CONSUMER INSTALMENT CREDIT AS A VARIABLE IN THE QUANTITY AND VELOCITY OF MONEY IN CALIFORNIA, 1950-60*

Abstract

THIS DISSERTATION IS a comprehensive analysis of the functional activities of financial institutions in supplying loanable funds for consumer instalment credit in a given market. The approaches used were (1) to examine a given market with respect to the volume and velocity of short-term consumer instalment credit supplied by commercial banks, financial intermediaries, and trade sources; (2) to analyze the changes in the relative market positions of suppliers of this credit; (3) to evaluate the effectiveness of specific and general monetary controls in this market; and (4) to evaluate the state laws pertaining to commercial banks and financial intermediaries with respect to their influence over these agencies. The results of this study indicated the extent to which monetary policy and controls over financial intermediaries were inadequate in controlling the supply of loanable funds for this market. This was evident from the aggregate volumes and velocity of loanable funds resulting from competitive practices, which, in turn, affected the shifting of loan funds among the suppliers of funds and in the different sectors of the market. During this 10-year period the annual average rate of change in the volume of these credit funds exceeded the annual average rate of change in both disposable personal income and taxable retail sales. The annual average rate of change in disposable personal income was 8.5 per cent, while the average annual rate of change in consumer instalment credit was 22.6 per cent and taxable retail sales 18.7 per cent. The annual year-end volume of loanable funds supplied by the commercial banks not only fluctuated more than the loan volume of the financial intermediaries but also declined as a proportion of the total aggregate volume of credit. In 1950 the commercial banks supplied 68.5 per cent of the total volume of loanable funds supplied by financial and non-financial intermediaries. By 1959 the