Bill Totten's Weblog

Saturday, October 20, 2007

How Credit Cards Cut the Invisible Thread

by Jonathan Rowe (October 09 2007)

It is not common to associate commercial credit with such things as community and trust, but that is a symptom of how credit cards have sucked this function into the abstracted realm of corporate finance. The criticism of these cards usually goes another route - namely to the way they have lowered the resistance to buying and led to the massive build-up of shopper debt.

This is beyond question. When you have to take actual money out of your pocket you think twice about a purchase. Credit cards are like plastic alcohol. They loosen you up, make things seem almost free, especially (and perversely) when you are strapped for cash. But credit cards carry another malignancy that is noted less often. This is the way they sever an invisible thread that once helped hold communities together, and degrade mutual obligation in the financial realm.

Like commerce itself, credit once had a communal function as well as an economic one in the narrow contemporary sense. It represented a bond of trust between two people; the obligation was personal as well as legal. In the hamlet in which I spent part of my boyhood, we put our purchases at the grocery "on the account". Manny, the owner, was known to carry people over the lean winter months. (It was a summer resort area.) He was not a saintly man, nor one to leave a dollar on the table. But his winter customers also were neighbors, and that is what neighbors do.

We didn't sit in a circle and hold hands. It was not community in that sentimentalized sense. It was more real - an awareness that we all were in it together even if we didn't all like one another. There still are residues of that ethos in small towns today. A friend told me the other day that the clerk at our local hardware store remembers his account number even though he himself doesn't. When I worked on a Congressional campaign in farm country a while back, the candidate sent me to the hardware store on my first day in town.

The owner didn't know me. Yet when I told him to put the purchase on the candidate's account, he didn't give me a second look - to my utter amazement. (On the way back to the office I noticed that kids had left their ten-speed bikes outside the library, unlocked.) Wal-Mart is just one reason that this kind of trust is disintegrating. Credit cards are another. Credit cards depersonalize credit. They uproot it from a local and community context and make it as fungible and abstracted as money itself.

There is a micro-credit program in Central and South America called Pro Mujer ("For the women") which makes small loans to help women start businesses. Carmen Valesco, one of the founders, explained recently on CNN the social dynamic that enables the program to succeed. She called it a "peer group guarantee".

"Women form groups of people they know ... If one of the group is not able to repay her loan, the rest are responsible for helping her make that payment. They don't repay only because they want to repay. They don't want to fail their neighbors. They don't want to fail their friends."

This is the market informed by what Adam Smith called the "moral sentiments". It is the part of Smith that his devotees tend to overlook. It also is a more focused form of what happened with one-to-one credit in local settings. The system was not perfect, as no system is. It could be arbitrary. Particular people and groups could be left out. This is the old tension between locality and tradition on the one hand and the fungible ideals of classical liberalism on the other - ideals that have a good side as well as bad.

This tension has played out constantly in US history. It is part of the ambiguous legacy of the Civil War, which abolished slavery but also discredited the role of locality and tradition on the large stage of public debate. It is one of the nation's tragedies that the cause of localism became yoked to such a vile practice. The abolition of slavery became the triumph as well of the amorality of the global market. The Fourteenth Amendment, which guaranteed the Constitutional rights of the former slaves, actually became the vehicle through which corporations claimed those rights too, and to a greater degree than the former slaves were able to do.

But that does not mean localism cannot be resurrected and redeemed. People yearn for the kind of familiarity that once was embodied in credit as in local economies generally. They want credit that expresses the trust of an actual person as opposed to the statistical calculations of a bank. The local currency movement is one evidence of this. It might seem a big leap, to trust one's neighbors and others to that degree. But when one consider what conventional money represents - that is, faith in the Treasury of the United States - then a local alternative is not so forbidding.

As people come to accept that - and economics is less "rationality" than habit - the better the bet becomes. Here is one way to think about the stakes. If a local merchant makes a change mistake in your favor you probably point it out. If a credit card company makes a billing mistake in your favor, you just might think, "It's about time, after all these years of robbing me".

Which attitude, multiplied millions of times over, represents the social content of the nation you'd like to live in? Which will enable us to survive over the long haul? You might consider the recurrence of the Latin prefix com- ("together with") in the first sentence of this post. The relationship between those three words - common, commerce, community - provides a clue.

Bill Totten


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