develop his case credit is the story of both the borrower and of the lender. Both sides of the credit equation have experienced good times, when credit benefited both parties, and bad times, when credit failed one or the other signatories. The reliance on expected future earnings as the fuel to maintain the credit engine was effective in times of economic expansion.
During periods of economic recession and depression, credit not only destroyed borrowers, but many unwise lenders as well. As the current economic slowdown plays out, and credit is tighter than during the previous decade, the problems for creditors and debtors have been brought out into the open. As Louis Hyman points out, this is nothing new. These same credit based problems have arisen in the past; as Americans discover that everything old is new again when credit buying forms so much of the aggregate economic activity.
Louis Hyman guides the reader toward those periods of time when a credit based culture and economy collide with economic downturns and difficult repayment. Those periods of time also coincide with the selling of debt either welcomed gladly by investors or shunned as a terrible investment. With the commoditization of credit, the various historic and contemporary failure of debt based investment vehicles, to find an investor market, precedes and coincides with a credit and liquidity crunch.
For me, the power of the book is how Louis Hyman presents a fair and balanced historical appraisal of the role of credit in the American economy. The author does a fine job of demonstrating how, in the contemporary credit fueled bubbles, consumer credit for housing crowded out business credit. The impact of that crowding was an economy based on housing, rather than a sustainable, and more widely based economy. The housing credit bubble, along with the failure of the near worthless investment vehicles created to purchase the debt, crashed as it did during the Great Depression. The result was foreclosure for underwater home buyers, and insolvency for banks and investment houses.
Louis Hyman points out that generational memory, or lack thereof, plays a powerful role in the repetition of the credit cycle. Those generations who came of age in hard economic times either feared or showed caution with credit. The generations who came of age in good times assumed more credit risk, as they had not known the hard realities of credit and its failures. The author provides ample evidence that the story of credit in America is as much one of culture and of values, as it is of economics. When culture and economics clash, credit problems are created that damage both the culture and the economy.
I highly recommend the timely and well researched book Borrow: The American Way of Debt by Louis Hyman, to anyone seeking an engaging and well presented history of America's credit and how it almost bankrupted the country. This book is a must read for anyone who cares about the state of the economy, and the role that debt plays in both its growth and its economic depressions.
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