Introduction
The relationship between politics and markets has perplexed social science since the time of Adam Smith. Sociologists, economists, and political scientists have devoted much attention to understanding how organized economic interest groups influence economic policy (e.g., Fligstein Reference Fligstein2001; Mueller Reference Mueller2003). However, social scientists have paid much less attention to how “disinterested” political actors—particularly policy experts—influence market formation and regulation. If lack of interest necessarily means lack of influence, then experts clearly do not matter. But the policy process is not so simple, as we detail in the following text, and it turns out that in some circumstances disinterest, which might seem to be a liability, can in fact be an important political resource.
At the nexus of politics and markets, some kinds of policy have attracted more scholarly attention than others. Trade protection and tariffs, industrial policy, and environmental and labor market regulations, in particular, have been the focus of much research. But despite the recently demonstrated importance of consumer credit for the economic health of nations and families (Barr Reference Barr2012), little is known about the history of consumer credit markets and their regulation. We seek to address the lack of attention to both policy experts and consumer credit by examining how experts at the Russell Sage Foundation (RSF) formed an unlikely alliance with small loan lenders to create, regulate, and legitimate a new consumer credit market in the early twentieth century. Whereas most research on the role of expertise in economic policy making suggests that experts tend to be dominated by more powerful industrial interests, in our case the opposite is true. Far from controlling experts at the RSF, small loan lenders found themselves dependent on the foundation for legitimating both their political lobbying and their business activities. And rather than consider where the content of the RSF experts’ ideas came from (Anderson Reference Anderson2008), here we address how their carefully constructed reputation for disinterested expertise gave their ideas political significance, and how expertise factored into their ability to manage a number of key political relationships with allies and rivals.
Background
The Russell Sage Foundation in Progressive-Era New York City
Nearly a century before Elizabeth Warren led the campaign to create a Consumer Financial Protection Bureau, experts at the RSF began their own fight against loan sharking in the United States. The RSF was founded in 1907 through a $10 million grant from Margaret Olivia Sage, widow of the eponymous financier and the foundation's first president. According to its charter the foundation was to maintain a fund and apply the income to “the improvement of the social and living conditions in the United States of America . . to use any means for that end which from time to time shall seem expedient . . . including research, publication, education, the establishment and maintenance of charitable or benevolent activities, agencies and institutions” (Hammack Reference Hammack, Hammack and Wheeler1994: 3). In spite of the late Russell Sage's reputation for unscrupulous business dealings, miserliness, and sexual infidelity, his wife's reputation—built up over decades of dedicated charitable activity with the New York Women's Hospital, the Emma Willard Association, the National American Woman Suffrage Association, and fundraising efforts to benefit soldiers during the Spanish-American War—was very good (though not stellar enough to gain her admittance into the highest echelons of New York society) (Crocker Reference Crocker2006). Her public stature, combined with the enormous size of her gift and the foundation's bold statement of purpose, created an immediate flurry of enthusiasm evident in New York newspaper coverage and in the public statements of the city's leading social workers and academics (Glenn et al. Reference Glenn, Brandt and Andrews1947).
But generous funding from one of New York's most prominent female philanthropists was not the only source of the RSF's prestige. Margaret Olivia Sage's closest advisor and the foundation's vice president—and president after her death—was Robert de Forest, one of New York City's most well-connected public citizens. A graduate of Yale College and Columbia University Law School, he came from an old and wealthy New York family and was a practicing corporate lawyer when he began to get involved in philanthropic activities. Eventually he devoted himself fully to philanthropic work, serving as the president of the Charity Organization Society of New York for 43 years, as president of the Metropolitan Museum of Art for 17 years, as founder of the New York School of Social Work, and as a board officer at the American Red Cross, the National Housing Association, and the American Federation of Arts. He also helped found the Provident Loan Society of New York, which sought to undercut exploitative pawn shops by offering low interest rates on small loans. By becoming its vice president, de Forest joined Sage in bestowing upon the foundation his impeccable public reputation and enormous social capital (Hijiya Reference Hijiya1980).
The foundation's general director, John M. Glenn, was of similar lofty pedigree, as were many of the members of its board of trustees. Stemming from a “prominent” Maryland family, Glenn was president of the Supervisors of City Charities of Baltimore before moving to New York to head the RSF. His wife, daughter of a successful Baltimore banker, was also a leading member of the social work community, having served in leadership positions in various charity organizations in Baltimore and New York City.Footnote 1 The founding board included Cleveland H. Dodge, the blue-blooded president of the Phelps-Dodge Mining Company, Y.M.C.A. president, and close friend of Woodrow Wilson;Footnote 2 Daniel C. Gilman, the first president of Johns Hopkins University; Robert C. Ogden, a wealthy New York merchant who funded educational institutions for Southern blacks;Footnote 3 Helen Gould, philanthropist and heir of the railroad tycoon Jay Gould;Footnote 4 Gertrude S. Rice, a founder of the Charity Organization Society of New York; and Louisa L. Schuyler, a great-granddaughter of Alexander Hamilton and founder of the State Charities Aid Association and the first nursing school in the United States.Footnote 5 The trustees were chosen because of their extensive practical experience with various social welfare projects, but also because they were members of the social elite with names that carried weight in Northeastern reform circles.
The RSF soon joined a tight-knit community of reform-oriented policy activists and experts active in New York City during the first decades of the twentieth century (Brown and McKeown Reference Brown and McKeown1997: 43; Recchiuti Reference Recchiuti2007). The home organizations of these activist intellectuals included colleges and universities (such as Columbia University, New York University, the New York School of Philanthropy, and the New School for Social Research), as well as institutions operating outside the academy, such as the National Consumers’ League, the American Association for Labor Legislation, the National Child Labor Committee, and the National Association for the Advancement of Colored People. The hub of this network was the United Charities Building on Fourth Avenue in Manhattan, which housed some of the RSF's office space in addition to de Forest's Charities Organization Society, the Consumers’ League, and other prominent reform organizations. The RSF's main building was constructed just down the street in 1913. Through geography, collaboration, and personal relationships, the RSF and its staff soon became central to the Progressive Era New York social reform scene. Part of its indispensability stemmed from its role as funder to a number of major projects involving various organizations, such as the ambitious Pittsburgh Survey, a sociological study of working-class living and employment conditions that culminated in six volumes published between 1909 and 1914. Participation in this largely middle-class community linked the social status of the foundation's elite board with the growing public prestige of the social sciences.
As a leading member of New York City's social reform community, and as a major player in the national social work community (through the Charity Organization Department), the RSF was part of an explosion of social-scientific research being conducted across a variety of governmental and nongovernmental institutions during the Progressive Era and beyond (Agnew Reference Agnew2004; O’Connor Reference O’Connor2001, Reference O’Connor2007; Recchiuti Reference Recchiuti2007; Rodgers Reference Rodgers1998; Larson Reference Larson1977; Walters and Bowman Reference Walters, Bowman, Anheier and Hammack2010: 44). Policy experts and social scientists provided the information governments needed to pursue policy goals as diverse as poverty reduction, public health, and economic growth. New ideas about “scientific philanthropy” transformed how private charitable foundations, including the RSF, operated (Bremner Reference Bremner1956; Franklin Reference Franklin1986; Lagemann 1989). Particularly in an era in which American politics was dominated by the patronage system and plagued by the corruption this system often produced, policy experts like those at the RSF commanded credibility based on their claims to nonpartisan, “objective,” rational social-scientific knowledge (O’Connor Reference O’Connor2001; Skocpol and Rueschemeyer Reference Skocpol and Rueschemeyer1996). Such credibility did not necessarily guarantee influence, however; actually shaping the course of policy making typically required more than simply “speaking truth to power.” In the case of the RSF and small loan reform, it required building an alliance with the interest group that stood to be most affected by the regulations the foundation proposed.
The Small Loans Problem and the Uniform Small Loan Law
Building on de Forest's involvement in the New York Provident Loan Society and responding to numerous personal appeals for help from victims of exploitative lenders in New York City (Crocker Reference Crocker1999), the newly established RSF first engaged the small loans problem in 1909. In the early twentieth century, credit for working-class people looked quite similar, in many ways, to how it does today. Then as now, lower-income and even many middle-income borrowers could not rely on banks or credit unions to meet their credit needs. Instead, they turned to the pawn shops, chattel mortgage lenders, and salary lenders that dotted the urban landscape and lured the impecunious and desperate with promises of quick and easy cash (Calder Reference Calder1999; Hyman Reference Hyman2011; Mayer Reference Mayer2010; Woloson Reference Woloson2009). These lenders charged very high interest rates—up to 400 percent annually or higher—on loans ranging from $10 to $300 and accepted personal possessions or future wages as collateral. Specifically, pawnbrokers lent on personal possessions turned over to the lender, who retained the right to sell the items if the loan was not repaid in a certain amount of time. Chattel mortgage lenders—later called “personal finance companies”—lent primarily on furniture that remained in the borrowers’ possession but could be seized in case of default; salary lenders usually lent smaller amounts, accepted future wages as collateral, and, sometimes, through agreements with employers, garnished payments directly from borrowers’ weekly or monthly wages. The sharklike reputation of these businesses stemmed from their tendency to structure loans in ways that made it nearly impossible for low-income borrowers to ever make progress in paying down the principal (Mayer Reference Mayer2010: 4–5).
Borrowers included a wide range of poor, working-class, and lower-middle-class workers. One loan agency's ad gives a sense of the type of people who represented typical small loan borrowers: “Loans to ladies and gentlemen. Wholesale and retail clerks, firemen, school teachers, mail carriers, railway, and all salaried people with steady positions . . .” (cited in Reference Mayeribid.: 29). Loan companies and pawnshops may have preferred clients with reliable sources of income, but poor widows with unsteady incomes as well as unemployed and marginally employed workers also relied on them to get by. Although the popular image of the small loan borrower may have been that of a profligate gambler with a drinking problem, in reality many borrowers were in fact “respectable” people who faced either an unexpected drop in income due to job loss, or unexpected expenses due to a sudden personal or family crisis, particularly illness.
Although most states had usury laws to cap interest rates (typically at 6 to 8 percent per annum), small loan lenders circumvented these regulations by tacking on exorbitant fees, premiums, and commissions. Then, as now, borrowers often fell victim to “tricks and traps” they could not fully comprehend (ibid.: 33–41; Warren Reference Warren, Balleisen and Moss2010: 391). Such practices were illegal, but persisted anyway because usury laws were weakly enforced and placed the burden of prosecution on the debtor, and because low wages, unemployment, and unexpected expenses created overwhelming demand for credit, even when offered at very high interest rates (Calder Reference Calder1999; Mayer Reference Mayer2010; Robinson and Nugent Reference Robinson and Nugent1935). As a result, low-income workers often found themselves caught in cycles of debt that were very difficult to escape. In many respects, then, the RSF's efforts anticipated contemporary concerns about “predatory lending” (Massey Reference Massey2005; Stegman Reference Stegman2007).
In 1909 the RSF commissioned two Columbia University graduate students to study local lending conditions, and soon thereafter, hired one, Arthur Ham, to head a Department of Remedial Loans. Initially, as the department's name suggests, Ham focused on promoting the development of remedial loan societies. These were loan agencies, modeled after de Forest's Provident Loan Society, which were funded by public-minded investors and which charged low interest rates while capping shareholder dividends. Ham believed that these societies would “provide such competition as would result in an improvement of the methods commonly employed by money-lenders and to afford an object lesson that would attract reputable capital into the business.”Footnote 6 When a few years’ experience proved him wrong (Woloson Reference Woloson2009: 174–80),Footnote 7 Ham shifted his attention to regulating the commercial small loan market and attracting “legitimate” lenders into it. By 1913 Ham had concluded that this could only happen if usury laws were changed to allow commercial lenders to charge a higher rate of interest.Footnote 8
By 1913 the policy proposal that the RSF advocated most forcefully was its Uniform Small Loan Law (USLL).Footnote 9 The USLL was a model law that Ham hoped would be adopted without modification by as many states as possible. As such, it was part of a movement begun in 1892 with the founding of the National Conference of Commissioners on Uniform State Laws, known today as the Uniform Law Commission, an organization whose mission is to draft and promote uniform legislation in areas as diverse as commercial law, marriage and divorce, and criminal procedure.Footnote 10 Ham hoped uniformity in small loan legislation would not only decrease confusion and improve transparency for borrowers, but that it would also reduce the risk of a regulatory “race to the bottom” in an increasingly multistate industry. In addition to requiring increased regulation of the small loan business by state banking departments or similar authorities, the law raised the legal interest rate on loans of $300 or less to 3.5 percent per month, or 42 percent per year. The broad success of the USLL—it was passed in 34 states between 1914 and 1943—did more than simply provide greater protection to low-income borrowers. It actually brought into being a new consumer credit industry of “42 percent lenders,” as they came to be called. To a greater or lesser extent these legitimate lenders replaced loan sharks in many cities, and came to supply a substantial proportion of urban workers’ credit needs.
Over the approximately 30 years that the RSF spent actively promoting the USLL, the aspect of the law that provoked the most heated political opposition was the interest rate. Many legislators rejected the idea that poor people should pay 42 percent interest on small loans, while wealthy borrowers and businesses paid far less for larger loans. Such high rates smacked of usury, a crime that offended the public conscience and violated traditional Christian teachings. They also challenged the precedent set by “sacrosanct” usury laws,Footnote 11 which had been in operation in most states since the mid-1800s, albeit ineffectively (Robinson and Nugent Reference Robinson and Nugent1935).
To convince states to adopt the controversial law, and to ensure that the law could be implemented successfully, the RSF needed to do two things. First, it needed to persuade skeptics that the USLL's high statutory interest rate was indeed necessary. To accomplish this, it relied heavily on its public reputation for disinterested expertise, a form of symbolic capital (Bourdieu Reference Bourdieu1984) that was the most important political resource RSF personnel used to influence small loan policy and lenders. The social capital and prestigious reputations of the foundation's elite leadership facilitated RSF staff's ability to lay claim to this expertise, but it was not enough. To justify this claim, staff members had to perform expertise through a variety of activities. The first part of this paper will examine how the RSF built and deployed its expert reputation through a process of reputational entrepreneurship (Fine Reference Fine1996).Footnote 12
Second, the RSF had to secure the political cooperation of the group of lenders the USLL was designed to regulate. This, too, hinged on the foundation's expert reputation. Although the RSF was initially forced to make concessions to the lenders, who had formed the American Association of Personal Finance Companies (AAPFC),Footnote 13 it soon was able to turn the tables and subordinate them. The second part of this paper will explain how this small foundation used its reputation for disinterested expertise to exert control over the political and business activities of a multi-million-dollar industry. To develop a clear understanding of why the RSF was able to dominate the AAPFC in this way, we also consider the foundation's failed attempts to create a similar relationship with two other groups, the Legal Reform Bureau for the Elimination of the Loan Shark Evil (LRB) and the Credit Union Extension Bureau (CUNEB). Through this comparison, we draw some lessons about the conditions under which disinterested experts might gain the upper hand over industry interest groups in politics.
Policy Expertise and Market Regulation
Existing sociological research on the role of expertise in economic and other policy making has focused on whether and under what conditions experts influence political decision making. Sociological analysis of the influence of experts on policy tends to suggest that the closer experts get to government, the less intellectually autonomous they become (Banfield Reference Banfield1961; Brint Reference Brint1990, Reference Brint1996; Merton Reference Merton and Merton1968; Shils Reference Shils and Shils1965). Even when policy experts are not directly part of the state bureaucracy, their independence attenuates as soon as they step into the political fray. Often, experts are seen to be overtly or covertly, wittingly or unwittingly representing class interests. Many scholars contend that experts are either directly financed (and therefore controlled) or ideologically co-opted by the power elite (Barrow Reference Barrow1993; Domhoff Reference Domhoff2009; Domhoff and Webber Reference Domhoff and Webber2011; Kurzman and Owens Reference Kurzman2002; Nelkin Reference Nelkin1975). They argue that intellectuals often make “scientific” arguments that in effect sanction the existing social order. It follows that experts working at privately funded research foundations such as the Rockefeller and Sage foundations reproduced cultural hegemony and naturalized capitalist domination.
Whereas many scholars contend that policy experts are controlled by powerful moneyed interests, a few argue that experts can in fact exert “independent” influence on policy making (Berman and Pagnucco Reference Berman and Pagnucco2010; Heclo Reference Heclo1974; Skocpol and Finegold Reference Skocpol and Finegold1982; Skocpol and Reuschemeyer Reference Skocpol and Rueschemeyer1996). For example, Skocpol and Finegold (Reference Skocpol and Finegold1982) argue that agricultural economists used the Agricultural Adjustment Administration as an institutional apparatus to further their own policy ideas. Elsewhere, Skocpol characterizes the Progressive Era American Association for Labor Legislation as a group of “social science professionals and other ‘experts’ . . . partially autonomous from both business and labor” (quoted in Barrow Reference Barrow1993: 136). Skocpol and Reuschemeyer (Reference Skocpol and Rueschemeyer1996) argue that policy experts occupy a unique “third party” position, at least partly independent from capital, labor, and the state. Experts can use the credibility bestowed by this partial autonomy to wield influence greater than their numbers or material resources would otherwise allow.
Though economic sociology has explored the relationship between politics and markets on many fronts (see, e.g., Block and Evans Reference Block, Evans, Smelser and Swedberg2005; Fligstein Reference Fligstein2001, Reference Fligstein, Smelser and Swedberg2005; Granovetter Reference Granovetter, Smelser and Swedberg2005; Swedberg Reference Swedberg2003: 158), it rarely considers the role played by policy experts in mediating this relationship. Following the “Chicago school” theory of regulatory capture (e.g., Stigler Reference Stigler1975), scholars appreciate that regulated industries have a substantial incentive and ability to influence regulatory agencies, using a variety of political and other means. Schneiberg and Bartley (Reference Schneiberg and Bartley2001) and Bartley and Schneiberg (Reference Bartley and Schneiberg2002) examine regulation as one avenue through which politics and markets intersect and show that political forces outside the regulated industry affect types of regulation. Unlike us, however, they do not focus on the role experts play in this regard.
In this paper, we consider the question of how experts establish their reputation for expertise in first place, and then how they use it as a political resource. The traditional exemplars of expertise are the professions, but their markers of expert status were unavailable to RSF personnel. Professional experts typically rely on formalized credentials and state-sanctioned licenses to certify their authority and signal their legitimacy, both to other members of the professional field and to the public at large (Abbott Reference Abbott1988). Expert organizations, such as contemporary “think tanks,” build their institutional expertise from the formalized professional credentials of their staff; for example, they establish expertise in economic policy by hiring people with PhDs in economics. Although they all possessed advanced academic degrees, simple reliance on credentials was not sufficient for the directors of the RSF Department of Remedial Loans to establish an expert aura. Instead, they had to construct their reputations through the deployment and performance of social science knowledge and through bilateral relations with other actors—particularly lenders—in the small loan field. Our case therefore reveals how experts operating outside the system of professions can establish their reputation.
Reputational Entrepreneurship and Creating Expertise
The directors of the Department of Remedial Loans came from a variety of academic and professional backgrounds. The first, Arthur Ham, began working at the RSF directly after completing a master's degree in economics at Columbia University. Ham drafted the original version of the small loan bill that the foundation continued to refine and promote for the next three decades. He left the foundation in 1919; his successor, Walter Hilborn, was an experienced New York lawyer who went after predatory lenders both as a private attorney and as the Deputy Assistant Attorney General of New York. In 1925, the directorship was taken over by Leon Henderson, an economist who had taught at the University of Pennsylvania and served as Deputy Secretary of State in Pennsylvania. When Henderson left the RSF in 1934, he was succeeded by his assistant Rolf Nugent. Nugent, an Amherst graduate with a PhD in economics, published several articles and books on consumer credit and directed the remedial loans department until it was shuttered in 1946.
Though the directors of the RSF's Department of Remedial Loans possessed advanced academic and professional degrees, the RSF's reputation for expertise could not derive from the credentials of its staff in this simple way. At the time of the RSF's founding, social science disciplines were simply not developed enough to bestow expert authority on organizations that employed social scientists (Fourcade Reference Fourcade2009). Instead, the foundation succeeded in creating an image of expertise through a process of reputational entrepreneurship. Most centrally, RSF staff became publicly recognized experts by conducting and publicizing “social scientific” research into the problem of small loan lending. These investigations began in 1907, when the foundation offered research fellowships to Arthur Ham and his fellow Columbia University graduate student, Clarence Wassam, and both chose to study the small loan industry.Footnote 14 Ham's thesis provided an overview of the chattel loan industry in New York and Philadelphia, based on a review of state laws, existing reports, newspaper accounts, small loan company accounting records, and personal experiences with small loan borrowing (Ham Reference Ham1909). After finding that the loan shark problem was a pervasive cause of poverty and distress among the low-income population, Ham and Wassam both concluded that (1) the demand for small loans was high; (2) usury laws made it impossible for legitimate small loan lenders to operate at a profit; (3) the industry was therefore dominated by illegal lenders who charged extortionate rates; and (4) the solutions to the problem involved creating remedial loan societies, educating the public and crafting new legislation (Ham Reference Ham1909; Robinson and Nugent Reference Robinson and Nugent1935). Armed with these “scientific” findings, Arthur Ham became the first director of the foundation's Department of Remedial Loans.
To raise public awareness and establish the foundation's reputation, Ham frequently referred to his graduate work and subsequent research as the basis for his, and therefore the RSF’s, authority. For example, in a letter sent to various newspaper editors in 1910, Ham wrote, “Persuaded of the national spread and steady increase of this [loan sharking] business by the enormous data obtained in a year's searching investigation, the Russell Sage Foundation is prepared to carry a war of extermination into every city in the land.”Footnote 15 Ham also typically cited the foundation's research activities when he sought to influence small loan legislation. A letter he wrote to Governor Foss of Massachusetts in 1911 to endorse a bill to create a state supervisor of loan agencies began: “The subject of small loans is one that has for several years occupied the time of one department of the Sage Foundation. We have made several investigations and studies of the subject from different angles.”Footnote 16 Similarly, in a letter to the governor of Pennsylvania in 1915, he justified his authority to endorse a small loan bill by claiming, “The Russell Sage Foundation has been engaged during the past six years in a study of the small loan business.”Footnote 17
What were these studies? The record of Ham's research activity during his tenure at the foundation is not particularly clear. Given his extensive work in other areas, he probably lacked the time to conduct studies as comprehensive as his master's thesis. But Ham did pursue a few small research projects. For example, in 1910 he conducted an informal survey of remedial loan societies to solicit managers’ impressions of the character, “deservingness,” and other characteristics of salary loan borrowers.Footnote 18 In 1911 he published results of an investigation that found that in cities with a population of 30,000 or more, there was one loan shark victim for every 20 residents (Ham Reference Ham1911). In 1917 he published a small volume of tables calculating the amount of interest a small loan borrower would have to pay, depending on the rate, size, and duration of the loan (B. B. Reference Crocker1917). In addition to these analyses, he produced various articles intended to raise public awareness of the loan shark problem. These tended to involve anecdotal horror stories about unfortunate loan shark victims, vivid descriptions of the sordid tactics employed by usurious lenders, guidelines for how to set up remedial loan societies and credit unions, and optimistic pronouncements about how these institutions, alongside improved regulation and oversight measures, might solve the small loan problem (e.g., Ham Reference Ham1912, Reference Ham1921).
The difference between expertise and the reputation for expertise is underscored by the fact that the foundation's key policy recommendation—the 3.5 percent monthly interest rate authorized by the USLL—was in fact not based on any sort of systematic analysis. It actually arose out of a strategic political compromise with a powerful group of small loan lenders (the details will be discussed in the following text). The nonscientific basis of this key feature of the USLL did not, however, prevent foundation representatives from publicly claiming that the rate was “scientific” and based on “thorough study.”Footnote 19 Thus, while the foundation's reputation for expertise was grounded, in part, on actual social-scientific investigation, it also derived from some degree of posturing. When it came to establishing credibility as a policy expert, the appearance of objectivity could sometimes be at least as effective as substantive research and actual knowledge.
The success of the RSF's reputational entrepreneurship is evident in newspaper articles on the small loan subject, where it was frequently cited as having studied the matter rigorously for years and as being the preeminent expert in the field. Newspapers coverage of the RSF's small loan reform campaigns in various states referenced the knowledge and experience of Department of Remedial Loans staff—not the social status or reputations of the foundation's leadership and board. It was the names of these independently acting directors—Arthur Ham, Walter Hilborn, Leon Henderson, and Rolf Nugent—that came to be associated with small loan reform. For example, a 1913 headline in The Jersey Journal announcing Ham's cooperation with a local anti–loan shark group prominently referred to him as an “expert.”Footnote 20 In the 1920s, newspaper articles announcing the presence of Ham's successor, Leon Henderson, in Atlanta, St. Louis, and Providence also described him as an “expert.”Footnote 21 The Atlanta Constitution explained that Henderson was in the city to offer his “expert advisement” to the Atlanta Legal Aid Society and that his visit was part of “an investigation that is nation-wide in scope.” By the 1920s, the RSF's reputation as one of the country's preeminent authorities in the area of small loans and consumer credit reform had been solidified.
This reputation remained vulnerable, however, and so needed recurrent reinforcement. Critical to this performance was the RSF's ability to convince audiences that its policy recommendations were grounded in disinterested social-scientific research—in other words, that it did not stand to benefit from the reforms it promoted in any direct way. In spite of this careful self-presentation, many people still suspected that the foundation was merely operating as a front for loan sharks, or that it was somehow profiting from the 42 percent interest rate it sought to legalize. For example, Fiorello LaGuardia, one of the RSF's most outspoken opponents, called the USLL an “inhuman, unconscionable, thieving proposition,”Footnote 22 and accused the RSF of using its research as a mere cover for usury.Footnote 23 Lacking any kind of formalized professional status markers to help legitimate its claims to expertise, the RSF had to constantly defend itself against these kinds of attacks.
Deploying Expertise in Politics
Once established, the RSF's expertise was deployed to reshape the legal rules governing small loan transactions. The RSF's chief policy goal was design and then passage of the USLL by states, and in pursuit of this it engaged in a number of political activities. For each, expertise was a critical political resource.
Conducting Research and Disseminating “Impartial” Information
As already mentioned, the staff of the Department of Remedial Loans conducted various studies of the loan shark problem and how to address it though public policy. Research activity was foundational to the RSF's claim to expertise; without it, it would have been unable to sustain any claim to special knowledge of the small loan issue. At first, the department and its affiliates limited their research to the examination of small loan conditions in various cities, analyses of small loan borrowers and their reasons for borrowing, and summaries of existing legislation. Its publications included books (A Credit Union Primer, Small Loan Legislation, Ten Thousand Small Loans, and The Regulation of Pawnbroking, to name a few), pamphlets (including “The Use of Small Loans for Medical Expenses”), and articles appearing in magazines and academic journals.
When Rolf Nugent joined the Department of Remedial Loans in the early 1930s, the tenor of the foundation's research changed. Unlike his predecessors, Nugent was interested in subjecting the small loan interest rate to rigorous scrutiny. Among his several scholarly publications was an article in the Harvard Business Review, in which he examined the impact of interest rate cuts on the number of small loan companies and the volume and average size of small loans in New Jersey, West Virginia, and Missouri (Nugent Reference Nugent1933).
Direct Lobbying
This strategy was more common in the RSF's early years, before the associated political risks became evident. In a number of states, the RSF initiated contacts with legislators, governors, or nongovernmental organizations to urge them to support the passage of the USLL. For example, in 1913, Arthur Ham initiated a lobbying campaign in New Jersey. He wrote the governorFootnote 24 and several state legislatorsFootnote 25 to urge them to endorse a bill that he had drafted in collaboration with the Jersey City Chamber of Commerce and the State Department of Banking. He defended his bill and attacked alternative bills in interviews with the press and at hearings before the governorFootnote 26 and the legislature.Footnote 27 Eventually, Ham was able to enlist Senator Charles Egan to introduce the bill,Footnote 28 which was signed into law on March 23, 1914Footnote 29 and became the first USLL on the books.
Expert Testimony and Speeches
As the preceding example suggests, RSF representatives were frequently invited to present expert testimony before legislative committees and commissions, as well as to deliver addresses to various organizations around the country.Footnote 30 They used these opportunities to educate lawmakers and community members about the small loan problem, promote the USLL, discredit alternative measures, and defend the reputation of the foundation. For example, in 1930, Leon Henderson appeared before the US House of Representatives to testify in support of a uniform small loan bill being considered for the District of Columbia.Footnote 31 In 1931, he appeared before an investigative commission in Virginia, where he spoke at length about loan sharking, the history of the RSF's involvement in the small loan issue, and the “philosophy” behind the USLL. To assure the commissioners of the foundation's legitimacy, he took pains to explain that the RSF had no financial interest in the small loan business.Footnote 32 Expert testimony occurred in other venues as well, such as speeches delivered before charity conferences and meetings of local Better Business Bureaus and the AAPFC.Footnote 33
Media Campaigns
RSF Department of Remedial Loans directors often wrote articles and sent letters to the editors of newspapers across the country in order raise awareness of the small loans problem and to drum up support for the USLL. For example, in 1912 and 1913, Arthur Ham penned five articles on loan sharking and on recent court cases involving high-rate lenders for The Survey, a leading journal of professional social work and social reform.Footnote 34 This strategy was especially important with regard to convincing the public that the 42 percent interest rate was justified, even though it was so much higher than the interest rate caps stipulated by state usury laws. To that end, in 1928 and 1929, Walter Hilborn and Leon Henderson published several editorials in Missouri, Delaware, and Texas newspapers to defend the rate, which had recently come under attack in those states.Footnote 35
Alliances with National, State and Local Interest Groups
In the political environment of the early twentieth century, it became increasingly necessary for those who wished to influence policy to ally themselves with organized interest groups (Clemens Reference Clemens1997; Schweber Reference Schweber, Rueschemeyer and Skocpol1996). The foundation's growing reputation for expertise made it an attractive ally to interest groups that wanted to influence small loan regulation. The most important such alliance, with the AAPFC, will be discussed in greater detail in the next section, but the RSF also partnered with other state and local pressure groups in order to gain access in places where the RSF was unknown. Foundation experts came to see themselves as political coalition builders and devoted much energy to courting local employers’ and business associations, welfare organizations, and citizens’ committees.Footnote 36 Local and state-level organizations increasingly sought the RSF out, as well: by the late teens its Department of Remedial Loans frequently received letters and telegrams from welfare activists from around the country seeking information, legislative advice, and strategic assistance.Footnote 37 In many states, these groups were vital in fighting on behalf of the small loan law and could mobilize local political resources that the RSF simply did not possess.
Mutually Beneficial Subordination: The RSF and the AAPFC
In 1914, shortly after the RSF began its research and policy work, a group of lenders formed the American Association of Small Loan Brokers, later renamed the AAPFC, the name used throughout this paper. In doing so small loan lenders joined the 800 business and trade associations that already existed in the United States at that time (Calder Reference Calder1999), a number that would continue to grow explosively in the following decades. Voluntary, not-for-profit national trade associations were formed in the late nineteenth and early twentieth centuries for a variety of purposes. Before the Sherman Antitrust Act of 1890, foremost among these was to set prices and make production agreements; after this activity became largely illegal, the focus of associations broadened to include things like professional development, establishing voluntary industry standards of procedure and conduct, political lobbying for and against state regulations, and solidarity building through networking and social activities (Spillman Reference Spillman2012). Setting it apart from most trade associations, however, was the AAPFC's acute need to address its members’ sordid reputation for “loan sharking.” Accordingly, its primary goal was to bring small loan lending out of the shadows and make it a respectable, law-abiding industry. The AAPFC pursued this aim through a variety of public relations strategies, such as monitoring members’ advertising content, encouraging them to maintain nicer-looking offices in better locations, and producing a newspaper that continually reinforced the message that they were there to help workers, not victimize them (Calder Reference Calder1999).
In order for AAPFC members to transform their image, however, they needed to do more than just project respectability—they needed to actually become law-abiding businessmen. This could only happen, members believed, if state usury laws were changed to make it possible for small loan lenders to secure a reasonable profit. Soon after its formation the AAPFC began drafting and promoting regulatory legislation intended to legalize higher interest rates for small loans. This challenge to the RSF's leadership position in the small loan policy field did not go unnoticed for long. Tension between the two organizations grew in 1915, when Arthur Ham found himself forced to endorse a Pennsylvania bill drafted by the AAPFC that allowed lenders to charge service fees. Ham had long opposed such fees because he was convinced that they created opportunities for lenders to cheat their customers. In a private letter to a colleague, Ham explained that he was publicly supporting the AAPFC's Pennsylvania bill because of pressure from C. H. Watts, the AAPFC chairman.Footnote 38 In front of the politicians, it was important to maintain the appearance of agreement; but privately, Ham was uneasy.
The AAPFC may have been among the RSF's most powerful rivals, but it was actually sympathetic to the overall goal of small loan regulation. The RSF began to recognize that it needed to forge some sort of compromise with the lenders in order to prevent future political defeats like the one in Pennsylvania. The cooperation of the small loan lenders was especially significant given that RSF experts believed that the solution to the usury problem lay in regulating the commercial small loan industry; clearly, such regulation would be more effective if lenders agreed with its basic tenets and were willing to be regulated. For these reasons, a strategic alliance with the AAPFC seemed to hold enormous potential. With this goal in mind, in March 1916 Ham held meetings with the AAPFC to begin hammering out a legislative plan of action to which both parties could subscribe (Robinson and Nugent Reference Robinson and Nugent1935). In November, they met again to jointly craft a model small loan bill that became the USLL.Footnote 39
The most important provision contained in the USLL was the maximum allowable interest rate. In order to win the AAPFC's cooperation, Ham was forced to accept a higher rate than he had initially wanted: after three days of debate with the lenders, the USLL's interest rate was set at 3.5 percent a month, or 42 percent per year.Footnote 40 This figure was the product of compromise on both sides: whereas Ham had initially advocated a flat rate of 3 percent per month, the lenders had wanted a rate of 3 percent plus fees because “it is possible under the fee system to secure a little higher return.”Footnote 41 After the RSF's initial acquiescence, however, the tables were soon turned as the RSF repeatedly gained the upper hand over the lenders, who increasingly depended on the foundation for public legitimation and political support.
The RSF exerted control over the AAPFC's political activities through written quasicontractual agreements. These formal deals increasingly favored the RSF, while subjecting the AAPFC to ever-tightening control. The first such agreement was signed by the two parties at the close of the March 1916 meetings that produced the USLL. The two organizations agreed that neither would change nor introduce the bill in any state without first notifying and consulting with the other party.Footnote 42 This agreement seems only to have been binding on the AAPFC, however—the RSF frequently introduced the USLL in various states without notifying or seeking the AAPFC's approval. In contrast, when members of the AAPFC introduced small loan legislation in Virginia in 1918Footnote 43 without consulting the RSF, they were formally rebuked. The AAPFC hastily passed a resolution, which stated: “no member . . . of this Association shall hereafter . . . introduce [or] endorse . . . any law . . . which is not . . . first agreed upon by the A.A. Association and the Russell Sage Foundation.”Footnote 44 In 1919, the agreement between the lenders’ association and the RSF was reaffirmed, this time giving the RSF the exclusive right to determine when to pursue the USLL in any given state.Footnote 45 The agreement required the other parties to seek the RSF's consent before pursuing legislative activity, but not vice versa. It did, however, grant all parties equal power in authorizing significant changes to the bill.
The foundation's subordination of the lenders was actually beneficial to both parties. Despite efforts to clean up its act, the small loan industry was still tainted by the stigmatizing image of pawnshops and loan sharking (Woloson Reference Woloson2009). By allowing the RSF to take the lead with respect to legislative activity, lenders were able to take advantage of the foundation's expert reputation to help build up their own image as respectable businesses. As one AAPFC member noted, “Mr. Ham, of the Russell Sage Foundation, enjoy[s] the confidence of the press and the public and we consider it to be of very great importance to establish working relations with [him].”Footnote 46 Moreover, the RSF's stamp of approval granted legitimacy to the AAPFC by allowing it to portray its policy demands as rooted in science and social welfare, rather than pure self-interest. For instance, lobbying materials produced by the AAPFC stressed that the legislation it was promoting had been “drafted and endorsed by the Russell Sage Foundation,”Footnote 47 a “social service organization not operated for profit,”Footnote 48 whose USLL was based on “fact-finding studies.”Footnote 49 This clean identity was important to the AAPFC not only for political and commercial reasons, but for personal reasons as well. After years of vilification, the chance for small loan lenders to establish themselves as socially useful businesses came as a relief to many. AAPFC members—and perhaps just as importantly, their wives and families—could, with the RSF's seal of approval, say to themselves and to the world that they were not loan sharks.Footnote 50 For these reasons, the AAPFC needed the RSF's approval more than vice versa, so whenever the RSF called for a change to the USLL or to the terms of its various agreements with the lenders, the AAPFC went along.
Indeed, while the AAPFC never missed an opportunity to publicize its relationship with the RSF and boost its own public image, the foundation was often at pains to downplay its connection with the lenders. This tension came to a head in the spring of 1917, when the lenders published the text of its agreement with the RSF in the Loan Gazette trade journal without first obtaining permission from the RSF. Ham was upset: in a letter to the AAPFC's national secretary, George Kehr, he protested, “Unfortunately the American Association of Small Loan Brokers [the original moniker for the AAPFC] has not yet arrived at the point where the public is generally willing to accept it as a thorough-going reform organization. The publication of the memorandum . . . has simply added color to the belief in certain quarters that the 3–1/2% bill is a bill drawn by and in the interests of money-lenders which the Sage Foundation by some means has been induced to support.”Footnote 51 Kehr, chagrined by Ham's rebuke, apologized and promised to make sure that future issues of the Gazette would be “more diplomatically edited.”Footnote 52
Throughout their 25-year history as supporters of the USLL, the RSF and the AAPFC maintained a basically positive working relationship. No doubt this was in large part due to the AAPFC's sense that it had to cooperate with the foundation in order to retain the favor of its most important ally. In 1924, for example, an AAPFC representative commented: “There can be no question but that we would have failed in our effort without the help we have had from [the RSF] and there is no question but that we will fail if we do not continue to receive [the RSF’s] help.”Footnote 53 The RSF's approval gave the AAPFC the ability to build for itself a public identity as a kind of social service organization—a profitable one, to be sure, but also one that was guided by the RSF's disinterested expertise and that served a higher social purpose. For this reason, the RSF was able to demand the lenders’ subordination with respect to legislative activity in a way that was mutually beneficial to both parties. As Nugent stated at the meeting on the seventh draft of the USLL:
It seems to me that the history of the association between the Foundation and the lenders is a shining example of what can be accomplished when representatives of two diametrical points of view meet in the spirit of good will and mutual understanding.Footnote 54
Unruly Partners: The Legal Reform Bureau and the Credit Union Extension Bureau
The RSF was able to form a decades-long working relationship with the AAPFC largely because the lenders willingly accepted the foundation's dominance. In contrast, the RSF less successfully tried to exercise power over two other players in the small loan reform field. The first, the LRB, was an organization founded in 1918 by a leading small loan businessman, Clarence Hodson, to change small loan laws in various states. The second, the CUNEB, was established in 1921 by the department store tycoon and philanthropist Edward Filene, under the auspices of his own foundation, the Twentieth Century Fund. Filene hired a policy expert named Roy Bergengren to lead CUNEB and to promote the development of credit unions across the United States. As the following analysis shows, the RSF's inability to subordinate these two organizations casts light on why it was able to dominate the AAPFC so completely.
The Legal Reform Bureau
Colonel Clarence Hodson was founder and president of the Beneficial Loan Society, one of the largest chains of small loan companies in the United States. As such, he was also a member of the AAPFC. Hodson was, from the beginning, a maverick whom both the RSF and the AAPFC found difficult to control. As early as 1916 he had already annoyed the AAPFC's governing board when he threatened to violate the lenders’ agreement with the RSF by introducing his own small loan bill, which allowed the charging of service fees, in the state of Delaware.Footnote 55 When the AAPFC threatened him with expulsion, he apparently abandoned this plan.Footnote 56 In 1918, he was again censured by the AAPFC for his involvement in the unauthorized Virginia campaign to introduce small loan legislation that did not conform to the specifications of the USLL.Footnote 57
Hodson responded to these attempts to keep him in check by creating the LRB and using it to promote his own model small loan bill, which he stridently called the “Ideal Bill.”Footnote 58 The RSF pointedly reacted to this encroachment by attempting to discredit Hodson publicly. In doing so, the RSF emphasized Hodson's status as someone with a direct financial interest in small loan legislation and contrasted this with its own financial “disinterestedness” in the USLL. In 1919, for example, Walter Hilborn, the acting director of the Remedial Loans Division who replaced Ham, received several letters from people in various states requesting information on the LRB. Hilborn replied that the organization was nothing more than a name under which Hodson was attempting to secure legislation to allow his Beneficial Loan Societies to conduct business in various states. Hilborn also argued that the “Ideal Bill” was “much more in the interest of the money lender than the Uniform Bill.” He further tried to discredit Hodson by noting that no one other than Hodson and his Beneficial Loan Societies supported the LRB.Footnote 59
Hodson was party to the November 1919 agreement which put the RSF in charge of campaigning for the USLL and required the lenders to get the foundation's consent for any lobbying activity they might undertake.Footnote 60 This agreement stipulated the abandonment of the “Ideal Bill” and called on the signatories to endorse the USLL. Hodson broke the agreement almost immediately: in January or February 1920, without the RSF's consent, he introduced an amendment to the Massachusetts small loan law, which would raise the rate from 3 to 3 1/2 percent.Footnote 61 In response, RSF director John Glenn sent a letter to C. H. Watts, chairman of the AAPFC, demanding that the AAPFC put a curb on the LRB's legislative activities.Footnote 62 Referring to the November 1919 agreement, Glenn said:
The LRB has from time to time entirely disregarded this agreement and acted independently in introducing and supporting legislation in various states without the consent of the other parties to the agreement. The result has been very unfavorable to the Uniform Small Loan Bill. It has prevented its enactment in some places and has tended in others to encourage attacks on the law. . . . Unquestionably, the status of the Uniform Law and the probability of its being enacted in states where it should be in force have been seriously diminished by the activities of the LRB. It is perfectly clear that the LRB is merely a camouflage for the Beneficial Loan Society. It has also made representations which should give the impression that it is closely allied with the Russell Sage Foundation. All these things are exceedingly objectionable to us and we cannot consent to continue our agreement or to cooperate with the [AAPFC] if the LRB is to continue to butt in. We must insist that the LRB shall entirely withdraw from all activity in connection with small loan legislation. We intend to give notice to the LRB, after hearing from you, that we consider our agreement of November, 1916 null and void as far as it is concerned. Of course, this Foundation is ready and glad to continue its relations with the [AAPFC] which have been so pleasant and satisfactory. We shall be forced, however, to withdraw entirely from the legislative field unless the [AAPFC] can check the pernicious activity of the LRB.
In response to this threat, the AAPFC “did everything we thought would be conducive to the elimination of the Legal Reform Bureau.”Footnote 63 These efforts may have had their intended effect for a time, as no mention of the LRB appears in the historical record for the next three years. Then, in February 1926, while he was in Frankfort, Hilborn's successor, Leon Henderson, ran into a man named Virgil Moore whom he surmised was secretly representing Hodson in Kentucky.Footnote 64 In the next month, Henderson learned that the Mississippi legislature was considering a small loan bill—“the worst work I have ever seen”—that resembled the USLL in form but that eliminated many of the provisions intended to protect the borrower. According to Henderson, “Although I have no proof of it, I naturally believe the Hodson interests were back of the Mississippi bill as well as the Kentucky and South Carolina bills which . . . also failed.”Footnote 65
In 1927 and 1928, Hodson and the LRB were involved in legislative campaigns in Wisconsin, Texas,Footnote 66 Minnesota,Footnote 67 Louisiana,Footnote 68 and South Carolina.Footnote 69 In early 1927, for example, an LRB agent appeared in Wisconsin, advocating for a small loan bill and trying to capitalize on the RSF's reputation by falsely claiming to represent the foundation. This move was judged by Arthur Ham to be “the worst thing [Hodson] has done to date.”Footnote 70 Expressing his frustration with Hodson's behavior, the RSF's director, John Glenn, again tried to strong arm the AAPFC into exerting tighter control over the renegade lender. He wrote in a letter to L. C. Harbison of the AAPFC that he was “tired of coquetting with [Hodson's people] and that if there is no way of controlling them, we may have to give up the attempt to get laws passed.”Footnote 71 Any legislative campaign not initiated and controlled by the RSF, Glenn argued, gave the USLL's cause a “black eye” and weakened the overall effort to spread the law.Footnote 72
These attempts to control Hodson once again proved ineffective. In 1930, an LRB representative appeared again in Texas with a “little black bag of propaganda” to lobby for a 42 percent bill that did not meet the RSF's requirements. As Glenn feared, LRB's continued involvement in small loan campaigns blemished the RSF's own image in these states. For example, a three-page editorial appearing in a Texas newspaper did not distinguish between the two organizations, and characterized the RSF, the AAPFC, and the LRB as a trio of greedy evildoers working in cahoots to take advantage of lower-income borrowers in the name of charity.Footnote 73 The LRB's actions—particularly its unauthorized attempts to associate itself publicly with the RSF—threatened to undermine the foundation's most valuable asset: its claim to disinterested expertise. This threat continued until Hodson died in 1928, whereupon the LRB was dissolved and the Beneficial Industrial Loan Corporation was taken over by C. H. Watts, former chairman of the AAPFC.Footnote 74
The Credit Union Extension Bureau
The CUNEB was founded in July 1921, when department store magnate and philanthropist Edward Filene hired Roy Bergengren of the Massachusetts Credit Union Association to head up an organization that would promote the development of credit unions and credit union–enabling legislation nationwide. Whereas the RSF was able to capitalize on its reputation to subordinate the AAPFC, CUNEB's own considerable resources, symbolic capital, and rival expertise eventually forced the foundation to cede control over credit union policy to this rival organization.
Credit unions were the chief alternative “solution” to the problem of credit for lower-income people. The RSF had always supported the development of credit unions, though it largely restricted its credit union work to New York State. In 1918 Arthur Ham helped found the New York Credit Union League, which received financial backing from the RSF until 1929. After this initial investment of resources into credit union development, however, RSF staff soon came to believe that because credit unions were typically organized around large workplaces or among workers in a particular sector, they failed to meet the needs of poorer borrowers: those who were unemployed, marginally employed, or who otherwise lacked access to credit unions. By the time of CUNEB's founding, therefore, RSF staff had shifted their focus primarily to promoting the USLL, which they thought a better solution because it regulated lenders who served the nation's lower-income borrowers.
Roy Bergengren quickly proved himself to be an unreliable ally and a skeptic with regard to the efficacy and morality of the USLL. Starting in 1922, Bergengren began making public his misgivings about the USLL and the lenders licensed under it.Footnote 75 His actions rankled not only the foundation, but also the leadership of the AAPFC. For example, in a pamphlet he published that summer on “The Credit Union,” he implied that the 42 percent yearly interest rate allowed by the law was usurious, and contended that the credit union was the only real solution to the small loan problem in the United States.Footnote 76 Also in 1923, much to the AAPFC's dismay, procredit union propaganda condemning the “42 percent loan sharks” began surfacing in various publications.Footnote 77 It seemed to the lenders that Bergengren was the likely author of this damaging material.
The for-profit lenders soon got their revenge. Later in 1923, a credit union bill was defeated in Illinois, apparently in part because Illinois small loan lenders opposed it. Bergengren was furious, and threatened to “take the offensive and go after the Illinois small loan law with plenty ammunition and local support.”Footnote 78 The RSF responded to the controversy by expressing its strong disapproval of any effort to thwart credit union legislation and by exhorting the AAPFC “to see that opposition to the credit union bill is withdrawn.”Footnote 79 The RSF then hosted a meeting between Bergengren and AAPFC representatives in its offices, where it was agreed that the RSF would help CUNEB hammer out a model credit union bill that would not be opposed by the lenders operating under the USLL.Footnote 80 In other words, the RSF tried to create for CUNEB what it already possessed: cooperation with the for-profit lenders. In a letter to RSF director John Glenn following the meeting, Bergengren outlined the agreement reached at the meeting as he understood it: “The procedure thereafter will be that, when it is intended to offer credit union legislation in a given state, we will forward to you the draft we intend to offer which will be by you submitted to someone representing the lenders in that state; if the lenders . . . do not agree on the final form . . . the matters of difference will be submitted to Mr. Ham and his decision will be final and the draft as then submitted (with Mr. Ham's approval) will not be opposed by the lenders.”Footnote 81 With this agreement, the RSF tried to establish itself as an authoritative mediator between CUNEB and the AAPFC.
Bergengren broke the agreement with the RSF and the AAPFC soon thereafter. In January 1924, he introduced credit union bills in Mississippi and New Jersey without directly notifying the AAPFC and without submitting drafts of the bills to the RSF or the AAPFC for review.Footnote 82 Around the same time, an article appeared in Collier's Weekly that the AAPFC and the RSF found objectionable, and that Watts thought might have been written with Bergengren's input. The editorials contained, in Watts's words, a “condemnation of the socalled [sic] high rate lender,” namely the 42 percent lender, and exuberant praise for credit unions.Footnote 83
After a flurry of correspondence between Glenn, Ham, and Watts, Ham wrote Bergengren a letter in which he politely (“with all friendliness and with a desire to cooperate”) chastised him for violating the agreement and encouraged him to “avoid much trouble and work and possible unpleasantness” by submitting draft bills to the RSF for review. He also suggested that Bergengren ask the editor of Collier’s to avoid anti-USLL rhetoric in the future.Footnote 84 Bergengren wrote back about a month later with a rebuttal. In his letter he reframed his understanding of the agreement, stating “the real essence of our agreement, it seems to me—the most important part of it—is contained in a mutual willingness to let each other's legislative programs alone.” He claimed that he had been asked several times to comment on the USLL and had refrained from saying anything negative about it, and that he had removed criticism of the USLL from CUNEB publicity materials.Footnote 85 In his view, he was honoring his end of the nonintervention deal, and it was time for the RSF to honor theirs.
In the spring of 1924 another anti-USLL article appeared in the New York American.Footnote 86 AAPFC leaders were livid. While urging AAPFC leaders to avoid an all-out fight with CUNEB—a fight he believed the lenders would lose—John Glenn suggested that he and Ham contact Edward Filene and ask him to rein in Bergengren: “Mr. Filene is a personal friend of mine and will, I am sure, give respectful consideration to anything I have to suggest.” Glenn urged caution, however: “A straight out fight between the AAPFC and the credit union association may do the AAPFC untold harm, much more harm than is likely to ensue from the credit union bills that have been proposed in the various legislatures. It must be remembered that it is not easy to get the public to believe that 3 1/2 percent a month is a moderate rate of interest. A credit union, on the other hand, is something that appeals at once to everybody. . . . Another point is that this Foundation has backed credit unions as strongly and heartily as it has backed the uniform bill and the AAPFC . . . we [therefore] could not take the position that we must support the AAPFC in a fight against the credit union movement.”Footnote 87
In 1926, the RSF hired a credit union organizer named Rolf Nugent, who also became secretary of the New York Credit Union League. Nugent set about restructuring the league and by May 1927, he was able to bring membership back up to more than 30 credit unions.Footnote 88 This slow progress was due in large part to the hostile attitude of the New York Banking Department and its refusal to grant new credit union charters. Believing that he could do a better job than the RSF at overcoming the Banking Department's opposition, Bergengren announced in April 1928 that he was planning to come to New York to do his own credit union organization work.Footnote 89 Apparently, Bergengren intended to force the Banking Department to issue more charters to credit union applicants by getting “national figures on his letterhead” to pressure the New York governor, Al Smith, who was running for president.Footnote 90 This was a tactic that people at the RSF thought could be potentially disastrous.Footnote 91 On May 3rd, Glenn wrote Filene to urge him to prevent Bergengren from coming to New York. He argued, “I think it will be very undesirable from both the local and national point of view for Mr. Bergengren to undertake to do anything about credit unions in New York State. The situation here is a very delicate one . . . and can only be handled by someone who is thoroughly familiar with the local situation and who knows personally the actors in the drama . . . any efforts on [Bergengren’s] part to force the hands of the Banking Department will antagonize the officials of that Department and will only delay progress. I am writing you personally because we have all found in the course of our experience with Mr. Bergengren that he will not listen to any requests from us and will not pay any attention to our judgment, but insists on acting entirely on his own initiative without realizing the importance of cooperation.”Footnote 92 Eventually, Filene seems to have complied with Glenn's request. He asked Bergengren to stay out of New York for the time beingFootnote 93 and told Bergengren to “stop any attacks on the Russell Sage Foundation or the Industrial Lenders who work under the forty-two percent law.”Footnote 94
In late 1929, an unexpected turn of events brought a sudden end to the long-standing tension between the RSF and CUNEB. The director of Filene's foundation, the Twentieth Century Fund, proposed that CUNEB simply take over the credit union extension work being conducted by the RSF's Department of Remedial Loans through the New York Credit Union League. Surprisingly, given its prior resistance to Bergengren's intervention in New York, the RSF offered to consider such a transfer if CUNEB agreed to spend at least as much as the foundation was currently spending on extension work, and if the New York Credit Union League agreed to the transfer.Footnote 95 These conditions were accepted by CUNEB;Footnote 96 soon thereafter, the league endorsed the move,Footnote 97 and CUNEB replaced the RSF as the New York Credit Union League's primary financial backer.Footnote 98 Jurisdiction was formally transferred from the RSF to CUNEB, and the league's offices were moved from the RSF building to a different site. These developments had the RSF's blessing, primarily because the foundation wanted Nugent to direct his attention toward other matters (mainly the USLL), and also because its directors believed that it was no longer financially possible to continue supporting the league. Thus, for the next 10 years, the small loan policy reform field was effectively divided between the RSF, working on the USLL, and CUNEB, focusing on credit union legislation and development.
The RSF's efforts to control the LRB and CUNEB both failed. Why was the foundation so successful in its attempts to control the AAPFC but so unsuccessful in its efforts to dominate these two other organizations? In all three cases, the foundation tried to reign in its rivals by pressuring them to submit to semiformal agreements that would limit their autonomous political activity. While the AAPFC submitted to these constraints, the LRB and CUNEB found it expedient to violate the agreements and flout the RSF's attempts to establish authority over the small loan field. In the case of the LRB, Hodson obviously thought he could get away with publicly presenting himself as an ally of the RSF without actually securing the foundation's approval. Like the other lenders, he wanted to benefit from the foundation's reputation, but unlike them, he did not want to sacrifice his political autonomy or comply with the regulations contained in the USLL. CUNEB, however, did not need the RSF to pursue its political agenda. Like the RSF, it soon established its own national reputation for expert promotion of the public good. In fact, as John Glenn recognized, CUNEB possessed more of this type of symbolic capital than the RSF, because credit unions charged lower interest rates and did not suffer from the same stigma that often plagued the “42 percent” lenders. In short, neither the LRB nor CUNEB needed or valued the resource the RSF possessed—its reputation for disinterested civic-minded expertise—enough to comply with its demands. This suggests more generally that in their relationship with industry, experts’ ability to exercise the upper hand depends upon (1) the degree to which industry lacks public credibility; (2) the extent to which industry needs credibility in order to accomplish its goals; and (3) the degree to which industry perceives cooperation with experts as a necessary and viable way to improve its public credibility.
Conclusion
The foregoing analysis has shown how a group of experts operating outside the system of professions built from the ground up a national reputation for expertise and deployed this reputation as a political power resource. Although Margaret Olivia Sage, Robert de Forest, John Glenn, and members of the foundation's executive board certainly bestowed upon the foundation a positive social reputation and valuable social capital, this prestige could not, by itself, enable Division of Remedial Loans directors to convince legislators and the public—particularly beyond the Northeast—that their specific policy recommendations were valid. Nor did expertise in one issue area (e.g., social work) automatically translate into expertise in a different area (e.g., credit markets), although the two could bolster each other. Moreover, mere possession of an advanced degree was not sufficient. In the absence of traditional status markers such as state licensure or professional association membership, RSF experts had to work tirelessly to establish and defend their expertise through a process of reputational entrepreneurship. This process included not only actually studying the small loan issue and publishing research findings, but also making claims to expertise in their communications with lawmakers, the press, and the public. This willingness to engage in a certain degree of posturing allowed RSF experts to portray the 3.5 percent interest rate permitted under the USLL as supported by scientific evidence, when in reality, it was the result of a political compromise with small loan lenders. The claim to knowledge was just as important as knowledge per se when it came to establishing a publicly recognized expert identity and legitimizing policy recommendations.
An established reputation for disinterested expertise gave the RSF's policy ideas political standing that they would otherwise not have had. Lacking other kinds of political resources, the RSF's ideas would have been mere historical detail had their reputational entrepreneurship been unsuccessful. Instead, as we have shown, the RSF was able to deploy its expertise in surprising ways. Besides using it to influence policy and opinion through direct lobbying, testimonies, and editorializing, Ham and his successors were able to turn expertise into a power resource in their negotiations with the small loan industry. The prevailing assumption among scholars who examine the interactions between experts, industry, and policy, is that experts are largely dominated by powerful industrial actors. Our case offers an important countervailing example in which an industry came to depend on experts to legitimate its political and market activities. In particular, the RSF's credible reputation for disinterested expertise helped to protect the small loan industry from the accusation that its policy recommendations were motivated by nothing more than self-interest. The upshot of this alliance between expertise and industry was that the USLL was adopted by 34 states in an effort to mitigate an age-old, and yet unresolved, problem: the abuse of small borrowers by unscrupulous and predatory lenders.
