JUSTIFICATION FOR DIRECT REGULATION OF CONSUMER CREDIT REAPPRAISED

Abstract

ONE MIGHT THINK because Regulation W had expired that it is a dead issue and that further consideration of it is academic. That is not the case. When advocacy of consumer credit regulation is expressed by a presidential candidate, as it was by Governor Stevenson, and when many economists and bankers indorse this form of selective credit control, as was indicated in replies to a Congressional Subcommittee on General Credit Control and Debt Management, this is ample evidence that while the regulation itself may have expired the thinking which would reinstate it is but dormant. A discussion of direct regulation of consumer credit today, however, need not be the same as it was ten years ago. Then it seemed plausible that restrictions upon credit buying by consumers would lessen demand, check price rises, and even counteract cyclical tendencies. Having meanwhile seen that those ends were not accomplished by it, and having learned more about such credit than was previously known, we are in a position today to appraise regulatory theories in the light of experience and facts. Behind the reasoning that through consumer credit regulation inflation could be curbed and scarce materials diverted to wartime uses were certain basic assumptions: 1. That a consumer's normal purchasing power is increased by his use of credit. 2. That consumers will use all the credit they can get. 3. That general economic activity rises and falls in response to consumer credit buying. 4. That an increase in consumers' use of credit results in an increase in money (demand deposits) in circulation. 5. That in the use of credit consumers are impelled by emotional rather than rational considerations. These assumptions lead to the conclusion that consumer credit can be dealt with like commercial credit or like the supply of money, and that by general and selective credit controls the economy might be expanded or contracted as the need may be. These con-