Sep

15

From Borrow: The American Way of Debt:

While Ford may have pushed cars, he never pushed debt. Ford so loathed the sapping of freedom that debt represented for him that for most of the 1920s he refused to sell his cars on financing plans, and in the process nearly bankrupted Ford Motor Company. His hostility to finance, coupling an anti-Semitic hostility to Jewish bankers and a mechanic's hostility to anyone who didn't make anything, hobbled the company. That Dick could get a job at General Motors, which believed in debt wholeheartedly, is largely a testament to Ford's hostility to consumer credit.

In the 1920s, Americans, both borrowers and lenders, discovered new ways to finance consumer credit, and, of course, it was only the beginning. Debt was everywhere, and its ubiquity was made possible by changes in finance, manufacturing, and law that had occurred after the First World War. High interest on consumer loans had long been illegal in the U.S., but around World War I, progressive reformers, seeking to drive out loan sharks, pushed states across the country to raise the legal interest rate. Now able to lend money legally, at rates which could be profitable, new consumer finance industries sprung up overnight. The legal changes coincided with a new generation of cars and electrical appliances that were both expensive and mass produced. The installment credit allowed manufacturers to sell these new wonders at a volume, and consumers could afford them because of the easy monthly payments. What ultimately made all this lending possible was that lenders could now, for the first time, resell their debt.

Stefan Jovanovich writes:

This is very bad history. Henry Ford disapproved of debt, but he had no problem with his dealers offering it. Where Ford's stinginess really hurt was his failure to offer financing to his dealers to allow them to finance their inventory. That is what GMAC did. Sloan had the wit to insist that GMAC be truly separate so that the brand managers could not channel stuff. The explosion in debt in the 1920s was not in consumer debt at all. It was in producer and public finance.
 


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