Little Capitalists

de Nicholas Osborne

In the early nineteenth-century United States, many social reformers, public commentators, and legislators argued that workers must engage in prudent financial planning in order to remain independent in a capitalist economy. Their belief that personal mismanagement was the primary cause of poverty led some of them to create the first financial institutions to help Americans of limited means save and invest their earnings: savings banks. From this modest start rose both a widespread ideology that related personal financial practice to personal virtue and a multibillion dollar industry that used the savings of millions of American workers to finance government, business, and personal debt. "Little Capitalists" charts this evolution from the philanthropic savings banks of the early-nineteenth century to the myriad commercial, cooperative, and public financial institutions for the working classes of the early-twentieth century. It shows how conceptions of individual and civic responsibility interacted with actual savings practices to integrate American workers into the national economy, building the financial apparatus that funded the expansion of wage-labor capitalism by harnessing the capital of wage laborers themselves. American institutional savings pioneers sought to address increased poverty wrought by urban growth and the creation of a wage-earning class in the first half of the nineteenth century. These reformers organized the country's original savings banks on the premise that all workers were capable of saving some of their earnings--no matter how little--so that they could remain financially independent in times of unemployment, injury, or old age. Their institutions tried to teach workers how to save money by providing secure facilities in which they could do so in the small amounts that no other financial institutions would handle. They also offered depositors a chance to earn a small profit from interest paid on deposits. Because this interest derived from investing those deposits in securities, mortgages, and other loans, savings banks brought millions of nineteenth-century wage earners into the American economy as investors. In this way, these institutions promoted the idea that working-class depositors could be their own "capitalists." As more Americans saved growing amounts, legislators, political economists, social reformers, and other observers took it as evidence that any worker who exercised virtues like thrift and self-denial could save money. Because generations of Americans viewed these personal attributes as the bases of moral civilization, they increasingly looked to savings institutions to foster a better citizenry and nation. The US Congress chartered the Freedman's Savings and Trust Company after the Civil War not only to provide financial services to former slaves but also to train them for a life of citizenship grounded in the principles of free labor ideology. Likewise, a nationwide movement beginning in the late-nineteenth century brought together governments, educators, and bankers to create a system of school savings banks to inculcate virtue in children by teaching them how to save pennies and nickels. In both cases, the point was to mold a working class steeped in the social, political, and moral values that would make them amenable to the emerging system of wage-labor capitalism. Even as some savings institutions attempted social indoctrination, workers' growing deposits also demonstrated their financial power. From the 1870s to the 1910s, this motivated entrepreneurs and legislators to design and encourage new institutions to collect savings deposits and invest them widely, including: industrial life insurance firms, employee thrift plans, trust company and commercial bank savings departments, and a postal savings system. Meanwhile, organizations like building and loan associations slowly added the extension of working-class credit to the collection of working-class savings. These new institutions gave many Americans increased discretion over how to save (and spend) money. But as they began to utilize them, workers also became a significant component of the nation's for-profit finance economy as both creditors and debtors. In the process, they assumed new financial risk. "Little Capitalists" outlines this history. It shows how a group of social experiments designed to foster an independent working class in the early-nineteenth century spawned, by the second decade of the twentieth century, both an ideology of saving at the center of popular perceptions about good citizenship and a small finance industry that was indispensable to the American economy.