Installment Selling

John J. Raskob of General Motors Corporation gave a great banquet in Manhattan last week to Professor Edwin Robert Anderson Seligman of Columbia University. Invited to attend were more than 500 potent U. S. businessmen, financiers & economists--from Vice President Norman I. Adams of the National Shawmut Bank, Boston, to President L. S. Zimmerman of the Maryland Trust Co., Baltimore. They came less to eat than to hear Professor Seligman explain the first thorough analysis of the installment selling problem.

The Problem. Last year approximately $38,000,000,000 worth of goods were sold in the U. S. About $4,500,000,000, or close to 12%, of those billions were sold on the deferred payments. Consumers bought on their credit.

As Mr. Raskob said at last week's banquet: "In 1926 the retail value of automobiles, trucks and parts produced is estimated at $6,000,000,000." Only 40% was paid in cash, the balance by monthly installments. General Motors, Mr. Raskob's firm, believed that the installment system was good. However, said he: "If we were wrong we wanted to know it. If we were on fundamentally solid economic ground we wanted to know that also. All agreed that no opinion would tend to give a greater sense of security than that of Professor Seligman."*

Mr. Raskob took last week's occasion to say also: "Everything indicates that 1928 will witness the greatest prosperity our country has ever enjoyed. There is little, if any, inflation anywhere, an abundance of credit, great farm purchasing power as a result of good crops and prices, and my prediction is that with the Ford Motor Co. in production the automobile industry will produce 5,000,000 units in 1928, as against 3,500,000 this year, and this gain of about 40% will add tremendous impetus to an otherwise prosperous condition."

20 Experts. Professor Seligman agreed to make the study provided that he had entire liberty of inquiry and judgment and that after gathering his data there be no censorship of his conclusions. Also, he wished his conclusions published in full./- As all scholars who deal with General Motors know, the corporation hampers no honest research. Professor Seligman began.

He set 20 experts in economics to work. They made five broad investgations: 1) consumers--how they use their credit for buying clothes, furniture and jewelry; 2) merchandise--how pianos and books are sold; 3) repossession--how used motor cars are handled; 4) depression--how consumers' debts affected a financial depression in the Pennsylvania coal fields; 5) dealers--how they sell new and used cars and how they do their banking.

Conclusions. Professor Seligman, and of course General Motors, thoroughly believes in installment selling.

Says he in his new book: "Summing up the entire matter, we should say that installment selling, like every new institution, is subject to the perils of novelty. It has engendered new devices and has created a new technique, but it has undoubtedly come to stay. Some abuses and perils which it were short-sighted to deny have crept in. What is needed is to apply to each particular case some of the results of the analysis which we have attempted to present. As the years roll by, experience will teach us to what classes of commodities and to what strata of society installment selling is economically applicable. In the course of time outworn methods will be discarded and new abuses will undoubtedly appear. Is it not the part of wisdom to separate the chaff from the grain, to be on our guard against the obvious dangers, and to eliminate one by one the improper practices until, precisely as in the case of our banking structure, we may be able to establish fairly definite and generally accepted standards for distinguishing the sound from the unsound, the real from the specious? When installment selling comes to be measured by these criteria, we may expect to learn that the innocuous and the salutary must not be confounded with the inappropriate and the regrettable, and that, in its ultimate and refined forms, installment credit will be recognized as constituting a significant and valuable contribution to the modern economy."

At Mr. Raskob's banquet he said: "Installment selling has increased production, stabilized output, reduced production cost and increased purchasing power. The installment plan induces the consumer to look ahead with greater care and to plan his economic program with a higher degree of intelligence. It not only tends to strengthen the motives which induce an individual to pay, but also influences his capacity to do so.

"Installment credit is beginning to do for the consumer what the gradual development of the commercial banking system has done for the producer. If the credit is restricted to the proper commodities, under proper management, it will gradually throw off its abuses and will stand forth as one of the most signal contributions of the twentieth century to the potential creation of national wealth and national welfare."

Significance. (From the book) "I am convinced that an entirely new chapter is here opening up in both theory and business life. After more than a century devoted to the elaboration . . . and the technique of banking and commercial credit, designed to fit the industrial revolution, we now stand on the brink of another revolution in economic science and economic life, scarcely inferior to its predecessor. If I have succeeded in laying the foundations for a structure devoted to appraising the real meaning of this revolution, I shall be well content to see the stately edifice of the future built up by more skillful hands."

* Alternative choices might have been Professors Frank William Taussig or William Zebina Ripley of Harvard, Irving Fisher of Yale, Edwin Walter Kemmerer of Princeton, or Murray Shipley Wildman of Stanford, to name but five.

/-They have just been published in two volumes--THE ECONOMICS OF INSTALLMENT SELLING--Edwin R. A. Seligman--Harpers ($4 the volume).