Early Sources of Credit
February 27, 2008 by Carl Chapman
Filed under Credit 101
Before organized consumer credit, there were five major lending sources: pawnbrokers, illegal small-loan lenders, retailers, friends and family, and mortgage lenders. Indebtedness has always been common but there was no need to closely keep track of it and report it like today. Merchants just kept the figures on tabs or in their memories.
But someone somewhere wanted to start keeping track of this information because consumer debt was estimated as $1,500,000,000 in 1858 and it rose to 11,000,000,000,000 in 1890. In 1890 average household debt was about twice the annual income! Compare this to 1998, where average family debt and income were about equal and you will see that, incredibly, credit meant even more to our forefathers than it means to us here in the U.S. today. The amount of lending was high from the very beginning of American freedom and only continued to rise in dollar amount levels that are nothing less than astronomical today. Now look back to the list of places where you could get credit from. Because of the bloating of credit lending by family and neighbors began to fade away.
Soon only the local pawnbroker and finance companies remained and they became the undisputed heavyweight champions of the credit world. Pawning has an interesting history. It was started by Italian Franciscans in 1462. They began, surprisingly enough, as beneficent institutions that were there to help the poor, struggling paisano peasant to obtain small loans that let the person use their personal property as assurance against the debt.
Pawning was very common throughout the western world by the time the colonies broke loose from British imperial wrath and was actually considered a respectable trade until rather recently. Typical items that were placed on deposit in exchange for cash were clothing, jewelry, bedding, musical instruments, clocks, tools, guns and furniture. Excepting for some modern electrical items these you can see many of these same items in pawn shops today.
