The spread of the personal loan department idea, moreover, will enable borrowers to snap up bargains which otherwise they might have been forced to let pass. A young couple, for instance, has a chance to buy a set of dining-room furniture at a ridiculously low figure, but have not enough cash on hand. A personal loan department would be glad to advance them the funds.

In discussing the immediate questions raised by the banking innovation, its economic and sociological significance probably has not received enough attention. This creation of what is really a new instrument of credit is, like the installment purchase plan, another encouragement to average men and women to go into debt and then work themselves out again. Old-fashioned economists have been railing against this tendency for many years. As far as we can see now, though, their objections have been disproved by experience. Professor Edwin R. A. Seligman, the Columbia University economist, who, with a corps of experts, investigated exhaustively the whole installment-buying question, said:

“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.” With this, most of the ablest economists are in agreement.

The personal loan experiment is interesting sociologically because of the confidence it expresses in the average man’s honesty. J. P. Morgan stated that character was the only really important collateral. The National City Bank evidently believes that the average worker possesses that collateral.

Source: The Outlook, 23 May 1928

Related posts:

1. Introduction of Personal Loans Part 1
2. Introduction of Personal Loans Part 2
3. Status of Credit Unions 1925
4. Federal Reserve Jawboning Part 1

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