In the middle of all the conversations about credit card debt, credit card reform, credit card companies and credit troubles, we felt it was important to take a look at the credit card as, after all, this is the revolving credit card's 50th birthday. For many, a 50th birthday is a time of reflection and as a small sliver of plastic can't reflect on itself, we thought we might do it for it and see what impact the credit card has had on our country and our culture.
These days, if you even suggest that Americans don't really need credit cards, you'll face a barrage of criticism -- the concept of carrying, using and even perhaps being defined by one's credit card is now uniquely and powerfully American, but let's take a moment to look at American history and consider a few facts, with a hat tip to some of the lines used to make the credit card powerfully American.
George Washington always left home without it.
It wasn't everywhere Thomas Jefferson wanted to be.
And it didn't pay Benjamin Franklin to Discover.
But there's more than just parodying the latest credit card company ads. Consider what we achieved as a people and as a country, all before we were able to mock the phrase, "priceless."
Abraham Lincoln reunified America and abolished slavery fifty years before Hendrik Baekeland created the first synthetic plastic in 1909.
Franklin Roosevelt led the country out of an unprecedented economic crisis and electrified the South more than a decade before 1950. But it was in 1950 when Ralph Schneider and Frank McNamara fashioned that synthetic plastic into a card for the members only of its Diner's Club to pay for their meals at 27 upscale restaurants in New York City not when they ate out, but at the end of the month with just one single bill. Fancy that.
While Bill Haley and the Comets invented rock and roll, Jonas Salk vaccinated us against Polio, and Mickey Mantle smacked a home run 643 feet from home plate at Yankee Stadium, Bank of America fashioned a plastic card that looked exactly like the Diners Club card with one nifty difference. With this new card, a cardholder could buy something from anyone who accepted the card and instead of paying for it completely at the end of each month, people were now offered the opportunity to pay only a portion of the total bill along with a little interest tacked on, for later.
It was fifty years ago today, well, fifty years ago this year.
It might seem completely inconsequential today, and more than acceptable to be in debt at the end of every month, to not pay off the bills totally and completely. But in 1959, this was a foreign concept and it wasn't clear whether Americans would warm to the idea at all. However, the introduction of 'revolving' credit happened at just the perfect moment in time in American history.
Because in 1959, as the post-World War II economic boom was starting to wane, one particular ingrained desire was not fading along with it. That desire was the undeniable pursuit of the American dream. The driven ambition to always do better than the prior generation, to have more, be be more. It was simply the American way.
Man has always been a creature of comfort, on the lookout for nicer clothes, better housing, tastier meals, but that desire had always been, for over 5,000 years, tempered by two very powerful forces.
First, if you wanted to spend more than you had in your pocket, you had to know someone who was willing to lend more to you. Credit (from the Latin credere, to trust) was something extended person to person, business to consumer, and the business wanted to make sure it got paid back, so credit was held very dear. Not paying back the local store would have devastating implications not only to your immediate social life in town but to your life in general since debt laws, unlike today, were fairly strict. Debtor prison and indentured slavery, that's what happened to those who didn't make their minimum payment in the good old days.
This combination of forces had led people to being positively fearful of carrying large amounts of debt, and the many proverbs of the times reflected the core concept that "neither a borrower or a lender be." Children were taught "better to go to bed hungry than wake up in debt." And above all, "out of debt, out of danger." Debt was a serious issue, not entered lightly or easily, with serious consequences.
Being in debt was an immensely personal, and extraordinarily negative state of being. You owed someone you knew money, every piece of personal debt was really a personal loan between you and someone you knew and may well have known, your entire life. Not only that, if you didn't pay for what you had already bought, you couldn't buy something new because the business owner wouldn't let you. Sort of like a built-in real life credit limit.
But in 1959, however, this small nifty piece of plastic changed all that. No longer did a business have to worry about whether you could pay them back for your purchase since if you had the credit card, the business knew it was going to get its money, even if they had no idea who you were. And as the consumer you were no longer facing personal debt to someone you knew, rather, you owed merely a portion of your debt and you paid it by check to an anonymous post office box more than likely a whole state away from where you lived.
Those little slivers of plastic changed how we as a country and as a people looked at debt. Our fear of debt, our avoidance of debt, our absolute desire to stay out of debt; it all dissolved with one swipe of a plastic card.
Consider a few facts about then and now.
In 1959, not a single American made due by paying the minimum balance on their credit card because there was not one single penny of credit card debt in the entire United States. Not one single penny. Five short decades later, the average American owes over $8,000 in credit card debt. Collectively, we owe one trillion dollars with a minimum payment due every month of $20 billion.
In 1959, there were a handful of credit cards in the entire United States and they were virtually all in New York City. Now, the average American can flash eight cards -- department store cards, bank cards, gas cards, ad infinitum. If you can buy it, you can get a credit card to cover it.
In 1959, federal and corporate debt was a tiny fraction of what is now. Because as people became used to, and comfortable with debt in their personal lives, they became equally comfortable in their business lives and with the concept of their government being in debt. So powerful has this change been that today, we are not even studying our current financial crisis with the proper word in mind.
In 2009, the United States is not facing a "credit" crisis; we are facing a "debt" crisis -- one that has been decades in the making. The cumulative effect of fifty years of becoming increasingly more and more comfortable with debt has delivered us a culture where it is perfectly acceptable to spend money we don't have and to look at a credit line as something to be maxed out, not minimized. Not to mention the increasingly popular and routine word-"swapping" of debt for credit.
From nowhere to everywhere, from the same of debt to the power of credit, in every wallet, Americans carry their cards not now with shame but with pride. Debt is now not something to be avoided but, in some cases, something to be proud of, cards with higher debt levels have become a symbol not of weakness, but of power.
The scarlet D hanging around the neck of the debtor has been removed, replaced by the flash of a Gold Card, or even better Platinum or Black. Imagine that -- a card that charges you hundreds of thousands of dollars so you can pay for something with your own money! Only in America, well, only in post-1959 America we suppose.
How did an America that was already so successful without credit cards and other vehicles of debt like home equity lines of "credit" slowly get soaked in a flood of false affluence? How did debt become as much a staple of the American family as high school football or Thanksgiving dinner? Is it possible that this single piece of plastic actually molded our culture?
In our series of blog posts, "PLASTIC" we invite you on a journey from ancient Greece, through the financial centers of New York City, into the Black Hills of South Dakota and a tiny sliver of a state that is known as Delaware, whose entire non-crab related economy results from its lack of interest-rate laws. We'll meet families who went broke, a world champion poker player who won the World Series of Poker in a victory that started with a $40 charge on his credit card, and the vast majority of people in between. We'll meet the genius who figured out that the less you make cardholders pay every month, the more money you make off them. We'll even show you what's happening economically in a country like India right now, where their current view of debt is much like ours used to be.
We'll show you entire industries that have grown out of the introduction of that first credit card, like the Self Storage Industry, a business that did not exist thirty years ago and now, there is more than 78 square miles of self storage space in America, 20 square feet for every household, and almost all of it, filled with stuff that people have bought but can't even fit into their house.
The credit card is about to hit its fiftieth birthday -- we're just not sure if it's something we should celebrate. To be continued.....