Spencer Heath Archive

Item 857

Random taping by Spencer MacCallum from conversation with Heath

December 13, 1955

The installment buying which is so prevalent in these days, and is sometimes thought in danger of getting out of hand, comes under much adverse criticism not because credit in itself is not a normal and useful mode of doing business, but because of its abuse. The abuse lies in the using of credit for the financing of consumption, rather than for facilitating production. Borrowing to facilitate production, is of course desirable.

     Those who argue in favor of unlimited installment buying contend that this makes mass production possible by providing a large market, a large outlet, for mass production with great economy instead of the lower scale production at higher costs. There may be something in this argument, to be sure. But in any case, when over installment buying cuts down future producing power, / if it is carried to that extent, it will react against itself. The whole exchange system, so far as it is free from political influences, tends to heal itself and bring about a balance in which all the factors of production are most efficiently related, one to another.

If I borrow money at the bank, is it a good thing or a bad thing?

                        “It depends on how you use it.”

Exactly. _______ buying instead of borrowing money, whether it is good or not depends on how it is used. And it could be that using installment buying or borrowing might contribute to the efficiency of production up to a degree, that is, installment buying for consumers’ goods, by giving the manufacturer a larger market immediately. But if that is carried to some extreme, then it will cut down his future market, because the wages will be mortgaged, meaning the people won’t be able to buy as much in the future as they are buying now. And he will have to retrench. The manufacturer will have a large plant which he won’t be able to use. That can happen.

I think it is due to the desire that most everyone has to get more and more of the good things of life. But if this desire is carried to the point that it will cut down future purchasing power, then those manufacturers who streak to increase their capacity and their efficiency to meet the present artificial demand, so to speak, will find themselves with a depleted demand later on which will not support the use of their increased capital and other production facilities.

We can be sure of this, once we understand the operation of the free market, that whatever temporary ills may arise, they will be temporary — because the market heals itself. It makes the necessary adjustments to put right anything that starts off in the wrong direction. It has an extraordinary feed-back system, as they call it in mechanics. It has an automatism. It is the most automatic, self-regulating institution, perhaps, in all the world.