Credit Cards, Indentured Servitude, and Student Debt

Introduction: The Campus Credit Card Table

On college campuses across the country, students are greeted with the familiar sight of individuals seated at folding tables, marketing credit cards to passersby. These salespeople are most frequently seen at the beginning of the college semester; they are usually young, attractive, and smiling — barely older than the students themselves. Quite often, if a student fills out a credit card application, he or she receives a small toy or some other free gift in exchange for their trouble. What could be more harmless? What's wrong with having a credit card on hand, "just in case?"

However, this familiar sight is one of the many reasons that college students are becoming more deeply ensnared in debt. These smiling salespeople prey upon students at their most vulnerable. Most have just paid hundreds of dollars for a semester's worth of books; many are still searching for a part-time job to help cover tuition. These students are the perfect candidates to trust a young individual who seems not so different from themselves, and who promises a favorable monthly rate in exchange for a signature. Even the free gift makes signing for a credit card one is ill-equipped to pay feel like something fun — like receiving a birthday party goody bag — rather than engaging in a serious economic decision that could shape one's future. In fact, one could argue that signing such an agreement is, in effect, signing away one's economic future into a form of indentured servitude.

Credit Cards and the Logic of Indentured Servitude

Dramatic as this statement may seem, the concept of credit has strong parallels with both indentured servitude and sharecropping — the economic institutions that preceded and then followed the formal institutionalization of slavery, first in Colonial, then in Reconstruction-era America. In colonial America, indentured servants would be freed of their obligations after serving for a set number of years.

A seventeenth-century contract for indentured servitude in Virginia stipulates that in return for passage to the New World, the individual would give up seven years of his freedom in the form of unpaid labor to his master. In exchange, after those seven years, his obligation would be settled. The master could also, if he wished, provide the man's "freedom dues" in the form of land, money, tobacco, and perhaps some tools. (Indentured Servitude Contract in 17th Century Virginia, Stratford Hall History Resource of Historical Documents)

Like a credit card application today, the man entering a period of indentured servitude was given something — passage to America — in exchange for an agreed-upon obligation. He could have no full knowledge of the exact extent of what he was undertaking over the course of the next seven years. The most popular argument that credit is not a form of slavery is that individuals choose to sign willingly. But merely because someone chooses to do something does not automatically make the transaction fair. The choice must be one of informed consent. In indentured servitude, no truly informed choice could be made, because the full extent of the duties owed to the master were not clearly detailed. (Indentured Servitude Contract)

Why would an individual embark on such a contract and commit himself to uncertain circumstances for seven years? The answer, quite simply, is poverty. Individuals faced such desperate circumstances at home that they were willing to subject themselves to potentially tyrannical masters in the hopes of improving their lives. This is the same logic many people apply when using credit. "I'm spending money to make money," the unsuspecting student tells himself or herself. "If I buy that new suit on credit, I'll look presentable enough to land that part-time job." Or: "I'm buying my textbooks on credit now, but someday I'll earn enough to pay everything off — once I get a good job with my college degree." Such thinking focuses only on the immediate present and the imagined future, ignoring immediate economic realities.

The website StudentCredit.com actually targets high school students, counseling that "credit is a big responsibility." Yet this counsel seems to contradict the site's very purpose of encouraging minors — individuals who, by virtue of their age and financial situation, are unlikely to be able to repay — to obtain credit cards. (StudentCredit.com) One is irresistibly reminded of beer commercials featuring cartoon characters that urge viewers to "drink responsibly" and only if they are of legal drinking age.

The assumption that wealth is generated by spending money is not entirely without factual basis, of course. According to the Harvard Business Review, an article entitled "Wealth Happens" states that "wealth accumulates either by transfers from person to person or through investment returns, positive or negative... rich people invest more money than poor people." Because they invest more, rich people make more. (Buchanan, "The Big Picture," April 2002)

However, the kind of spending encouraged by credit cards is seldom investment in appreciable assets. Rather, credit cards encourage spending on non-appreciable goods — impulse purchases, or large-ticket items such as cars or electronics, which depreciate considerably every year through wear, tear, and rapid technological development. Such developments render last year's products less valuable. Unlike education, which can be financed through scholarships and student loans, credit card spending does little to make one more economically solvent, regardless of what credit card companies imply.

Sharecropping and the Myth of Credit as Investment

White landowners exploited this same logic — that buying on credit could increase one's economic potential — after African Americans were freed during Reconstruction. After the end of formal slavery, many African Americans found themselves subject to a slave-like institution known as sharecropping. In exchange for working a rented patch of land using tools extended to them on "credit," sharecroppers gave their landowner a percentage of their crop yield. Quite often, this share was so exorbitant that former slaves could not meet their quota, and were thus tied to the land in order to work off what they owed. Why would former slaves accept such terms? It was not because they trusted the whites who had previously enslaved them. Rather, former slaves believed that land was the key to survival; they saw land ownership as a symbol of freedom. But "high interest charges, emphasis on production of a single cash crop, slipshod accounting, and chronic cropper irresponsibility were among the abuses of the system" that caused African Americans to be permanently tied to the land, desperately trying to make up years of accumulated interest. (Encarta Encyclopedia, "Sharecropping")

The former slaves believed that so long as they had land, they could build new lives. A period of indentured-style obligation, they thought, could ultimately be turned to their advantage. But it was in the interest of landowners to keep them bound to white-owned land and to preserve the sharecropping system — not to help them acquire independence. Thus, although "we sometimes imagine that such oppressive laws were put quickly into full force by greedy landowners... that's not the way [this form of] slavery was established... It happened gradually — one person at a time, one law at a time." (PBS Online, Africans in America)

Conclusion: Weighing Long-Range Economic Consequences

The idea that credit enables individuals to invest and improve their economic circumstances holds true perhaps only in cases such as student loans, which are fundamentally different from a credit card. Returning again to the Harvard Business Review: "wealth concentration can be influenced. Increasing the number of links in the network or the total amount of money flowing through an economy tends to decrease wealth disparities; increasing investment returns or volatility tends to increase it." But credit card purchases are seldom appreciating investments like education; instead, they tend to be commodities that depreciate in value. Moreover, genuine wealth is generated by the exchange of useful information and the expansion of economic networks — yet most people enter credit card agreements in a state of profoundly unbalanced information.

So when one reads articles in the popular media encouraging spending to "help the economy," or encounters a smiling representative hawking a credit card on campus, the best economic advice is to think carefully about what one is purchasing and why. Although the reasoning one makes in the heat of the moment may feel compelling, long-range economic considerations must be carefully weighed before signing one's name on the proverbial dotted line.

Works Cited

Kobliner, Beth. "Wallet Watch." Glamour. May 2002, p. 166.

Martin, Nina. "Debt, Me Worry?" Elle. April 2002, pp. 134–136; 246.

Wurtzel, Elizabeth. More, Now, Again. New York: Simon & Schuster, 2002.

StudentCredit.com. http://www.studentcredit.com/learn.htm

Africans in America. PBS Online. WGBH Boston Website. http://www.pbs.org/wgbh/aia/part1/1narr3.html

Buchanan, Mark. "Wealth Happens." Harvard Business Review. April 2002, "The Big Picture" Column.

Indentured Servitude Contract in 17th Century Virginia. Stratford Hall History Resource of Historical Documents. http://www.history.pdx.edu/hst201/headrts.htm

Encarta Encyclopedia. "Sharecropping."