Social and Economic Consequences of Buying on the Instalment Plan

• DOI: 10.1177/0002716227129001S03
• Published date: 01 January 1927
• Date: 01 January 1927

Social and Economic Consequences of Buying on the
Instalment Plan
I. THE ORIGIN, GROWTH AND PRESENT EXTENT OF BUYING
ON THE INSTALMENT PLAN
What Is Meant by Buying on the
However, efforts are being made with
Instalment Plan?-An instalment sale
some
success to secure the enactment of
or purchase is one in which the price of
uniform laws governing conditional
the goods is to be paid in fixed portions
sales in the various states. A Federal
at stated intervals.
Aside from a
law is impossible without consti-
cash or down payment, which is usually
tutional amendment, and in its absence
made at the time of sale, the trans-
uniformity is almost impossible.
action is simply a credit or deferred
Origin of the Practice.-Instalment
payment transaction in contrast to a
buying is an old practice. Writers on
cash payment and does not differ in its
the subject have cited numerous in-
nature from any other credit trans-
stances from history to show how old
action. As stated above, instalment
the practice really is. It is said that
credit provides for the payment of the
Crassus, the contemporary of Julius
debt in regular and fixed instalments,
Caesar, made a large part of his enor-
and in this respect, it is a sort of funded
mous fortune by building houses
debt in contrast to a demand obli-
outside the walls of Rome and selling
gation, which is payable at the request
them on the instalment plan. A
of the creditor or to the old-fashioned
recent writer mentions an instalment
book credit or charge account or open
transaction, similar to those of the
account, which was payable in whole or
present time,. which took place a cen-
in parts at the convenience of the
tury ago. The Countess of Blessing-
debtor. It also stands in contrast to
ton at one time found herself in the
the kind of debt which runs for a stated
disconcerting circumstance of greatly
period and which is to be paid in a
desiring a suite of furniture which she
lump sum at the end of the period.
was unable to purchase because she
In buying on the instalment plan,
lacked the necessary funds. Her desire
the goods are delivered to the buyer,
for this suite of furniture was too
but the title to them generally remains
great, however, to be thwarted by
in the seller and does not pass to the
insu$icient funds, and so she contrived
buyer until all the instalments are paid.
a plan of partial payments and per-
In some cases, however, the title passes
suaded the cabinet-maker to accept, in
immediately to the buyer, and he gives
lieu of cash, a down-deposit rep-
a mortgage on the goods as security for
resenting a fraction of the cash price, a
the balance due. Default in payment
lien on the furniture, and a promise of
in almost all cases gives the seller the
further payments to be made at regular
right to the possession of the goods; it
intervals until her debt should be
also quite frequently forfeits all pre-
entirely liquidated. The practice of
viously paid instalments. It is difficult
the present time, in principle, is not
to generalize on the legal aspects of
greatly different from what it is said
instalment selling, as there is a complex
to have been in this particular case of
body of statutes governing this form of
one hundred years ago.
sale in each of the forty-eight states.
An idea as to the length of time
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selling on the instalment plan has been
Exclusive of houses, life insurance,
practiced in this country, as well as the
and stocks and bonds, all of which are
character of the goods thus sold, may
sold on instalments on an extensive
be gained from the fact that building
scale, it is estimated that approximate-
and loan associations, which provide
ly six billion dollars’ worth of goods are
for the buying of houses on this plan,
now sold at retail annually on the
have been in existence for more than
instalment plan.’ The total annual
seventy-five years. The Singer Sewing
retail sales of all commodities are
Machine Company has been doing a
estimated at approximately forty bil-
very profitable business in this manner
lion dollars. Thus, fifteen per cent of
for more than fifty years. There are
all goods bought at retail are purchased
also numerous piano and other musical
on the instalment plan.
instrument houses that have been
It is estimated that the amount of
selling this way for the same length of
the instalment debt outstanding at a
time. McCormick reapers and bind-
given time is $~,~’S0,000,000. This is
ers have been sold in this manner
a more significant figure than the six
almost from the beginning of their use.
billion dollars which is the total of the
Equipment purchases of railroads have
instalment sales over a period of one
been made on the partial payment
year’s time. When considered as an
plan for many years. The Encyclo-
absolute quantity, the instalment debt
paedia Britannica has been sold on
outstanding at a given time is a large
instalments for many years. In 1898,
amount, but when considered in rela-
this company launched a campaign
tion to the total outstanding debt of
in England which was remarkably
the community, that is, the total
successful for selling the work for
amounts owing from all individuals or
one guinea cash and thirteen monthly
groups of the community to all other
payments of one guinea each.
individuals or groups of the community,
Growth and Present Extent.-Even
it is very small. The total amount of
though instalment selling, similar to
credit of all kinds, including instalment
that which exists at the present time,
credit, outstanding at a given time in
has been a common practice for the
this country, not counting funds bor-
past fifty years, there had been com-
rowed for the purpose of re-loaning, is
paratively little growth of the system
very greatly in excess of $120,000,000,-
until recent years. Within the last
000 or $130,000,000,000.2
decade, however, instalment selling has
Automobiles, standing far above all
undergone an enormous expansion in
the other commodities in importance,
both volume of sales and number of
account for approximately $1,500,-
industries affected. About 1915, in-
000,000, that is over half of the instal-
stalment selling was introduced into
ment debt outstanding at a given
the automobile business, where it
experienced a somewhat gradual
1
No one knows what the total annual instal-
growth for several years, and then,
ment sales are. This is a figure commonly used
after 1920, it suddenly expanded,
and accepted as an approximation by bankers,
reaching great volumes within a few
economists and others. It is the estimate of the
years’ time. In the industrial depres-
National Association of Credit Men and also of
sion of the
Mr.
latter
Milan V. Ayres who conducted an investi-
part of 1920 and the
gation into instalment buying for the Economic
year 1921, the system spread to other
Policy Commission of the American Bankers’
lines of business and grew rapidly to the
Association.
large proportions of the present time.
2
See page 43 of this study.

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time.’ Seventy-five per cent of all
time is only about $40,000,000, which
automobiles, considered with respect
is but one and four-tenths per cent of
to value, are sold on these terms.
the total instalment debt.
Household furniture is the second
Total Volume of Instalment Sales.-
commodity in importance, accounting
Whether instalment selling is increas-
for approximately nineteen per cent of
ing or not at the present time is a de-
the total instalment debt, according
bated question. It is the contention
to the estimate of Mr. Milan V.
of some people that the rapid expan-
Ayres who made an investigation for
sion came in the years 1920-23, and
the American Bankers’ Association.
since that time there has been very
Eighty-five or ninety per cent of all
little growth. They say that public
furniture is bought on instalments.4
4
attention has just become focused on
The prevalence of the instalment plan
the subject, thus giving the impression
of selling furniture is shown by the fact
that there is a tremendous increase
that out of five hundred and fifty-six
taking place at the present time, when
retailers responding to a questionnaire
such is not the case.
sent .out by the Federal Trade Com-
The results of an investigation by
mission regarding the point, only
the Economic Policy Commission of
thirteen reported that they regularly
the American Bankers’ Association,
sell furniture strictly for cash.5 It is
which have not been made public, al-
estimated that eighty per cent of all
though parts of it have appeared
phonographs are sold on instalments,
in print in a number of places, say that
seventy-five per cent of washing ma-
the instalment debt at the end of 1925
chines, sixty-five per cent of vacuum
was seven per cent greater than at the
cleaners, twenty-five per cent of all
end of 1923. Mr. Milan V. Ayres, who
jewelry,6 and the greater part of all
conducted this investigation and who
pianos, sewing machines, radios and
has continued his study of the subject,
electric refrigerators. About $140,-
states that the instalment debt at the
000,000 worth of clothing is sold
present time is only eight per cent
annually on deferred payments,7 but
greater than at the end of 1923.
since the term of payments for this
We are fortunate in having some
commodity is comparatively short, the
careful figures in regard to the recent
amount of credit outstanding at one
growth of instalment selling which
tend to the conclusion that the system
3
This
is still
figure is probably not far...