Today, the idea that investors and lenders will seek to maximize their profits at all costs looks to most of us like an obvious and morally neutral—or even positive—aspect of the capitalist system. Daniel Platt, a scholar of political economy, explains how this modern understanding of lending emerged in the early twentieth century—thanks in part to progressive reformers.
From the early days of the country, Americans widely embraced the notion, grounded in Christian teachings about usury, that lending was a morally dubious field.
“Market entanglements such as stock ownership, insurance contracts, and debt were long seen as dangerously similar to fraud, gambling, and the commodification of the self in American moral discourse,” Platt writes.
As it had been for centuries in Europe, this idea was closely tied to antisemitic tropes. Public discourse in nineteenth-century America frequently conflated the religion of Judaism with the rapaciousness of industrial and banking elites. For example, one critic wrote that John Rockefeller exhibited the “spirit of monopoly… [that] manifests itself in the scandalous enterprises of the Jews.” The term “Shylock” became an almost religion-neutral term of abuse for lenders.
Platt writes that, even though high-interest lending was both frequently illegal and widely viewed as taboo, as wage work became the norm, people increasingly needed small loans to cover emergency expenses. So, they turned to illegal small-scale lenders.
Progressive reformers viewed this as a modern evil just like unsafe working conditions and the excessive power of trusts. The Russell Sage Foundation (RSF) in particular took on the issue as a matter of grave concern, launching a campaign in 1910. The reformers accused loan companies of violating both the spirit and letter of usury laws, but they also viewed legal avenues as useless for stopping loan sharking and argued that the laws actually drove interest rates higher due to the extra risk to which they exposed lenders.
Initially, RSF sought to replace profit-motivated lenders with philanthropic ones. But this was largely a failure. The campaign’s head, Arthur Ham, noted “the lack of wealthy people” interested in an enterprise with a “definitely limited dividend.”
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Reluctantly, RSF and other reformers sought an alliance with for-profit lenders. Platt notes that this change in approach came at a time when popular ideas about race were shifting toward a focus on inborn, genetic differences. Now, when people referred to Jewish avarice, they usually meant a specific racial characteristic, in contrast with solid, professional Anglo-Saxon lenders whose work was supposedly infused with Christian ethics.
Increasingly, reformers worked not to constrain lending markets but to loosen regulations and raise allowable rates for small loans in an effort to bring “reputable capital” to the table. The deregulation push was a great success, with laws enacted in twenty-two states by 1925. However, by the end of the 1920s, reformers were discovering the limits of supposedly moral actors in holding markets accountable as small, gentile-run lenders behaved just the same as the “Shylocks” of the previous generation.
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