The Cultural History of Money and Credit

1/9/2021
Chapters 3, 6, & 9 edited 9/12/2021

Part 1: Creditworthiness and Credit Risks

Chapter 1: Between Promise and Peril: Credit and Debt at the Pearl Fisheries of South India and Sri Lanka, c. 1800, Sam Ostroff

Set in the pearl fisheries in the Gulf of Mannar (see map below) at the turn of the 18th century, this chapter examines the social and cultural practices around credit and debt in a young British colony. The Gulf is described as a “convergence” zone where economic actors found common ground and engaged in commerce despite their diverse backgrounds, despite the riskiness of pearl fishing, and despite occasional cash shortages.

In managing the fisheries in those years, the colonial state employed two systems in tandem: Amani under which the state operated fisheries itself and rentals which required a guarantor or collateral in exchange for fishery capital. Compared to rentals, the Amani operations were less prone to corruption and hence ensured larger revenues for the state. Citing several anecdotes, Ostroff highlights how renters invoked notions of honor and trust not only to secure their rents but also to secure rent forgiveness later if necessary in the face of insolvency.

Thus, pearl fishery rentals served a colonial purpose in addition to passing on some risk to proprietors. The colonial government, after examining renters' economic and social credit, partially forgave rentals for fisheries as it sought to establish goodwill with the population and confidence in such a speculative industry.

Chapter 2: Lenders and Borrowers in a Non-Capitalist Economy: Rio de Janeiro in the Early Nineteenth Century, Mônica Martins

Martins outlines how credit was institutionalized in colonial Brazil. She points to the enactment of the Commercial Code in 1850 as a turning point that shifted the Brazilian credit market from an interpersonal one—marked by clear race and class hierarchies that made economic and social credit indistinguishable—to an impersonal one a la laissez-faire. Before the Code, however, the arrival of the royal entourage from Portugal, the opening of Brazilian ports, and the signing of a trade treaty with Britain between 1805 and 1810 all gave momentum to Brazil’s increasing importance in international trade and thus stirred its credit market.

Martins describes developments in Brazil’s credit markets and corroborates these developments with notarial records from Brazil’s National Archives. She sheds light on the role of women, occupation groups, and exceptional actors and what they tell us about an honor-based, pre-capitalist Brazilian society.

Chapter 3: Microfinance and the Progressive Generation, David Hochfelder

Poverty and morality were disentangled in 19th-century America and structural economic issues took the fore. Economist Robert Chapin and social worker Edward Thomas Devine blamed economic forces for peoples' misery. They encouraged thriftiness, highlighting the morals of Horatio Alger's Ragged Dick. By the turn of the 21st century, however, the extravagance of 1920s America was back in vogue owing to the "Paradox of Thrift" that Keynes popularized in the 1940s. The contrasting trends in the popularization of savings and credit are what Hochfelder calls "microfinance."

Thrift en masse has a short history in America. It started in the form of school and postal savings banks first operated by volunteers. Aggressive campaigns promoting Liberty Bonds and War Savings Stamps were also a big part of America's early democratization of savings. Before the 1920s brought about the surge in spending that lead to the Great Depression, millions of Americans bought War Bonds and bank deposits grew in the late 1800s.

The parallel democratization of credit began as an attack on payday lenders at the turn of the 20th century. The Russel Sage Foundation lobbied to have state usury laws loosened and the maximum legal interest rate raised in an attempt to make riskier borrowers more affordable for commercial banks. Separately, Arthur Morris of Virginia set up the nationwide Morris Plan Bank that offered credit to employees who instead of collateral had two willing coworkers to cosign on their loans. A third venture that gained some momentum before it eventually behaved like a standard commercial bank is the credit union. Samuel Miller Quincy imported the idea for it circa 1870 from Germany and rural British India before a Boston business magnate, Edward Filene, first introduced it in his stores. Roy Bergengren, who was hired by Filene, continued to promote credit unions as a middle path between capitalism and socialism but the idea was never widely adopted.

Part 2: The Loan Market and the State

Chapter 4: The Boundaries of Debt: Bankruptcy between Local Practices and Liberal Rule in Nineteenth-Century Switzerland, Mischa Suter

Suter describes the evolution of Swiss bankruptcy laws and perceptions in the mid-nineteenth century. He sets the stage in an 1829 court case where the wives of bankrupt men demanded access to community entitlements despite the financial follies of their husbands. In the ensuing decades, insolvent debtors came increasingly to be seen as unfortunate rather than malicious actors. This shift came as a result of the growing use of economic statistics that revealed business cycles and pointed to systemic causes of bankruptcy, the frequency of which witnessed a dramatic increase in those years.

Chapter 5: Inventing Figures and Imagining Shrubs: Bank Bureaucrats’ Lack of Field Experience in Mexico, 1930s–1940s, Nicole Mottier

Mottier describes a historical episode in Mexico that stands in stark contrast to the liberal reforms in Switzerland. Under the left-leaning administration of Cardenas in the 1930s, peasants who worked in agriculture on communal land in the Mexican region of Comarca Lagunera were forced to access credit through the state-run bank, Banco Ejidal. Notorious for the incompetence of its administrators, Banco Ejidal inspired mixed responses. Some farmers sought lending from alternative sources such as private markets, while others employed poor agricultural practices following the bank’s incentives and thus suffered large losses and fell into debt. Still, another group of cunning farmers took advantage of the incompetent administrators and secured larger loans. Mottier uses anecdotes of farmers and credit societies to show that the bank’s incompetence affected farmers' material existence and that this in turn affected the degree of agency they had in the face of state dominance.

Chapter 6: Consumer Credit as a Civil Right in America, 1968–1976, Enrico Beltramini

Beltramini describes how the Civil Rights Act of 1968 and the Equal Credit Opportunity Act of 1974 legislated equal access to loans as a civil right in the United States. Both laws were the culmination of longstanding efforts to expand credit access. Not only did the federal government redefine borrowing as a civil right, but it made lending less risky in two ways. The federal government subsidized mortgage-backed securities through the Housing and Urban Development Act, simultaneously with the CRA in 1968. And it deregulated the consumer credit industry (allowing lenders to bypass caps on state interest rates) soon after in 1978 through the Supreme Court case of Marquette National Bank v. First of Omaha Corporation.

Several states had enacted laws to prevent discrimination in public and private housing before 1968. But the Civil Rights Act of that year, also known as the Fair Housing Act, introduced federal restrictions. It prohibited racial discrimination in public housing (i.e. housing that was owned, insured, or underwritten by the federal government) by banning the imposition of "onerous" interest rates and requirements on minority borrowers.

The Equal Credit Opportunity Act of 1974 came later as a result of the Consumer Credit Protection Act of 1968 and several class-action lawsuits that charged mortgage banks with discrimination on the grounds of gender and marital status. Two years after it passed, the ECOA was amended to prohibit discrimination on the grounds of race, ethnicity, age, and other protected classes.

Part 3: Money, Commercial Exchange, and Global Connections

Chapter 7: Philippine Colonial Money and the Futures of Spanish Empire, Allan E. S. Lumba

Allan E. S. Lumba links the bumpy monetary history of the colonial Philippines during the final years of Spanish rule (1521-1898) to diverging views on the future of the Spanish empire. To address the gold shortage and silver price volatility that ensued in the Philippines after the mid-19th century North Atlantic adoption of the gold standard, liberal pundits argued that Spain should incorporate its own bimetallic system in the Philippine colony. Doing so would have facilitated trade in the distant archipelago, but it would have also redefined the colony as a province thereby challenging Spain's traditional imperial hierarchy and displeasing more conservative Spaniards.

In this context, Francisco Godinez, a recognized liberal lawyer who spent time at the helm of the Banco Español-Filipino, published articles arguing for the gradual incorporation of a bimetallic system that would unify the colony with the metropole and decouple the colony's currencies from the instabilities of foreign markets. Especially noteworthy in Godinez's writing was the way he describes the colonized population as racially submissive and hence prone to facilitate the success of his monetary plan which involved paper currency and hence a trust in state capacity. Leveraging Godinez's ideas was the liberal reformer Marcelo Del Pilar, editor for the journal La Solidaridad. In his articles, Del Pilar uses Godinez's writing to compare the subjugation of the Philippines when dealing with Spain with the subjugation of Spain when dealing with international markets headed by Britain's "commercial dictatorship." Regardless of the fate of Godinez's ideas, Lumba shows in this article how the monetary, cultural, and political realities of the late Spanish empire were intertwined in the Philippines.

Chapter 8: Dubious Figures: Speculation, Calculation, and Credibility in Early Twentieth-Century Chinese Stock Exchanges, Bryna Goodman

In this second to last chapter which happens to be the longest, Bryna Goodman explores the consequences of transporting institutions between cultures. In particular, she examines how stock exchanges, a financial institution whose legitimation and moral integration spanned over a century in Europe where they originated, were transplanted to Shanghai in just a few decades in the early 20th century. Following the Shanghai Rubber Bubble in that same period, Chinese reformer Liang Qichao lamented the dangers of stock market investments and pointed to the inherent disadvantage that Chinese investors face when trading with their more experienced counterparts in Europe. Qichao and his mentor Kang Youwei describe in their writings the nationalistic and economic function of exchanges as did the European sociologist Max Weber some decades before, but they argued for locally managed exchanges to avoid foreign influences. Chinese exchanges flourished perhaps excessively. Over 150 of them were established by the 1920s.

Enter Ma Yinchu in 1914 only a couple of years after the overthrow of the Qing Dynasty. Yinchu was an American-trained economist who also saw the Western distinction between speculation and investment and thus promoted the exchanges. By the 1920s, however, Yinchu had grown disenchanted with the "irrationality" of investors whom he observed during the 1921 speculative bubble in Shanghai. He thought this irrationality was endemically Chinese, a view that aligned with the European Max Weber's doubts about the suitability of exchanges in traditional Chinese society.

Goodman proceeds to lay out the more popular perception of stock exchanges as it was captured in contemporary literature and as it verified Yinchu's disenchantment. Scenes of chaos and corruption in novels by Jiang Hongjiao, Lu Shouxian, and Zhu Shouju in the early 1920s portray the science of calculation as supernatural and Chinese exchange personnel as immoral actors who manipulate security prices. Scattered financial language in this fiction masks contemporary Chinese ignorance, says Goodman, and reaffirms the exchange as a black box operated by unsavory characters. Describing society in a young and unstable republic, these works of fiction criticize both economic and political liberalism, ideas that did not live long before the Republic shifted towards state-control in the 1930s.

Chapter 9: Money and Autonomy in a Settler Colony: The Politics of Monetary Regulation in Colonial Zimbabwe, 1930s–1965, Admire Mseba

Just as chapter 7 covers Spanish monetary policy in the colonial Philippines, the present chapter by Admire Mseba covers British monetary policy in colonial Zimbabwe (1930s Rhodesia). This episode in Zimbabwe's history stands in stark contrast to other colonial episodes. Before Zimbabwe's native population gained independence in 1980, its settler population declared independence from the British metropole in 1965. Mseba lays out developments in colonial Zimbabwe’s monetary policy leading up to the earlier dissension by the settlers.

Following the Great Depression and Britain's suspension of the gold standard in 1931, the settler administrators in Rhodesia found themselves caught between a weak pound sterling and a strong South African pound. Exporters and currency arbitrageurs took advantage of this disparity until the Union of South Africa suspended the gold standard in 1932. By then, a capital shortage had ensued and exporters gained political power strengthening ties with the metropole. To address this liquidity crisis the Rhodesian government passed the Coinage and Currency Act in 1932, demonetizing the South African pound and establishing a new local currency that, after the establishment of a Currency Board in 1938, was pegged to the pound sterling. The settlers had preferred monetary stability over independence.

In the decade after WWII, settler industrialists in Southern Rhodesia had grown to resent their monetary dependence. The required currency reserves held in London stifled local investment. Additionally, in 1953, the settlers in modern-day Zimbabwe, Malawi, and Zambia established what at the time came to be known as the Federation of Rhodesia and Nyasaland. These economic and political developments led to the creation of a central bank in 1956, giving the new state extra control over monetary policy and currency flows.

Incidents of riots and violence in 1960 made it necessary for an advisory committee to review the federal constitution. The committee recommended giving the local population a majority in the legislature. Such ideas did not sit well with settlers who staged a coup in 1964 and imprisoned African nationalist leaders. They passed the Reserve Bank of Rhodesia Act that same year enabling the central bank to set exchange and interest rates. The act also made the reserve ratio flexible to respond to market conditions. They controlled liquidity requirements by passing the Banking Act around that time as well. In 1965, with their control over monetary affairs thus solidified, they rebelled against the Metropole announcing the Unilateral Declaration of Independence. [The UDI was followed by the Zimbabwe War of Liberation that lasted until the Lancaster House Agreement in December 1979. In 1980 Southern Rhodesia gained independence and was renamed Zimbabwe.]