Narratives of twentieth-century American banking follow a familiar arc. A system based on small, local banks collapsed in the Great Depression, which in turn led to new regulations and subsidies in the New Deal. Post–New Deal banking was stable but stodgy. In the 1970s and 1980s, financial engineering, inflation, and deregulation created more national and dynamic, but also volatile, banks.

Plastic Capitalism: Banks, Credit Cards, and the End of Financial Control by Sean Vanatta keeps to this framework, but it shows that credit cards were more essential in banks’ evolution than has been realized. While discussions of credit cards tend to focus on consumer debt, and discussions of banks tend to elide credit cards, Vanatta shows how credit cards emerged from the fragmented New Deal banking system and then helped reshape and nationalize it. The book provides an important addition to histories of twentieth-century commercial banking.

If there is a leitmotif running through American banking histories, although it is carried at a low register in Vannatta’s book, it is the dilemmas created by what is known as the “unit banking” system. Due to legal restrictions on branching, in the early twentieth century the United States had over 25,000 independent commercial banks, even while America’s neighbors in Canada had, and have, a handful of large ones with many branches. As Michael Bordo, Hugh Rockoff, and Angela Redish showed, Canada’s banks did better on just about every metric, from interest on deposits for customers to higher returns to stockholders to fewer bank failures.Footnote ¹ America’s branching limitations led to banks that could be near monopolies in small cities but which were undiversified and more subject to panics and runs.

America’s banks used the political system to ameliorate some of the problems with the unit banking system without upsetting their local power. The creation of the Federal Reserve (Fed) in 1913 was supposed to centralize banking reserves and prevent small banks from suffering credit shortages. Mark Carlson demonstrated how the Fed worked to stop bank collapses among many local banks in its early years, even when Fed officials understood they faced the prospect of losses.Footnote ² Eugene White explained how politicians and reformers in this era tried to change everything about American banking except the one thing that was at the root of its ills.Footnote ³ As Christopher Shaw shows in Money, Power, and the People: The American Struggle to Make Banking Democratic (Chicago, 2019), there was broad popular support for many of these banking reforms, such as the creation of the Fed, and broad suspicion of large banks and branching.

Despite increased concern with restrictive branching rules after the banking collapse in Great Depression, the New Deal’s most important banking reform was to create the Federal Deposit Insurance Corporation (FDIC), which could protect small local banks from runs.Footnote ⁴ As the author of this review has shown, the government also created institutions such as the Federal Home Loan Banks and the Federal Housing Administration to support banks burdened with bad mortgages and to entice them into the lucrative mortgage-lending field. Another important New Deal reform was to squelch the still incipient move by some commercial banks to get involved in investment financing. What became known as the Glass–Steagall Act actually worsened the banking problem by making banks more undiversified, even if the act did moderately increase branching.Footnote ⁵

Less attention has been paid to how banks tried to overcome unit banking dilemmas in the post–New Deal era. Milton Friedman’s and Anna Schwartz’s A Monetary History of the United States, 1867-1960 (Princeton, 1963), although focused on monetary statistics over a century, provided one of the first overviews of the post–New Deal banking revival and the new forms of customer-facing banks, especially the rise of savings and loans. Charles Belfoure’s Monuments to Money: The Architecture of American Banks (2005) provides an impressive look at how banks adjusted to the post–New Deal world of more suburban and mobile consumers, including through redesigning their counters and fronts in a modernist, transparent fashion. The support of the government meant banks had less to fear from robberies or runs, so they could open to the world.

Vanatta’s book shows how credit cards emerged from the fragmented and suburban post–New Deal order. Importantly, it demonstrates how credit cards began as a way for localized businesses to work together. Small, suburban banks and small, suburban merchants, who often had trouble competing with their larger, urban brethren, made alliances and divided credit tasks such as issuing cards and billing customers (banks) and signing up cardholders (merchants) that allowed both to compete. The early bank card adopters franchised their plans to other banks. The credit card, or charge card in its earliest iterations, when long-term credit was not on offer, was thus a private-sector way to make alliances among small banks without merging.

Unlike the earliest charge cards, BankAmericard was a subsidiary of the California behemoth Bank of America, but it began franchising its card to other banks in 1966, and before long it transformed into a non-profit cooperative owned by these banks. It eventually became Visa. Also in 1966, other banks formed Interbank as a rival franchise network, which eventually became Mastercard. In the earliest years, banks in these networks had to further subcontract to “agent banks” to deal with local merchants and customers outside of their states. Just as Howard Bodenhorn in State Banking in Early America: A New Economic History (Oxford, 2002) showed how nineteenth-century banks organized private-sector institutions such as clearinghouses to share information and exchange debts, Vanatta explains how banks in the mid-twentieth century used franchising and card agreements to do the same.

Discussions of the collapse of the post-New Deal banking order usually look at the long history of banking leading up to the Great Inflation in the 1970s. Some show how localized banks faced increased competition from alternative types of lenders and began merging into national and diversified banks that more closely resembled those of other countries.Footnote ⁶ Other works look at the remaking of American banking alongside new government supports, such as the expansion of Fannie Mae and Freddie Mac and too-big-to-fail bailouts.Footnote ⁷ David Mason’s Building and Loans to Bail-Outs: A History of the American Savings and Loan Industry, 1831-1995 (Cambridge, UK, 2004) is a rare book-length treatment of twentieth-century banking, albeit focused on savings and loan banks, which came to more closely resemble commercial banks in this period. It shows how state subsidies, inflation, and last-minute efforts to deregulate the industry led to an overexpansion and collapse starting in the 1970s. Three important first-person accounts of people who spent time at the FDIC also discuss the collapse of the old order and the rise of bailouts.Footnote ⁸

Surprisingly, Citibank (Citi) is one of the few commercial banks that have attracted significant histories of its own in this period.Footnote ⁹ Almost all histories of individual banks in the twentieth century involve investment banks, where big dollar plays and high-stake deals lend themselves to more drama.Footnote ¹⁰ Perhaps one reason for the focus on Citibank is that it was an early instance of a national commercial bank that broke down the division of commercial and investment banking, which precipitated the 1999 repeal of the Glass–Steagall Act.

Vanatta shows credit cards played an underappreciated role in Citi’s effort to break down the old order. Citibank flooded the nation with cards in the 1970s with the hope of making them a new basis for all banking. When Senator William Proxmire asked Reed Hunt, chair of the President’s Commission on Financial Structure and Regulation, what he thought about “branching across state lines,” Hunt said “I think we have already done it. What is a credit card?” (p. 225) While many have pointed to the automated teller machine (ATM) as a device that broke down older conceptions of what a “bank branch” looked like, Vanatta shows that these ATMs were of course tied to the rise of related debit cards. Even the point-of-sale terminals that Citi installed in New Jersey shopping centers to swipe credit cards in 1975, and that are now a familiar sight in every store in the country, were conceived as a kind of branch that Citi’s competitors worried could accept deposits and distribute cash.

Although Vanatta’s book focuses on banking, it intersects with the related histories of consumer credit. As Louis Hyman showed, “banks discover[ed]” personal or consumer credit, as opposed to their previous focus on business lending, in the New Deal, with some help from the Federal Housing Administration’s home improvement subsidy program.Footnote ¹¹ Many hoped these banks’ consumer loans would substitute for previous loan sharks, but to prevent the emergence of loan sharking in a new form, consumer lending was tightly regulated. Vanatta points out that credit cards remained at the center of the related debates on consumer credit and bank lending and that most post–New Deal credit regulation was geared toward cards in particular. Although less famous than his “malaise” speech, President Carter’s March 1980 speech announcing controls on “credit cards and other unsecured loans” was more momentous (p. 254). The speech summed up two decades of increased concern over credit cards’ threats to America’s moral fiber, but the subsequent economic crash showed the importance of cards for both banks and the overall economy. The speech ended up being a sort of swan song for the direct government regulation of credit.

I could quibble with some of the book’s framing. In the introduction, Vanatta claims that “in this book I see cards…as tools for securing power” (p. 6). One could as pithily state that cards, like any business product, were tools for securing money. Although the book thankfully focuses more on describing history than on evaluating policy, throughout there is a tone of light nostalgia for a lost world of usury controls, New Deal regulations, and local banking. But the book also could be read as the triumph of a new technology against outdated and counterproductive regulations, especially usury laws, that cut many out of the credit system.

Any quibbles should not detract from the value of this work. Plastic Capitalism is one of those books in which I found myself underlining more than is sensible. It is an essential piece of scholarship that should rank alongside some of the best books on the topic. It should also make credit cards a crucial part of modern banking history.