>sociology of money, banking, credit, creditworthyness, credit rating, debt, finance, financial institutions, inequality, monetary history, power, US
princeton.edu 11-2022 The Economy of Promises: Trust, Power, and Credit in America – by Bruce G. Carruthers – sociology.northwestern – kellogg.northwestern–
A comprehensive and illuminating account of the history of credit in America—and how it continues to divide the haves from the have-nots
The Economy of Promises is a far-reaching study of credit in nineteenth- and twentieth-century America. Synthesizing and surveying economic and social history, Bruce Carruthers examines how issues of trust stitch together the modern U.S. economy. In the case of credit, that trust involves a commitment by debtors to repay money they have borrowed from lenders. Each promise poses a fundamental question: why does the lender trust the borrower?
The book tracks the dramatic shift from personal qualitative judgments to the impersonal quantitative measurements of credit scores and ratings, which make lending on a much greater scale possible. It discusses how lending is shaped by the shadow of failure, and the possibility that borrowers will break their promises and fail to repay their debts. It reveals how credit markets have been shaped by public policy, regulatory changes, and various political factors. And, crucially, it explains how credit interacts with economic inequality, contributing to vast and enduring racial and gender differences—which are only exacerbated by the widespread use of credit scores and ratings for “big data” and algorithmic decision-making.
Bringing to life the complicated and abstract terrain of human interaction we call the economy, The Economy of Promises is an important study of the tangle of indebtedness that, for better or worse, shapes and defines American lives.
editorial reviews
“In his magisterial sociology and history of credit, the grease of the modern economy, Bruce Carruthers recounts how early dry goods merchants and, later, investment banks displayed their own trustworthiness and judged that of others. A tour de force in the analysis of trust, and of promises kept and broken.”—Frank Dobbin, author of Inventing Equal Opportunity
“What does it mean to make a promise? With this deceptively simple question, Bruce Carruthers invites us into the vast and beguiling world of credit, showing how the nature of the promises we make, keep, and sometimes break has been transformed as credit decisions, which were once based on personal relationships, have evolved and now depend on increasingly quantified forms of knowledge. Meticulously researched and lucidly written, The Economy of Promises is the definitive account of our credit-based economy.”—Greta R. Krippner, University of Michigan
“Bruce Carruthers has given us a masterpiece in The Economy of Promises, an analysis of how credit markets developed over the centuries, how lenders evaluate the trustworthiness of borrowers, and what happens when borrowers renege on their promises to repay. This is a fascinating story of the one of the principal pillars of any capitalist economy.”—John L. Campbell, coauthor of What Capitalism Needs: Forgotten Lessons of Great Economists
“The Economy of Promises deftly guides readers through the major innovations and institutions that make U.S. credit markets tick, from the ratings that determine who gets a loan to the bankruptcy rules that decide which loans can be forgiven. With revealing examples and crystal-clear analysis, Carruthers conveys the breadth of social work that goes into making lending possible. This insight-packed tour of credit in America will appeal to experts and newcomers alike.”—Sarah L. Quinn, author of American Bonds: How Credit Markets Shaped a Nation
presentations, interviews
podcasts.neweconbooks 11-2022 “The Economy of Promises: Trust, Power, and Credit in America” – by Bruce G. Carruthers – by Daniel Peris
A comprehensive and illuminating account of the history of credit in America, The Economy of Promises: Trust, Power & Credit in America (Princeton UP, 2022) by Northwestern University Professor Bruce Carruthers is a far-reaching study of credit in nineteenth- and twentieth-century America. Synthesizing and surveying economic and social history, Bruce Carruthers examines how issues of trust stitched together the modern U.S. economy. In the case of credit, that trust involves a commitment by debtors to repay money they have borrowed from lenders. Each promise poses a fundamental question: why does the lender trust the borrower? The book tracks the dramatic shift from personal qualitative judgments to the impersonal quantitative measurements of credit scores and ratings, which make lending and economic activity on a much greater scale possible. It discusses how lending is shaped by the shadow of failure, and the possibility that borrowers will break their promises and fail to repay their debts. It reveals how credit markets have been shaped by public policy, regulatory changes, and various political factors. Bringing to life the complicated and abstract terrain of human interaction we call the economy, The Economy of Promises is an important study of the tangle of indebtedness that, for better or worse, shapes and defines American lives.
reviews
articles, books
linkedin 10-2022 Trust in a distrustful world By Bruce G. Carruthers
US politics faces a serious trust deficit. MAGA Republicans don’t trust RINOs, leftist Democrats don’t trust their centrist colleagues, Republicans don’t trust Democrats (and vice versa), and trust in major social institutions has been weakening for decades. And this skepticism has spread outside of partisan politics: according NORC’s General Social Survey, the proportion of respondents who said “you can’t be too careful in dealing with people” rose from 50.3% in 1972 to 63.9% in 2018. How can society function with growing distrust?
And yet, we should recognize that beneath the political contention, Twitter rages, hyperbolic rhetoric and angry posturing, a big part of American society routinely finds many individuals and organizations to be very trustworthy. Despite serious imperfections, the economy depends critically on the credit system and on the systematic ability of lenders to answer the question: whom to trust? Without credit, the modern economy would grind to a halt. And the extension of credit involves a decision by a lender to trust a borrower. Lenders offer money in exchange for a promise to repay in the future. Depending on the kind of credit, that future can be decades away. How to judge such promises? Whose promises are credible?
Early in the nineteenth century, people mostly used their social networks, personal connections, and assessments of character to decide whom to trust. They loaned money to their family, friends, neighbors, and business acquaintances. They judged an individual’s “moral fiber” to see if they were trustworthy, or they sought information about a person’s reputation. It always helped to be an abstemious churchgoer. This informal procedure worked well enough when commerce was largely local. For long-distance trade (in commodities like cotton, sugar and tobacco), participants were especially reliant on their existing social and business networks. But starting in the middle of the nineteenth century, a new system developed that made it possible to lend to strangers, to deal with people in parts of the country outside the reach of personal networks or acquaintanceship, and to extend credit on a much greater scale. This new system emerged first in short-term trade credit (from suppliers to their business customers), but it created a template that eventually spread around the world.
Lewis Tappan established the Mercantile Agency in 1841, selling information about business customers to New York City suppliers who extended trade credit. The idea was to provide useful information about potential customers so that suppliers could know who was most likely to pay their bills. Increasingly, suppliers were dealing with customers they didn’t know and who were based in distant parts of the country. Reliance on social connections and personal reputations could no longer suffice. Tappan created a national network of secret correspondents (often attorneys) to supply confidential information about local businesses: who were they, what did they sell, how were they doing, and so on. Such information was usually qualitative, of uncertain provenance, and its reliability was highly variable. Nonetheless, it was turned into credit reports and scores that Tappan sold to his subscribers. Such was the demand for systematic credit information that rival rating agencies, like Bradstreet’s, soon appeared, and Tappan’s own firm grew in size and scope (eventually becoming R.G. Dun). By the end of the century, Dun was rating well over 1 million firms and had branch offices in every major US city, issuing fat reference books four times a year that gave a summary rating for firms in any given city or region. Dun’s customers could look up a firm and find a precise categorization of its “pecuniary strength” or “general credit.” Subscribers included anyone selling to business customers, but also banks, insurance companies, and others concerned with what we today call “risk management.” And those whose businesses were rated knew that the ratings mattered and that their access to credit depended on those ratings.
The idea to summarize creditworthiness in a single measure proved so popular that it spread to long-term debt. In 1909, John Moody started to publish his own reference book containing thousands of bond ratings—first for railroads and then for utilities, industrial firms, and even sovereign governments. His canonical rating scale, with “Aaa” at the top, is still recognized globally. The appetite for information among investors encouraged others to create ratings, and soon the bond rating industry was dominated by Moody’s, Standard & Poor’s, and Fitch. They later played a key role in the complex sub-prime securitizations that led up to the global financial crisis of 2008.
Individuals didn’t escape the reach of ratings, either. Starting in the 1950s, Fair, Isaac and Co. developed the FICO score, which summarizes the creditworthiness of an individual consumer in a single number. These are now ubiquitous and routinely govern access to credit, employment, insurance, housing, and other opportunities (including online dating). Many people know their own credit scores and are advised on how to manage (or “repair”) them. Today, fintech firms celebrate the ostensible neutrality of algorithms and work to exploit the potential of “big data” to augment traditional credit scores with improved measures of creditworthiness, justifying their efforts under the banner of “financial inclusion.”
Ratings, scores, and numerical indicators undergird the modern US credit economy. With little regulatory oversight, they depend on a pervasive informational infrastructure that gathers, collates, and stores vast quantities of information about debtors, operating on a scale that Lewis Tappan could not have imagined. They measure, in the context of credit, the trustworthiness of borrowers, whether individual or organizational, private or public. The US economy could not function without credit, and yet we also know that its allocation has been—and remains—a problem. Discriminatory treatment in credit markets on the basis of gender and race, for example, made it harder for women and minorities to obtain home mortgages and credit cards on an equal basis. Racial discrimination in particular helped create the residential segregation that so powerfully shaped American society. Despite passage of several federal laws in the 1960s and 1970s, patterns of unequal access persist. And even with numerous state usury laws to protect small borrowers from predatory lenders, these rules are so easily evaded that many become burdened with crushing debts and can only escape through bankruptcy.
Social inequities continue to trouble the contemporary credit system, as do credit bubbles and credit crunches, but nevertheless the system functions well enough to ensure the operation of a market economy built on promises. In marked contrast to national politics, participants in the credit system are not deeply divided by systematic partisan mistrust. Creditworthy Republicans and Democrats alike can borrow, and individuals with low credit scores, regardless of their politics, face high interest rates or denial of their loan applications. Yet this success should not be taken for granted, for it is hard to know what new biases, inequities, hidden fault lines, and unknown vulnerabilities lie buried within the complex, layered and often overlooked system of scores and ratings. As credit scores get plugged into computer algorithms, as more online data are exploited, and as credit ratings are utilized in “off-label” ways, such possibilities become even more concerning. Well-considered policy will be necessary if the promise of our “economy of promises” is to be fully realized.
gla.ac.uk/s 2021 ACCOUNTING: DO SOCIALLY RESPONSIBLE FIRMS PAY TAXES? by Professor Bruce G. Carruthers
abstract – The social responsibilities of for-profit corporations have gained importance recently, and CSR has become both a goal and a set of guidelines for various corporate activities. CSR encompasses a number of dimensions, typically including environmental impact, treatment of employees, and relations to local communities. Here we consider the relationship between CSR and corporate taxes: do firms that are “good citizens” also pay higher taxes? Is it the social responsibility of firms to help pay for public services? Focusing on the percentile rank of effective tax rates, and using random effects panel regression of a data set of publicly-traded U.S. firms that includes measures of CSR and many financial variables, we find that the relationship between CSR and taxation is a complicated one that warrants further investigation. However, strong corporate governance, a typical component of CSR, is consistently associated with lower tax rates, suggesting that responsibility to shareholders conflicts with broader social responsibilities.
econsoc.hse.ru/pdf gg/pdf 2011 An interview with Bruce Carruthers: “I am Certainly not On the “Let’s Make Capitalism Better Side”
researchgate gg/pdf 2008 Conditionality: Forms, Function, and History – by Sarah Babb, Bruce Carruthers
>IMF, World Bank, international financial institutions
Abstract – The International Monetary Fund (IMF) is famous for its practice of conditionality-making the disbursement of resources to national governments contingent on the performance of certain policies. We survey the history of conditionality and show that the IMF is only one of many organizations that have historically engaged in this practice. Conditionality can be imposed by either private lenders (such as banks) or official organizations (such as international financial institutions), through a range of policy instruments, and to serve different kinds of goals. Over the course of the twentieth century, the conditionality of private lenders came to be replaced by official conditionality and was increasingly applied exclusively to the governments of developing countries. Today, conditionality is being used by more official organizations to address a broader range of goals than ever before. At the same time, however, conditionality is beset by critics who argue that it is illegitimate or ineffective. In response to such criticisms, the IMF and other practitioners of conditionality have developed new techniques and have attempted to bolster their legitimacy by making their operations more transparent and by emphasizing recipient-country participation.
amazon – goodreads – wiley 2013 Money and Credit: A Sociological Approach – by Bruce G. Carruthers, Laura Ariovich
This book offers a fresh and uniquely sociological perspective on money and credit. As basic economic institutions, money and credit are easy to overlook when they work well. When they malfunction, as they did in the new millennium’s global financial crisis, their importance becomes obvious and demands further investigation.
Bruce Carruthers and Laura Ariovich examine the social dimensions of money and credit at both the individual and corporate levels, from the development of personal credit and a consumer society, to the role of government in the creation of money. In clear prose, they illustrate how the overall future of the economy is governed by the financial system and the flow of capital into, and out of, firms operating in particular industrial sectors, as well as the social meanings money itself acquires and the ways people distinguish between “dirty” and “clean” money.
This accessible and engaging book will be essential reading for upper-level students of economic sociology, and those interested in how the bills, coins and plastic in our pockets shape the world we live in.
sagepub 2012 Book Review: Money and Credit: A Sociological Approach – by Manuel B Aalbers
Ganssmann, H. (2010) ‘Review: Bruce G. Carruthers and Laura Ariovich, Money and Credit: A sociological approach, Cambridge: Polity’, Economic Sociology …
amazon – goodreads – sk.sagepub 2019 Sociology: Markets, Meanings, and Social Structures – by Bruce G. Carruthers, Sarah L. Babb
researchgate – gg/pdf 2000 Markets, Meanings, and Social Structures – review by Reza Azarian
review – For the first time a textbook in new economic sociology has appeared in English, marking yet another step in the establishment of this research field as a distinct academic discipline. The book proceeds – as the author themselves put it – “from the micro to the macro” issues, focusing on economic topics with a gradual increase in the scale. It starts with the symbolic meaning of commodities in the eyes of individual consumers in Chapter 2, and goes on treating national economic development in Chapter 6, and globalisation in Chapter 7. The red thread that keeps together such diverse issues is, however, the market, i.e. its organisation, its functioning and its outcomes considered at various levels.
The first chapter, ‘The Embeddedness of Markets,’ introduces the main message of the book, namely the fundamental notion that markets are neither natural nor inevitable phenomena but rather “social constructions”. To demonstrate this, the authors first maintain that four particular preconditions are needed for markets to exist (property rights, buyers and sellers, money, and information). Then they argue that these conditions cannot be met by markets themselves and must be provided from the outside. In particular, they emphasise the role played by governments and the impact of informal social relations, but also the significance of social institutions and culture.
The second chapter, ‘Marketing and the Meaning of Things’, focuses primarily on symbolic aspects of commodities and subjective experience of consumption. It deals, for instance, with how people attach symbolic meanings to the commodities they consume, and how certain messages concerning social status, lifestyle and self-image are mediated through consumption. The chapter also addresses the question how such meanings are culturally determined or can be shaped through marketing and advertising aimed at creating market demands.
The next chapter, ‘Networks in the Economy’, presents the insights produced by the most vital current within New Economic Sociology, namely network analysis. It discusses the bearing of social networks on the functioning of markets across levels and spheres. More specifically, what is discussed is the importance of both personal and inter-organisational networks for mobilising and transferring crucial economic resources. Individuals often use their personal relations to find jobs or acquire credit, while organisations benefit from various networks shaped through interlocking directors, joint-venture agreements, equity ties, research and development partnerships, etc.
In chapter 4, ‘Organisations and Economy’, the authors take a historical view and discuss the rise of large corporations dominating much of the leading sectors of modern economy. Reviewing the literature on the topic, they provide the reader with a summary of the discussion about the causes and implications of this development, with the emphasis on its impacts on the working of market mechanism and competition. Also the internal structure of large firms are considered, with special attention paid to authority relations and the formation of internal labour markets.
Chapter 5, ‘Economic Inequality’, is one in which the authors argue how markets generate and maintain economic inequality and how the unleashed market forces of our days are creating more inequality than before. Carruthers and Babb also challenge the prime justification of such inequalities in economic theory, namely the idea that economic inequalities generated by market lead to the most efficient economic outcomes. Discussing primarily the American economy, the authors also focus on the discrimination against women and ethnic minorities in labour markets, arguing that until recently such discriminations have enjoyed lawful support and that they, despite legal abolishment, still persist in various forms.
Chapters 6, ‘Economic Development’, takes issue with the free market model of development. After a brief discussion of the notions of development and under-development, the chapter offers an account of how underdeveloped countries have, during the second half of the twentieth century, been experimenting with development models of various types, all ascribing state intervention a rather central role. In the face of the recent revival of free market models, the authors also discuss the need for a new sociology of development and suggest some of the main features of such an approach, including the variety of ways in which capitalism can be institutionalised.
In chapter 7, ‘Globalisation’, it is argued that though the world-wide inter-connectedness of societies in itself is not new, the recent economic globalisation is due to the technological and organisational innovations. These innovations, which are brought about by capitalism, have resulted in an enormous increase in mobility of goods, people and capital. The authors then consider the impact of this development on the embeddedness of markets and argue that, though the ultimate outcome is yet to be seen, some features can nonetheless be observed. The forces of globalisation have contributed to the emergence of a global culture and to the formation of new forms of economic organisation. But they have also undermined the power of national states by providing the institutional frameworks in which these markets have been embedded. This point is followed in the final chapter of the book, Conclusion, which mostly expresses the authors’ concern with the threat that economic globalisation poses to the diversity of forms of market embeddedness in national settings, and which ends with the following remark: ”One of the biggest challenges today is to keep forces of economic globalisation from destroying those forms of market embeddedness that are most compatible with human welfare”.
As a textbook written for undergraduate American students, Economy/Society offers an easily accessible and transparent introduction to economic sociology. It also provides an opportunity for its target group to stay immune to the misconception that economics is the way to understand phenomena of economic life. The book makes the reader curious and this is a valuable quality for an introductory textbook. It is also rich in examples familiar to the average student and draws on recent results from several research traditions such as new economic sociology, organisational theory, new political economy, feminist studies and sociology of consumption, though this freshness is won at the expense of the heritage of economic sociology in classical works. But above all, there is a strong emphasis in the book on the contextuality of market relations and the variety of the developmental paths. On the whole, Economy/Society by Carruthers and Babb meets an important need and is most welcome.
amazon – wildly 1998 Rescuing Business: The Making of Corporate Bankruptcy Law in England and the United States – by Bruce Carruthers, Terence C. Halliday
Corporate bankruptcy is a defining characteristic of the market economy. It encapsulates the fundamental conflicts between capital and labour, owners and managers, debtors and creditors, the state and the market. Yet, with one or two notable exceptions, the political and social dynamics of bankruptcy law and practice have been overlooked by serious socio-legal scholars. This book aims to remedy that neglect. Adopting an approach that compares English and American law, the authors identify the underlying political forces that established corporate bankruptcy law on both sides of the Atlantic. The book demonstrates how, by a recursive loop of professional self-interest, corporate insolvency regulation is the creation of the lawyers who interpret and administer it.
papers.ssrn.com 7-2000 Book Review: The Making of Corporate Bankruptcy Law in England and the United States – Todd J. Zywicki
see also