Jackson 1

Michael W. Jackson

A02-92-6779

Warren 11A

7 December 1999

Plastic:
Puts a Car in Every Garage and a Chicken in Every Pot

"I'll charge it!" is a common saying in today's credit based society. The ease by

which consumers desire to fund the American Dream on a plastic card with the mentality

of "buy now, pay later." is a shocking realization displaying the integral nature of credit.

This newfound reliance on credit, however, offers many troubling concerns surrounding

the society's overall susceptibility to economic instability comparable to that of the Great

Depression. Credit is now a marker of overall value in society. It is the means by which

one gains the ability to buy a house, a car, and even the food on the table. This creation

of credit does not come without its drawbacks, as previously mentioned, the economy is

susceptible to instability akin to the Great Depression and furthermore a person's

existence and societal status are determined by their credit. The focus of this inquiry will

delve into the development of installment purchasing, the development of credit card

companies, and the integration of electronic fund transfer (EFT). The outcome of this

system is a society in which people are pushed to over extend themselves in hopes that

they can keep up with the Joneses.

The installment plan or payment plan is not a new idea, however it was

revolutionized in the early 1900's into a system which allowed many people the freedom

to live their own American Dream. The installment system was developed in response to

the new idea of credit. Credit was the product of local merchants to entice customer
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loyalty. An example of this is when a family would be paid bi-monthly and the period of

time between paychecks would cause the family to run low on funds producing a need for

an ability to buy on one's word. Stores, in turn, to maintain their customers decided to

extend a line of credit to the family until payday thereby creating the first forms of credit.

Soon to follow was installment purchasing which was best captured in the durable goods

market. Durable goods are goods that are used in the home or marketplace such as a car,

a stove, a washing machine, and an oven. These products all suffer the wear and tear of

life and in turn need constant maintenance. These products were high-ticket items and as

every American desired to have the latest and most advanced products a need arose to

allow people to pay in installments. The SearsRoebuck Company was the first to start

this system as it realized customers that could pay in payments shopped more frequently

than customers that paid in full (Hendrickson 54). The next region influenced by

installment buying was the automobile industry that desired to have every American own

a vehicle. The Guaranty Plan was developed to assist the dealer in allocating inventory

and paying for the vehicles on the lot. The dealer was now floor-planning the vehicles

that allowed Guaranty Bank, the holder of the title, to negotiate a deal between the

customer who buy the car and their bank (Calder 135). The market for financing vehicles

was not a single business for long. General Motors developed its own division of

installment buying with General Motors Acceptance Corporation. The development of

installment purchasing wetted the pallet of Americans eager to have their own car, radio,

and washer. This desire for the extravagant in life fueled an industry that is integral in

the development of credit. This field however only further removed the personal nature
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of consumer and vendor to the ranks of impersonality and automation in the development

of payment computers.

Credit Card development was the second significant move in the history of

establishing a credit system for Americans. The desire for a means to replace large bulky

sums of money for the protection of a traveler is not an uncommon idea. In medieval

times knights would use a special ring to mark a bill to protect themselves from thieves

and this stamp could be taken to the knights castle and exchange for the value in

currency. The first credit card was the Diner's Club Card (Mandell 200). This card

focused on the business traveler that would need to entertain guests at restaurants and in

turn offered a way to not carry a wad of cash in one's back pocket. This development led

to the creation of a wide range of credit cards including the most common today, Visa

and MasterCard. With the development of these financial devices a system of rating ones

ability to pay off a debt developed in the form of a credit rating. The credit card

companies offered Americans, already hooked on installment purchasing, the ability to

now purchase goods and services not based on actual cash but on the credit limit set on a

card. This development pushed for the over-extension of Americans to purchase the

products they desired and not worry about the bill as they could pay it in low monthly

payments with minimal service charges and interest. Through this credit system a

person's ability to pay was defined and then evaluated as a form of worthiness. This new

factor has led to the development of a society deeply rooted in credit in which a person

without credit or poor credit has almost no chance to purchase anything of great value.

The credit system developed from these cards allowed the banking system to develop a

highly skilled network of banks to allow for the extension of credit nation wide
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(Galanony 34). The credit card with its benefits has its sincere problems ranging from

fraud to a more common ability to hang one's self in debt.

The bank system today is approaching a paperless system, one in which all

transactions can be carried out without the need for meaningless paper shuffling. The

ability to electronically transfer funds (EFT) is a new and considerable advancement in

credit as it develops an instantaneous network of branches able to make a decision on

one's credit worthiness (Galanoy 46). The desire of banks to impose this "big-brother"

like network of data is to gain insight in consumer spending but as well move to unify the

banking system. The EFT system is a means to observe all transactions of a person

during the course of their lifetime and through this development one can model the type

of person by their purchases. The EFT system developed a convenience for consumers

however it opened buyers up to a world in which a number can be used to track them.

The EFT greatly reduces the amount of privacy once held in the banking world, as cash

in anonymous, and breaks down the barriers among financial institutions allowing them

to gain a limitless amount of knowledge on the assets of anyone. The development of

electronic banking seems a step in the right direction for many consumers however the

lack of privacy it condones is unacceptable as well it begins to divide society into classes

based on credit worthiness.

Credit is an entity in society that plays an integral role in all purchases but more

significantly in the well being and happiness of all consumers. Credit was developed as a

means to allow a consumer to buy more goods through the belief that they could "buy

now, pay later!"(Calder 145) Credit, today is a different entity altogether as it is now

used in the purchase of durable goods that need a significant investment by a financial
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institution. Credit is a necessity and it must be stressed that if a person desires to buy a

car or a home he must establish credit. The terrible truth involved in this reality is that

unless society changes it ways concerning the importance of credit, society will proceed

to overextend itself and in turn produce an economy ripe to fall as it did before the Great

Depression. The American Dream to have all the amenities that life can afford has

caused society to relinquish its privacy in hope that it will be able to buy anything

anywhere in the world.

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Works Cited & Consulted

Clader, Lendol. Financing the American Dream. New Jersey: Princeton University Press,

1999.

Galanoy,Terry. Charge It: Inside the Credit Card Conspiracy. New York: G.P. Putnam's

Sons, 1980.

Hendrickson, Robert A. The Cashless Society. New York: Dodd, Mead & Company,

1972.

Mandell, Lewis. The Credit Card Industry: A History. Boston: Twayne Publishers, 1990.