Shortfall: Family Secrets, Financial Collapse, and a Hidden History of American Banking by Alice Echols (review)

Why did Alice Echols, holder of a chair in gender studies and author of books on disco, Janis Joplin, and radical feminism, write a financial history? The trite answer is that she found a trove of untouched banking documents in her family's attic. A deeper answer is that the Zeitgeist is changing historiography such that cultural historians are increasingly interested in business, economics, and finance, topics that for over thirty years have been left largely to the purview of economists and specialists more likely to teach in business, law, or policy schools than in history departments.

The book centers on the story of Walter Davis, Echols' maternal grandfather, and his community. 'Tis a gripping tale, suffused with kidnapping plots, sexual infidelities, jilted lovers, and multiple suicides. The son of a successful, though consumptive, barber, Davis moved from Indiana to Colorado Springs in 1905 where he managed, although disinherited, to rise from unknown court stenographer to personal lender (a.k.a. loan shark) to president of a putative thrift, the City Savings Building and Loan Association (CSBLA). When risky business practices and Depression brought down the CSBLA, Davis pilfered it, absconded, and eventually took his own life.

If the book ended there, it would stand as a successful, twentieth-century reprise to Jane Kamensky's The Exchange Artist: A Tale of High-Flying Speculation and America's First Banking Collapse (2008). But Echols' goal is to remove the (money) scales from readers' eyes regarding the building and loan industry, which she asserts was less like George Bailey's benevolent thrift in Its Wonderful Life and more like Goldman Sachs at the height of its infamous vampire squid-ness. Unfortunately Echols, like most other "historians of capitalism," wants to show the seamy side of capitalism, but she never comes close to defining the term, which leaves her broader claims empirically untestable.

In footnotes, Echols has harsh words for most previous historians of the building and loan (B&L) industry, asserting that they were either paid agents for the industry or that they were blind to the industry's problems during the Depression. The former point is well known and the latter misleading as the primary goal of financial historians traditionally is to elucidate how specific financial institutions (and markets) aided economic growth. While the time is clearly ripe to study financial failures (panics, bankruptcies, discrimination, predation), such studies will be more astute if they come from scholars who already understand how finance works, not cultural critics of amorphous concepts like "capitalism."

Consider, for example, Echols' treatment of Colorado mining companies, the executives of which she portrays as greedy robber barons who slashed miners' wages just to line their own pockets. Actually, most nominal wages cuts in the late nineteenth century were attempts to maintain real wages during a period of deflation (a decreasing price level, i.e., the opposite of inflation). As Echols makes clear, CSBLA and other financial institutions in Colorado Springs were B&Ls in name only because the state never bothered to supervise them. She implies that was because capitalists controlled the legislature but a much better case can be made that Colorado's executive branch believed that lax corporate supervision would help it to win the "charter mongering" contest then going on between Delaware, South Dakota, Colorado, Maine, and a few other states. (That Delaware eventually defeated the lax supervision states to become America's corporate capital belies the assumption that all corporations disdain sensible regulation.)

Ironically, Echols' grandfather may not have been half as bad as she portrays him. Financial historians and economists recognize that moral hazard, the motive to steal in this instance, increases as the value of a concern, even a faux B&L, decreases. Even though no ledgers of the CSBLA and the other failed Colorado Springs buildings and loans are extant (apparently), Echols concludes that they were all shady and doomed to fail...