Between 1980 and 2003, real per capita personal income in the United States grew by 59 percent. Meanwhile, real outstanding consumer debt per adult over age fifteen (revolving debt, 2003 dollars) grew from $712 in 1980 to $3,261 in 2003, an increase of 358 percent. The household debt service burden, measured as the ratio of consumer debt payments to income, rose from 11.5 percent in 1983 to 12.5 percent in 2001. Not surprisingly, the number of nonbusiness bankruptcies rose from 127 to 566 per 100,000 of population in the same period. (1) American consumers continue to fall deeper into debt and often find it difficult to service the debt they have.
There are many reasons for the expansion of consumer credit (Watkins 2000) and the increase in bankruptcies. This paper offers an explanation not evident elsewhere in the literature, that evolving consumer credit institutions have created an environment in which individuals can choose to transfer consumption from society to themselves with few" consequences and little public scrutiny.
The paper begins by examining the basics of consumer theory from both the institutionalist and neoclassical perspectives. This examination will establish that, from either perspective, the typical consumer's motives are consistent with the desire to consume beyond their income constraint. The second section provides a brief overview of the evolution of bankruptcy and debt collection institutions. Finally the paper will discuss how institutional evolution has created the opportunity for privately induced transfer payments.
Consumer Theory in a Nutshell
Institutionalist assumptions about consumer motives and behavior differ substantially from those of neoclassical theory. Institutionalists build upon Thorstein Veblen's ideas of emulative consumption as expressed in The Theory of the Leisure Class (Veblen  1979). To Veblen, the consumer is motivated by "a wish to conform to established usage, to avoid unfavourable notice and comment, to live up to the accepted canons of decency in the kind, amount, and grade of goods consumed" (115). In contrast, neoclassical theory builds on the notion that consumers act on personal, intrinsic preferences which, for expositional purposes, are assumed to be "well-ordered," meaning that consumer preferences are complete, reflexive, transitive, and able to be modeled as a continuous, monotonic function (Varian 1992, 94-98). The neoclassical view clearly conflicts with David Hamilton's statement that "[human wants] are most certainly not a reflection of the inner yearnings of a pre-programmed human heart. Any marketer worthy of his pay knows this not to be the case" (1987, 1537).
Both theoretical perspectives lead to a similar conclusion--consumers will generally want to increase their consumption. In the neoclassical world this conclusion is based upon assumptions of monotonicity and local nonsatiation (Varian 1992, 96). This translates to the familiar notion that "more is better." Veblen wrote of want being "indefinitely expansible" ( 1979, 111). While not arguing that more is always better, Veblen suggested a desire for increased consumption when he said, "so long as the comparison [with the pecuniary strength of one's neighbors] is distinctly unfavourable to himself, the normal, average individual will live in chronic dissatisfaction with his present lot" (31). From either perspective, typical consumers are expected to desire a consumption level beyond that which they can readily afford.
The differences between institutionalist and neoclassical theories are more evident when discussing constraints on consumers. In institutionalist eyes, consumers must choose from the set of goods that match the social standard for the consumer's place in society. Unfortunately, the standard is always slightly out of reach because "members of each stratum accept as their ideal of decency the scheme of life in vogue in the next higher stratum" (Veblen  1979, 84). Since "the standard of living of any class ... is commonly as high as the earning capacity of the class will permit" (112), consumers of lower social strata will be constantly struggling to achieve a "level of decency" that is a step beyond their reach. Meanwhile, should consumers achieve their target level of decency, they will be disappointed to find a new target level before them. From the institutionalist perspective, consumer choices are limited by a fluid constraint (social standard) that constantly moves, leaving consumers unsatisfied with their current level of consumption...