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  • Your Job Is Your Credit: Creating a Market for Loans to Salaried Employees in New York City, 1885–1920
  • Michael Easterly (bio)

In the first decade of the twentieth century, a market in the personal debt of corporate and government employees was thriving in New York City and other major urban centers in the Northeastern and Mid-western United States. A set of shadowy entrepreneurs, colloquially known as “loan sharks,” offered short-term, high-rate advances that they called salary loans. Despite operating in violation of the law, primarily the prohibition against usury, the operations of these intermediaries had by 1912 reached an imposing scale. At least eighty-one such offices operated in Manhattan and Brooklyn alone, with millions of dollars in loans outstanding. Of these eighty-one offices, thirty-four belonged to interstate chains, the largest of which stretched over sixty-three cities in the United States and Canada.

By the mid-1920s, these lenders had all but disappeared. However, a new type of intermediary, the industrial loan company, had emerged and was serving substantially the same customers. More commonly known as Morris Plan banks, after their chief progenitor, Arthur J. [End Page 651] Morris, these firms accommodated borrowers through a complex set of transactions designed mainly to disguise their true interest charges, which were more than double the statutory maximum for similar loans. As with many of the salary lenders, these businesses typically belonged to interstate chains. Unlike their less scrupulous forebears, however, they operated with the full blessing of public officials. At the close of 1926 fourteen such firms operated in New York City, with $46 million in loans outstanding. The largest among them, the Industrial Finance Corporation, oversaw offices in more than one hundred cities from Maine to California.

These intermediaries provide the focus of my dissertation, “Your Job Is Your Credit: Creating a Market for Loans to Salaried Employees in New York City, 1885–1920.” Through the use of court transcripts, incorporation certificates, records of municipal and state agencies, correspondence in the archives of a charitable agency that dealt with oppressed debtors, and, in the case of the Morris Plan companies, business records preserved in the Library of Congress, this dissertation reconstructs the operations and develops models of the business strategies of a succession of intermediaries in an early personal finance market. It explains how, prior to the widespread adoption of retail installment contracts or charge accounts, individuals at the margins of law and respectability managed to establish a market to advance funds for purposes that had no necessary relation to the production process or to the purchase of specific consumer goods. It then illuminates how this market evolved from an illicit enterprise into a legal and sustainable business. Its findings primarily address issues in the histories of consumer finance and industrial organization, but its story also contains elements that will interest historians of gender roles, legal procedures, and charity reform.

The dissertation’s approach departs with the majority of scholarship on consumer credit, which to date has focused primarily on efforts by mass producers, mass retailers, and even the government to expand the market for such accommodation.1 In contrast, this dissertation analyzes the mechanics of such transactions. It uses insights gained from the economics of information and theories of cooperative and noncooperative games to address previously unexamined questions: What methods did lenders use to make profitable loans while containing the risk of default? How did they maintain their operations in the face of a hostile social environment? Put more simply, why did they expect their customers to pay? [End Page 652]

The successful lenders’ answers to these questions demonstrate that we cannot understand the history of consumer credit without comprehending its link to the transformation of the employment relationship that began in the late nineteenth century and continued into the twentieth. Just as they had altered relationships in the workplace and politics, industrialization and occupational specialization injected new complications into advances to private households. These social forces created a new class of prospective borrower, the salaried employee, who lacked many of the traits that had previously facilitated the evaluation of creditworthiness. At the same time, loans to such individuals raised anew traditional American...

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