Installment Buying, 1920–1930

Report Outline
Development of the Instalment System
The Volume of Instalment Sales
Instalment Sales of Automobiles
Development of Finance Companies
Classes Buying on Instalments
The Instalment System and Industrial Depression
Special Focus

In an address three years ago before the National Business Conference, Roger W. Babson said: “A distinct recession in business and possibly a panic within two or three years would not be surprising.…It will be the result of overextension of the instalment business, which today is eating into the vitals of business like cancer.” At the time this statement was made it was estimated that the volume of goods bought on instalments would reach $6,000,000,000 in 1926, and instalment sales were believed to be increasing at a rate of $1,000,000,000 or more a year.

Many critics of the instalment system asserted in 1925–26 that the rapid spread of this method of merchandising was producing an over-expansion of credit and giving an unhealthy stimulus to trade, which would lead to rising prices and overextension of plant facilities, accompanied by an unprecedented accumulation of debt. In this situation the slightest occasion would bring demands for liquidation and precipitate a crisis.

Other critics of the system held that instalment merchandising, if held within reasonable limits, would not of itself bring about the conditions that lead to industrial depression, but that it would serve to aggravate and prolong any serious depression arising from other causes. The view expressed by an eastern banker in the following quotation was widely held, even among those engaged in selling on instalments.