The Engine of Enterprise: Credit in America by Rowena Olegario (review)

Americans have always been of two minds about credit. On one hand, they view the flip side of credit (debt) as useful when used sparingly by those who would not become so indebted as to become beholden to their creditors. Overused, misused, or abused, as every debtor from Thomas Jefferson to the modern suburbanite realizes too late, credit is as much bane as benefit. Jefferson rued his debt once he realized that “there can be no freedom or beauty about a home or life that depends on borrowing and debt.”¹ On the other hand, Americans treat credit as a necessary subsidiary to business and a thing to be cultivated and nurtured. Benjamin Franklin advised young men to inspire confidence in their creditors by letting them hear the sound of their hammers morning and night (14).

Olegario observes that the tension between Jefferson’s and Franklin’s sentiments has been evident at every critical juncture in U.S. history: The Age of Jackson, the Progressive Era, the Jazz Age, the New Deal, and the Reagan Revolution were all, in part, defined by changing attitudes toward credit. Andrew Jackson’s veto allowed free banking to take hold; the Progressives reined in John Pierpont Morgan and the money trust; the rise of consumer culture in the 1920s was facilitated by new forms of consumer installment credit; New Dealers instituted deposit insurance and the Glass-Steagall Act, which prevented banks from handling investments, later to be undone in the deregulatory push of the Carter-Reagan era. Each of these changes responded to contemporary attitudes toward the ease with which businesses and households might access credit and, in turn, changed the practice of lending as bankers labored to find profitable opportunities in changing regulatory environments.

Olegario is a fine writer and a master of the business-history craft, but her choices in composing this volume are problematical. Because she opts to develop her argument chronologically, the book is comprised of five substantive chapters that run from the colonial era to the present. Each chapter discusses five broad issues—commercial and bank credit, usury laws, household credit, bankruptcy, and credit reporting. The relative weight changes by chapter as the relative volume of existing scholarship for each factor rises and falls. The final product suffers for this choice, evincing a lack of continuity in the subject matter.

Two more substantive criticisms are possible. First, Olegario drops several “nuggets” along the way but fails to develop potentially valuable arguments about them. At one point, she depicts the nineteenth-century U.S. financial markets as a host of credit institutions from pawnbrokers to sales-finance companies to investment banks, each serving its own specialized clientele underserved by existing institutions. It is a commonplace in the literature that this inefficient patchwork of regulatory work-arounds is responsible for the recurrent panics. A reasonable alternative might be that this market-based system was simply exploiting Adam Smith’s ideas of specialization and the division of labor, driven by Chandler’s contention that firms that succeed in solving one problem may not succeed in solving another.²

Second, Olegario’s castigation of the banks for convincing households to take on excessive debt (another commonplace) would have benefited from a serious consideration of Lunt’s observation that in a “republic ever headed toward more democracy . . . the manipulation and control of credit” responds to politics, which responds ultimately to the voters’ will.³ Thus, it is not just that credit demand is endogenous; credit supply is also endogenous and responsive to new demands. At these and other junctures, the book would have been more valuable had it offered more analysis and interpretation to complement the collection of facts. Olegario’s earlier research has been provocative and insightful, but this book often falls short in both dimensions.