Effect of Consumer Credit on the Business Cycle

• Published date: 01 March 1938
• Author: Ray B. Westerfield
• DOI: 10.1177/000271623819600116
• Date: 01 March 1938
• Subject Matter: Articles

99

Effect

of

Consumer

Credit

on

the

Business

Cycle

By

RAY

B.

WESTERFIELD

THE

tendency

to

define

consumer

.credit

&dquo;institutionally,&dquo;

e.g.,

in

terms

of

consumer

loan

agencies,

in-

stallment

finance

companies,

retail

merchants,

and

service

creditors,

has

resulted

in

various

estimates

among

which

the

choice

is

not

of

the

best

but

rather

of

the

one

which

is

&dquo;least

worse.&dquo;

DEFINITION

OF

CONSUMER

CREDIT

There

can

be

no

argument

as

to

what

should

be

included

in

the

cate-

gory

of

&dquo;consumer

credit.&dquo;

That

question

is

determined

by

definition.

Although

definitions

are

arbitrary,

it

seems

proper

to

choose

a

definition

that

agrees with

(1)

the

usages

in

economic

science,

and

(2) the

usages

of

every-

day

life.

Economic

science

has

immemori-

ally

distinguished

between

producers’

goods

and

services,

on

the

one

hand,

and

consumers’

goods

and

services,

on

the

other.

Producers’

goods

are

those

goods

which

are

used

by

producers

in

furthering

the

production

of

(a)

other

producers’

goods

and

(b)

consumers’

goods.

Producers’

goods,

therefore,

include

raw

materials,

equipment,

plant,

warehouses,

transportation

fa-

cilities,

finished

products

that

are

for

further

use

in

production,

fuel,

power

plants,

and

the

like.

Consumers’

goods

are

those

which

are

ready

for

final

consumers:

they

in-

clude

food,

clothing,

shelter,

drink,

rec-

reational

facilities,

homes,

domestic

utilities,

musical

instruments,

and

so

forth.

In

economics,

marketing

and

merchandising

are

regarded

as

produc-

tive

activities

and

therefore

the

stores,

delivery

systems,

warehouses,

cash

registers,

and

so

forth,

used

in

market-

ing

and

distribution

are

regarded

as

producers’

capital,

although

these

dis-

tributors

may

be

engaged

in

distribut-

ing

producers’

goods,

or

consumers’

goods,

or

both.

It

therefore

seems

logical

and

best

to

make

a

definition

of

consumer

credit

that

ties

in

with

this

universally

ac-

cepted

differentiation

of

economic

categories.

Producers’

credit

refers

to

the

debts

(credits)

involved

in

the

production

and

the

distribution

of

pro-

ducers’

goods

and

of

consumers’

goods.

Consumers’

credit

refers

to

the

debts

(credits)

of

consumers

involved

in

procuring

consumers’

goods

for

the

consumption

of

themselves

and

their

families.

If

this

differentiation

is

employed

between

producers’

credit

and

con-

sumers’

credit,

it

is

necessary

to

re-

member

that

merely

because

a

loan

is

small,

is

of

short

term,

is

a

comaker

loan,

or

is

paid

by

partial

payments

of

small

or

irregular

amounts,

does

not

put

it

in

the

category

of

consumer

credit.

Nor

does

the

fact

that

a

loan

is

made

by

the

personal

loan

depart-

ment

of

a

bank,

by

an

industrial

bank,

or

by

a

licensed

lender

put

it

into

the

consumer

credit

group.

Indeed,

a

considerable

proportion

of

the

loans

made

by

these

lenders

are

truly

pro-

ducers’

credits:

a

small

business

man

borrows

at

the

industrial

bank,

per-

haps,

not

for

the

purpose

of

paying

a

grocery

bill

or

the

undertaker,

but

to

buy

a

truck,

or

a

lathe,

or

raw

mate-

rials,

or

to

modernize

his

shop

or

store.

It

is

not

only

wrong

from

a

practical

and

social

point

of

view

to

put

such

loans

with

consumer

credits,

but

it

is

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