Priceless: Good Debt, Bad Debt

MasterCard has a new version of its Priceless advertising campaign in Condé Nast magazines. This long-running promotion is noteworthy for its attempt to encourage a very different attitude toward borrowing.

Once all lending at interest was taboo. The word usury was applied to any loan that required interest payments, and usury was prohibited by all the world’s great religions. Somewhat ironically it was Calvin and the Puritans who removed much of the stigma associated with lending, and today Islam is the only popular religion still maintaining that “Money does not beget money.”

But even as borrowing and lending began to come out from behind the veil of shame, there was a clear distinction between good and bad borrowing. Adam Smith, the 18th Century Scottish economist and father of classical free market philosophy wrote in his Wealth of Nations:

  The man who borrows to spend will soon be ruined.

Until the early 20th Century, there was a clear distinction between “productive” and “consumptive” lending. It was considered acceptable to borrow money to purchase durable goods of lasting value or to invest in something that would bring future income, but borrowing money merely to spend was reckless and immoral.

I suspect that part of this view of good and bad debt stems from a wise assessment of human nature. Most consumptive acts pass quickly—long before the debt is likely to be repaid. In contrast the durable good or the income derived from investment lasts longer and stands as a reminder of the loan. The homeowner who enjoys living in her house each day pays her mortgage to sustain that enjoyment. Similarly, each time the college graduate gets paid, he has a reminder of the value derived from his student loans. In contrast, meals bought with a credit card are forgotten long before the bill arrives.

MasterCard’s ongoing Priceless campaign has sought to change our attitudes about borrowing in two ways. First, it promotes the normality of indulging in luxuries with images of people happily enjoying extravagances. These are not things we need; these are crazy imaginings of desire. The current Priceless Search campaign has people searching for their own priceless indulgences. The magazines include a heavy paper envelope stuck between the pages that contains a card—essentially a lottery ticket—that might mean you have won a wonderful, priceless indulgence. The prize offered in my New Yorker was a commissioned portrait of me painted by Julian Schnabel. My card said “Keep Searching” and told me that I had not won. I suppose I should go out and buy another magazine.

Perhaps most importantly, the Priceless campaign promotes the view that it is acceptable—even admirable—to use credit to pay for fleeting experiences. Taking your kids on an expensive outing is “priceless.” The other prizes offered in the Priceless Search campaign are a multi-continent culinary tour with noted chef David Bouley and a globe-trotting trip for two to explore the seven wonders of the world. Although these are contest prizes, the message is obvious. Indulgence is an acceptable way to use credit. Peek experiences are worthy goals and justifiable objects of indebtedness. Unfortunately, for many Americans Adam Smith’s words are more instructive. Borrowing to spend is—and has been—the road to ruin.