The talking machine world (July-Dec 1927)

Instalment Selling Plan Is Fundamentally Sound, Says Economist Expanded Purchasing Power, Lower Operating Costs and Stability Have Resulted From Granting ''Consumer Credit," Survey Reveals Instalment selling is a fundamentally sound method of financing, and it has resulted in greater prosperity by making possible increased production and stability, lower operating costs of industries, and expanded purchasing power, according to Edwin R. A. Seligman, professor of political economy at Columbia University, who expressed his conclusions before 500 of the leading financiers, business men and economists of the nation recenth'. Professor Seligman, with the help of a large stafiE of economists, spent fifteen months in a study of the problem of instalment selling and its effect on business. The work was carried on at the request of the General Motors Corp., who felt that the question was of such vital importance that it should be studied in all its aspects. Professor Seligman's c o nclusions, which are now available in book form in two large volumes, are of the greatest importance to everj' industry selling — on the instalment basis, not ilic least of them being the talking machine and radio industries. There has been much discussion of this all-important matter, and many leaders of finance and business from time to time have expressed themselves pessimistically regarding the future of businesses practicing the "consumer credit" plan. However, this is the first time that a thorough study has been made of the subject, and that this researcii has proved the soundness of instalment selling is encouraging, to say the least. The extent to which consumer credit has been extended throughout the United States was es timated at $4,500,000,000 in 1926, Professor Seligman found. In that year, he said, there was a total commodity turnover of $38,000,000,000, and consumer time-buying, therefore, represented approximately 12 per cent of the total purchases, both consumption and production, during that year. He estimated that there was approximately $2,000,000,000 worth of con Encouraging Facts for the Trade ^r'HE report of Professor Seligman regarding the soundness of the 1 time-payment plan of merchandising is distinctly encouraging for the talking machine and radio retail trade in view of the fact that tlie hulk of sales are made on the instalment plan. However, misapplication of the hasic principle of granting credit is a source of danger that the individual dealer must guard against. Instalment selhng is safe only when the person to whom the time-payment privilege has been granted is able to liquidate his debt. The merchant must exercise reasonable care in granting credit. When this is done, losses, if any, in comparison to expanded sales possibihties are negligible. Selected credit is the key to satisfactory instalment selhng. sumer credit paper outstanding at any time. Among the most important of controversial points touched on by Professor Seligman were those dealing with the liquidity of "instalment paper," the credit "risks" attendant on its use and the charge, so often made, that a large volume of instalment credit outstanding in time of business recession would accelerate and severely accentuate the resulting "hard times." "There are no greater risks attending consumers' credits than producers' credits," he declared, "if properly administered, and they are, in fact, more liquid. Frozen credits are not a To Our Friends the World Over— #reetmss! ant for a Coming gear of 911 ^Prosiperttp anb ^appint^^ Wall-Kane Needle Mfg. Co., Inc. BROOKLYN, N, Y. Manufacturers of Wall-Kane (the original lO.-record needles) Jazz, Concert, Best Tone, Human Voice and Petmeeky Phonograph Needles concomitant of instalment selling. The theory that a business depression would be considerably aggravated by outstanding consumers' credits is not confirmed by investigation. An elaborate study of the situation in a period of almost complete depression caused by the coal strike in eastern Pennsylvania a few years ago showed that there was even an advantage in instalment credit over general bank credit. It showed that it is precisely in bad times that bankers are compelled to continue to extend credits of doubtful soundness, whereas in instalment credit the volume of outstanding paper diminishes constantly. "Protracted investigations showed that the losses connected with instalment paper are verysmall, that in the proper administration of the system the finance company should be a dispenser of credit and not a seller of automobiles, which lends force to the principle, and brought forth the conclusion that the only legiti— — mate system is the recourse one, that in which the seller accepts rc:5ponsibility for the credit. "The same principles followed in all credit practice apply to credit advanced to the consumer, the instalment payment device being simply a practical means of liquidation of the credit to make it available and possible of use by the ultimate consumer." Individual credit, said Professor Seligman, is now going through precisely the same phases which every preceding form of credit went through, winding up with an acknowledgment of its unquestioned value as a part of the machinery of modern economic life. There is not a single doubt expressed to-day by some as to consumption credit which cannot be matched in the history of credit in banking and production operations. Another controversial aspect of the instalment selling question touched upon was that of selling "luxuries" on credit. On this point Professor Seligman expressed the opinion that a luxury is a relative thing, and that a high standard of living such as we have to-day must not under any circumstances be confused with a luxurious standard of living. "Economists," he said, "have in modern times been making intelligible what is known as the economy of high wages. High productivity, liigh efficiency, high standard of life, go hand in hand with inventive ingenuity, with increase of capital and with augmented prosperity. In this process no small part is played by the gradual transition of commodities from the category of luxuries to that of comforts and necessities. " The luxury of one age becomes the necessity of the next. While it is undoubted that in the case of the automobile there have in individual cases been very decided resultant evils, yet on the whole we cannot regard the automobile as a type of foolish and wasteful consumption. Few would dispute the statement that the advent of the automobile hamarked a revolution in economic and social life comparable to that produced by the introduction of the railway; and that in the one case, as in the other, we must weigh up the evils (Continued on page 11) s