Thinking now about twentieth century U.S. culture, how might this understanding of interest rates have affected how U.S. consumers behaved with their money?

Words: 1806
Pages: 7
Subject: Finance

Case: Case

In the nineteenth century, U.S. consumers held on to store and business receipts, and many people carried account books, noting their credits and their debits. Banks, meanwhile, stored their information in large lined ledgers with handwritten numerical entries and calculations. Gradually, the paper industry found ways to make cheaper, better paper, and it became ubiquitous. Whereas previously only the rich could afford paper, by the mid-nineteenth century, everyone owned some. Paper made complex finances possible.

By the twentieth century, the financial world pushed a lot of paper. In a way, it also pushed paper to its limit—the digital calculations done today would have been nearly impossible to contain on paper. If we want to understand how finances were conducted in the twentieth century, we need to understand the ways that paper was used as a medium in the banking world.

Fortunately, for those of us interested in the history of the nineteenth or twentieth century, paper records abound, even outside of archives. If you want to find paper records, antique stores are a good place to go. Sometimes the store will have paper tickets, old receipts, or maybe a box of letters. It can be interesting if you speak to store owners in person, and ask them if they have received any boxes of random papers that they don’t know what to do with. Sometimes, what is interesting to the historian is not the most unusual, sellable item, but rather the common material of the past age.

At an antique store, I once purchased a box of personal financial papers from a man who lived near Detroit, Michigan, in the mid-twentieth century (Figure 1). The papers looked like they might be the contents of his desk, or a few folders in a file cabinet that ended up at an antique store. Most of these personal papers were financial documents. A biographer could use these papers to write the story of this businessman, but I prefer to use the papers to revisit a past age when finances were all conducted on paper.

Figure 1: Personal Financial Papers Bought at an Antique Store

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From top left, going clockwise:

a. A personal receipt for the purchase of aviation fuel at a Shell Station. This receipt was provided on a printed template, with the customer’s information typed, and his name signed.

b. A stamped and cleared check from Jipson-Carter Bank in Blissfield, Michigan in 1973. This check has been sent to a chain of banks and finally to a clearinghouse for processing.

c. A receipt for oil purchased in Oklahoma in 1970. An electronic printer has added information to a printed template, and there is a signed date.

d. A yellow carbon-copy receipt, which is an invoice for a Transcard purchase at Standard Oil. This receipt displays a combination of printed, stamped, and handwritten information.

In this collection there are examples of financial papers that a person born in the past twenty years might recognize. For example, company invoices and receipts are common in the mix, and we are still familiar with these. Many of these invoices look like something you might receive after you get work done on your car at the auto mechanic. They are two pages of thin paper, the first page typed, and the second page bearing the carbon copy from the first. The writing on the page comes from a combination of the printing press, a typewriter, and an ink pen, demonstrating a world that combined machine and human tasks (see Figure 1d).

But in this collection there are also many kinds of receipts that we are unfamiliar with today. There are receipts from the Ohio Turnpike, for example, with purple-ink time-stamps and a pen-mark from a toll booth operator circling the appropriate highway exits. It takes only a few seconds, however, to infer from this that toll operators used to do more than just hand out tickets. Also included in the collection is a receipt from the Jipson-Carter State Bank listing categories for depositing currency and silver, a legacy from when the U.S. dollar was still backed by precious metals (Figure 1b). There is also a 1968 quarterly federal tax return that was filled in but never mailed. What becomes apparent in the mix of documents is how much time secretaries spent typing receipts, stamping them, and filling in forms, and how often purchasers needed to sign their names on purchase forms. Calculations were made on noisy electronic calculators that printed numbers on “adding paper”: long strips of 3-inch wide white paper (like the long receipts you might get at a CVS today), with black ink for positive sums, red ink for negative debts. Or, calculations were made in long-hand with pen and paper. Receipts were printed on papers that were thin but strong, and they were colored pink, yellow, orange, and white. Why these colors, we might ask? There are receipts from the 1960s with dozens of small, precisely rectangular holes used in early computer punch readers. For an older person, this is all common stuff. For a middle-aged person today, it is vaguely familiar. For a person born in the digital age, it all seems like an ancient relic.

Paper once symbolized loyalty and permanence. A person who opened a checking account at a local bank held checks bearing the bank’s logo. It was time-consuming and difficult to change banks and order a new set of checks. Personal connections to local banks made these institutions less intimidating to regular people. In the twentieth century, nearly every U.S. adult had a savings account or a checking account. Contrast this with the nineteenth century when only a small class of businessmen and financiers would regularly visit banks. Paper banking meant that you had receipts, something concrete to draw on. Even if the local bank changed owners, you need not worry about losing the trust of the bank. Through paper, banks decreased the social distance between financiers and the public.

The most interesting papers, however, are those associated more directly with banking practices. They highlight a world that we have now stepped away from. Personal checks returned to the issuer have been stamped by a machine that punched out the word “PAID” followed by the date. While this service is still available, few make use of it. Younger generations seldom write checks, and don’t have a checkbook to balance, since transactions are completely digitally and appear almost immediately in their accounts. On the back of old checks are red and pink ink stamps bearing the names of various banks. Sometimes, a check would be stamped by three or four banks, showing its trajectory through the regional banking system, as it worked its way to a clearinghouse. But why did all of the checks come back to the issuer after payments were made? Perhaps he or his business was audited and he requested his checks from the bank.

A note from 1920 promises a payment at 6 percent interest per year until the debt is met. It reads “This note is secured by chattel mortgage of even date herewith, which has been placed on record by Motor Bankers Corporation” and includes an official red 2-cent document stamp. A mortgage from the same year bears a 25-cent stamp. Stickers on a check from 1945 tell customers to “Buy War Bonds.” What people today forget is that stamps were once used for more than mailing letters and packages in the mail. Official government stamps were used to certify important documents like wills, contracts, and stock purchases.

We can see from these types of documents that as financial transactions became more complex, new financial instruments arose. Banks did not only keep money in accounts and issue loans, but they helped facilitate sinking funds, government bond issues, and transfers of payments. Essentially, the paper world helped people keep track of who owed whom. And the complexities of the system allowed businesses, individuals, and governments to borrow money in a variety of ways. Interest rates demonstrated the cost of money. In the twentieth century, common people became familiar with interest rates, which helped direct money to its best use. If the government gave a good rate on a bond, an individual would buy it. If the bank provided high rates for deposit, people would save. If stocks offered high rates of return, people would invest. All of this was backed up by paper.

The paper financial world of the twentieth century developed with few central authorities. Who decided what a check should look like, or how banks would transfer funds? It seems to have been an unconscious process. Every paper form in the system was a solution in response to a problem. Receipts solved the problem of requiring proof of sale. A check solved the problem of how to transfer funds between two people. As a bank grew to have more customers than a banker could know by name, bank account statements were developed to send to account holders.

A War Bond solved the problem of how to fund government activity without raising additional taxes. Stamps and punch-outs made processing quicker. Computers reading punch-cards made sorting and calculations faster than could be done by hand. Because paper is more or less permanent, banking documents could be used in court, or for tax purposes, and they could be stored for years without risk of losing information. A whole infrastructure was needed to handle, process, and store paper. Check-scanning machines were needed to protect against fraud. Delivery trucks or professional couriers were needed to move paper. Large buildings off site were required for paper storage.

The financial papers of one man in Michigan contain clues for interpreting large-scale and long-term historical change in how finances were conducted. The relationship between people, paper, and finances was crucial in the twentieth century. Paper ushered in a revolution that paved the way for digital financing of the twenty-first century.

answer the following questions. In your initial response to the topic you have to answer all questions:

If all transactions were made on paper, how could a bank store all of its paper records? When might they decide to destroy these records

There were social consequences of mass banking, including introducing the public to interest rates on deposits and loans. Thinking now about twentieth century U.S. culture, how might this understanding of interest rates have affected how U.S. consumers behaved with their money?

Reflection – the students also should include a paragraph in the initial response in their own words, using finance terminology, reflecting on specifically what they learned from the assignment and how they think they could apply what they learned in the workplace or in everyday life.
also note that your answers should be written in your own words. Don’t use quotes from the case.