An investigation of the opinions and attitudes of selected business groups in the Los Angeles area toward Regulation W

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Content AN INVESTIGATION OF THE OPINIONS AND ATTITUDES OF SELECTED BUSINESS GROUPS IN THE LOS ANGELES AREA TOWARD REGULATION W A Thesis Presented to the Department of Finance The University of Southern California In Partial Fulfillment of the Requirements for the Degree Master of Business Administration in Finance by Eugene Merrill Brown February, 195^ U M I Number: EP43376 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, th ese will be noted. Also, if material had to be removed, a note will indicate the deletion. UMI' Dissertation Publishing UMI EP43376 Published by ProQuest LLC (2014). Copyright in the Dissertation held by the Author. Microform Edition © ProQ uest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code ProQ uest LLC. 789 E ast Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 4 8 1 0 6 - 1346 dom AA/3 A ' s * B871 This thesis, written by Eugene Merrill Brown under the guidance of h.i§...Faculty Committee, and approved by all its members, has been presented to and accepted by the Council on Graduate Study and Research in partial fullpll- ment of the requirements for the degree of st. sr.. of Bu sines s A dm in i st rat ion in Finance Date. Faculty Com m ittee Chairman TABLE OP CONTENTS CHAPTER ^1. THE PROBLEM AND DEFINITIONS OP TERMS USED yC The problem ............................. Statement of the problem ........... Importance of the study ............. Definitions of terms used ....... Opinions and attitudes ............. Objectives of Regulation W ......... Logical and illogical complaints . . A survey of the remainder of the thesis Chapter I I ............... ........... Chapter III . . ...................... Chapter IV. . . . >■_.................. Chapter V ............... .............. Chapter VI ........................ ^ II. THE SELECTION OP THE GROUPS INTERVIEWED AND THE INTERVIEW METHOD USED ......... The selection of the groups interviewed Used-car dealers in the Los Angeies PAGE i I 1 ! 1 2 | 4 j 4 I 4 j 5 | 5 | 5 : 6 I 6 | 6 | 7 8 ! 9 ! 9 ! i/ CHAPTER iv PAGE Commercial banks and finance companies 10 The interview method used............. , 11 Qualitative study . 11 The need for adaptability............. 11 Reliability of the interviews */. . . . 12 The need for interpretation . .^. . . . 13 III. BACKGROUND OP CONSUMER„CREDITLAND REGULATION W ............................. 15 Background of consumer credit ........... 15 Classical concept ...................... 15 Growth of consumer credit ............. 16 Consumer credit and economic stability 20 Background of Regulation W ............. 23 History................................. 23 Purposes and aims...................... 25 Administration ....................... 26 Operation.............................. 27 IV.^/INTERVIEWEES 1 AWARENESS OP THE OBJECTIVES OP REGULATION W ........................... 29 Knowledge of mechanics versus knowledge of objectives......................... 29 Literal knojtfledge versus actual knowledge 32 Confusion with OPA price controls .... 35 ............................. A V CHAPTER PAGE Similarity of the requirements of Regulation W and the requirements of accepted credit standards ............. 37 V. ATTITUDES OP APPROVAL AND DISAPPROVAL BASED ON THE UNIFORM TERMS OP REGULATION ¥ . . 4l Effect on competition ................... 42 Unpopular make automobiles ............. 44 Regional price differences ............. 45 Removal of personal relationship in lending . . . . ......... 46 VI. ATTITUDES OP APPROVAL AND DISAPPROVAL WITH REGARD TO REGULATION ¥ AS A GOVERNMENT CONTROL................. 49 The need for Regulation W ............... 49 Government controls inconsistent with free enterprise 51 I The ability to self-poliee............. 52 Supply and demand....................... 53 Violations.............................. 54 Discrimination against low-income groups 55 Discrimination against the used-ear industry.............................. 58 Incompetent administration ............. 59 Threat to the American system of mass production . . ..................... 60 j v i CHAPTER PAGE VII. SUMMARY AND CONCLUSIONS . . . . ...... 63 Summary............................ 63 The purpose of the s t u d y..... 63 Methods and techniques .............. 64 Interviewees' awareness of the objec tives of Regulation W ........ 65 The uniform terms of Regulation W . . 68 Regulation W and free enterprise . . 70 Conclusions....................... 73 An analysis of the objections based on the uniform terms of Regulation ¥ . . . .......... 73 An analysis of the objections to Regulation W as a government control 76 The need for better communication and education..................... 8l BIBLIOGRAPHY .................................. 84 CHAPTER I THE PROBLEM AMD DEFINITIONS OF TERMS USED During what was a relatively short history, Regula tion W probably had provoked as much controversy as any other government control aimed at regulating some phase of private business. It is interesting to note the ex tent to which opinions and attitudes can be divided over an issue of government policy. It is even more interest ing to examine some of.the logic underlying these con flicting opinions and attitudes. I. THE PROBLEM ^Statement of the problem. It was the purpose of this study (l) to analyze the opinions and attitudes and the rationale behind the opinions and attitudes of select ed business groups to Regulation W; (2) to determine whether these opinions and attitudes were predicated on an awareness and understanding of the objectives of Regu lation W; (3) to determine whether the reasons for the * t unpopularity of Regulation W, as revealed through a ques-, tionnalre, were founded on logical or illogical objec tions ; and (A) to determine whether the causes for.the 2 logical objections to Regulation W could be removed by changes in the regulation without impairing its effec tiveness. Importance of the study. An understanding of the objectives and the essential mechanics of government regulations is inherent in the concept of democracy. Democracy is vitally dependent upon an informed public. Issues affecting the public interest must stand the test of public discussion, and intelligent public discussion presupposes the existence of an informed public. Without launching into a lengthy discourse on the meaning of democracy, suffice it to say that an informed and articu late public is indispensable to the proper functioning of the democratic concept. This study has proceeded on the assumption that in a democracy proper understanding will promote coopera tion with government regulations, thereby increasing their effectiveness. By determining that certain mem bers of selected business groups lacked proper understand ing of the objectives and the mechanics of Regulation W, it is possible to make recommendations to the architects of government regulations either with respect to the re institution of Regulation W or the Imposition of other regulations of similar'character. J 3 ^/it Is virtually impossible for the framers of government regulations to avoid arousing the antagonism of certain groups. Modern society is a vast and complex network of different groups with different, and some times conflicting, group interests. Public officials are charged with the responsibility of acting in the overall public interest. It appears inevitable, there fore, that government regulations aimed at achieving broad public objectives are likely to produce harsher results among some groups than among others, thus making these regulations unpopular with at least some groups. If the objectives of given government regulations are to be successfully prosecuted, then the complaints of the groups among whom discontent has been fomented must be heard. If it can be determined that the reasons for the unpopularity of Regulation W, as disclosed by a question naire study, are based on logical complaints, then it can be ascertained whether the reasons for the complaints can be removed without impairing the effectiveness of the regulation. If it can be determined that some of the reasons for the unpopularity of Regulation W appear to be predi cated on largely illogical complaints, then by focusing attention on the flaws in the reasoning underlying these complaints, it will be possible to obviate some of the misunderstanding, either through education or better com munication, thus securing better cooperation with the regulation. II. DEFINITIONS OF TERMS USED 4 Opinions and attitudes♦ Throughout this study the opinions and attitudes of the members of the selected business groups was interpreted to mean the manner in which they as individuals regarded Regulation W. ^ Ques tions were not designed to be answered in terms of a single yes or no response. Persons interviewed were encouraged to express their own views on the assurance that there were no predetermined answers being sought. Therefore, for purposes of the analysis undertaken by this study, the opinions and attitudes of the members of the selected business groups were pursued as contrast ed with positive knowledge. J Objectives of Regulation W. Some opponents of Regulation W have said that the framers of the control dissembled its true objectives, enabling the Federal Reserve to take a step forward in realizing their goal of acquiring permanent control over consumer credit. As will be seen in Chapter III, some Federal Reserve officials have asserted reasons for placing consumer 5 credit under permanent control. However, intent is an exceedingly elusive concept; it can best be left for the determination of courts of law, one of whose duties is judicially to define intent. For purposes of this study the objectives of Regulation W will be interpreted as meaning those purposes and aims embodied in the execu tive order which first authorized the regulation. Logical and illogical complaints. Logical com plaints were interpreted as meaning those complaints 1 which were based on injuries to the interests of cer tain of the selected business groups. Illogical com plaints were interpreted as meaning those complaints which ostensibly reflected injuries to certain group interests. III. A SURVEY OF THE REMAINDER OF THE THESIS Chapter II. This chapter will deal with the methods used in compiling the data; the selection of the business groups to be interviewed; the formulation of the questionnaire; the limitations of the questionnaire method; and the need for interpretation of the inter views . 1 Injuries demonstrable in the worsening of com petitive position or the interference with managerial controls over transactions. Chapter III. Included In this chapter is a brief discussion on the growth and development of consumer credit. The second part of the chapter traces the his tory of Regulation W from its initial enactment to its final termination. Also Included are sections on (l) the purposes and aims of the regulation, (2) the administra tion of the regulation, and (3) a succinct summary of the operation of the regulation. Chapter IV. Discussed in this chapter is (l) the degrees of awareness of the objectives of Regulation W encountered in the Interviews, (2) the confusion exist ing between Regulation W and price controls, (3) the difference between the mechanics and the objectives of the regulation, (4) the occurrence of internal inconsis tencies In the interviews which militated against ex pressions of literal knowledge, and (5) how the similarity between the requirements of Regulation W and the require ments of accepted credit standards was responsible for much of the confusion surrounding the objectives of the regulation. Chapter V. This chapter brings out the reasons upon which the unpopularity of Regulation W was founded. Shown, also, is that many of the reasons for the unpopularity of the regulation grew out of the fact that the requirements of the regulation applied uniformly to all the selected business groups. The findings in this chapter further reveal that much of the unpopularity of the regulation is intimately linked with the deep- rooted notion that government regulations, irrespective of their objectives, are inconsistent with the concept of free enterprise. Chapter VI. In the final chapter, the more im portant findings of the study are brought into sharper focus. Conclusions are made regarding the plausibility of the reasons advanced for the unpopularity of Regula tion W. Finally, recommendations are given, the adoption of which, it is submitted, will enhance public coopera tion with Regulation ¥, should it be reimposed, or with other government regulations similar in character to Regulation W. CHAPTER II THE SELECTION OP THE GROUPS INTERVIEWED AND THE INTERVIEW METHOD USED While It is true enough that virtually every group in the country has been affected, to varying de grees, by Regulation W, the majority of these groups have had only a passing interest in it; henee they have needed to devote little time to an appraisal of its im pact on them. Nonetheless, some business groups have been constantly exposed to the regulation, and have been vitally concerned with it. It is from among these busi ness groups that the opinions and attitudes relative to Regulation W will be adduced for this study. Surveys pertaining to Regulation W have been conducted, but they have provided little more than superficial coverage of the problem; for the most part they have ascertained only that so many of those responding to the questionnaires submitted either liked, disliked, or were in favor of changes in the regulation. I. THE SELECTION OF THE GROUPS INTERVIEWED Used-car dealers in the Los Angeles area. While previous surveys pertaining to Regulation W have encom passed wide areas and great numbers of interviewees, it is submitted that a more intensive interview, such as is proposed, by this study, would yield more useful In formation. Used-car dealers were selected as one of the business groups to be interviewed because the auto mobile industry was greatly affected by Regulation W. The bulk of consumer credit arises from the purchase of automobiles. Used-car dealers were selected over new- car dealers because they are more numerous in the Los Angeles area and because they are not as well organized as the new car dealers. Although there are several used-car dealers' associations in the area, these asso ciations were not as active as were the new-car dealers' associations in helping to shape the opinions and atti tudes of their members. Thus, by selecting the used-car dealers, a wider variety of individual opinion and atti tude could be expected. To secure as wide a variety of opinions and attitudes as possible in the limited num ber of interviews conducted, firms of large, medium, and small size were included. 10 Commercial banks and finance companies. Also selected as one of the groups to be interviewed were commercial banks and finance companies dealing in retail and wholesale, direct and indirect automobile financ- 1 ing. Like the used-car dealers, the banks and finance companies were greatly affected by Regulation W. Con sumer credit had grown to become an important part of their business volume. However, unlike the used-car dealers, banks and finance companies were comparatively few in number, and they were extremely well organized and well managed. Their trade associations were actively engaged in disseminating literature regarding Regulation W. In sharp contrast to the used-car dealers, the opin ions and attitudes of bank and finance company officials had been heavily influenced by research staffs, trade associations, and by the unison that exists in the poli cies of financial institutions. This combination of used-car dealers and banks and finance companies was thought to be productive of a good cross-section of The terms retail and indirect financing are j used synonymously to mean the discounting of contracts ; originating with the dealers. Wholesaling, or "Flooring," i means the financing of the dealers’ inventory. Direct ! financing means the extension of credit directly to the * consumer for the purpose of making the purchase. opinions and attitudes relative to Regulation W. 11 II. THE INTERVIEW METHOD USED Qualitative study. In this study, no attempt has been made to provide statistical accuracy in the sense of employing accepted statistical techniques and procedures. The value of this study lies not in inter viewing as many business groups in as many areas as is possible, thus ensuring a high reliability of samplings and averages through the size of the sample. The con tribution of this study is in critically analyzing the material gathered from each interview. It is not for this purpose important to know the exact number of per sons responding either affirmatively or negatively to the questions posed. The emphasis in on examining the quality of each separate interview in terms of whether the person interviewed knew factually what he was talking about, whether he was logically consistent in his answers to the various questions, and whether he based his opinions and attitudes on valid grounds. The need for adaptability. Although a question naire was prepared and used in conducting the interviews for this study, this, in itself, was not enough. To ob tain as much information as possible about the opinions and attitudes of the business groups interviewed* impro vised methods were frequently necessary. When it appear ed that some of the prepared questions seemed to convey little meaning to the person being interviewed, personal judgment had to be exercised to re-word the question so as to make its meaning understood. Sometimes the tenor of the interview drifted considerably from the prepared questionnaire. Discrimination was called for; in some instances, by permitting the interviewee to go off on tangents, valuable insights into his opinions and atti tudes were gained. In other instances, this approach would have yielded no meaningful information; moreover, the time allotted for the interview would have been un wisely consumed. Occasionally, during the course of an interview, certain questions seemed to provoke emotional responses. In some of the interviews, the merest mention of govern ment regulations touched off a wave of invective. Usu ally, however, by allowing for a "cooling-off period" and by carefully rephrasing the question, it was possible to elicit more rational responses. In the more extreme instances, certain questions had to be deleted. Reliability of the interviews. There are limita tions inherent in all interviews. Regardless of how they 13 actually feel, some respondents, during the course of the interview, have a tendency to answer in terms of what they think is the right answer. When their actual opinions and attitudes are contrary to what they suppose other people consider right, they resort to subterfuge to conceal what their honest opinion really is. Thus, it was found in the course of this study that some re spondents were motivated largely by patriotic considera tions, feeling that it would be unpatriotic to express opinions and attitudes openly which contravened govern ment regulations. Then, too, there were interviewees who, despite their actual opinions and attitudes, regard ed it in keeping with American business tradition to show disdain for government controls. It is not an easy matter to ferret out the true opinions and attitudes of business groups regarding pub lic Issues. Regardless of how resourcefully it is pre pared, no interview can be a perfect tool for removing the inscrutable covering behind which some people hide their true opinions and attitudes. Only the more obvious attempts at dissembling are capable of detection through the appearance of inconsistencies in the interviews. The need for interpretation. Since this is a qualitative study, it was necessary to appraise the 14 Interviews as a whole. As a jig-saw puzzle is not com pleted until all the pieces are fitted together, the interviews had to be interpreted in the light of more than just the answers to the prepared questionnaire. Frequently the dictum of the interviewees offered valu able clues as to their true feelings. To have confined the evaluation of the interviews strictly to the prepared questions would have meant the loss of much useful datum. Even gestures and mannerisms had to be woven into the interview to form a complete fabric of the interviewee's opinions and attitudes. Sometimes conflicting statements were encountered, and the meaning actually intended by the interviewee was obscured. Interpretation was needed to disentangle the conflicting statements and to extract the Intended mean ing. Such interpretation did not always admit of objec tive criteria, and personal judgment was exercised. CHAPTER III BACKGROUND OF CONSUMER CREDIT AND REGULATION W Consumer credit is a comparatively new areaj its importance to the economy has not been ineontrovertibly established. Nonetheless, the growth and development of consumer credit has been both swift and impressive, reaching a point where presidential authority was evoked to prevent it from aggravating inflationary conditions. It is germane to this study to present some of the back ground of consumer credit so that Regulation W may be viewed in its proper perspective. The first part of the* chapter is devoted to a historical survey of the principal factors contributing to the growth and development of consumer credit and to a review of some of the economic thinking done on the subject. In the second part of the chapter, the his tory, objectives, administration, and operation of Regulation W is discussed. I. BACKGROUND OF CONSUMER CREDIT Classical concept. Being of minor importance to the classical economists, consumer credit received 16 little of their attention. Most of the thinking on con sumer credit was chiefly in terms of its effect upon the formation of capital. Any diversion of the flow of savings from productive to consumptive uses was sup posed to restrict the growth of production and to re strain the rise in standards of living. The classical economists believed that consumer credit was generally used for extravagant expenditures, and these were condemned as a social waste. While much of the classical thinking on consumer credit has been discredited, there still persists the notion that con sumer credit is used for extravagant purposes, con tributing nothing to a rise in the standard of living. Even today there are people who frown upon the use of consumer credit. Growth of consumer credit. Although no precise date can be fixed for the inception of instalment buy ing, the development of factor-made furniture after 1800 is thought to have led the way. The automobile, which ! was to become the giant of instalment buying, did not develop into a universally used consumer good until after World War I. Instalment sales of automobiles began around 1910. Advertisements offering automobiles on instalments were published in New York City as early as 191^• After that time, instalment selling grew with 17 considerable speed. The invention of new household appliances such as refrigerators, ranges, vacuum cleaners, washing machines, oil burners, and mechanical stokers opened still further opportunities for instalment sellers. One of the salient features in the growth of instalment credit was the evolution of methods by which a wide vari ety of durables could be made available in large quanti ties at relatively low prices. New products were in vented. Factory production methods reduced costs and made large scale output possible. Instalment selling was the instrument devised to make it easy and conven ient for consumers to purchase the products. Along with the growth of instalment buying, there has been a steady rise in consumer incomes. The rising productivity of labor has permitted workers to attain a margin of income over subsistence levels, making possible the accumulation of substantial investments in consumer durables. Sellers could readily find markets for their products if they broke down the payments into instalments and gave consumers immediate possession without waiting for consumers to save the full purchase price. Instalment selling became the device to facili tate the spending of increased incomes in ways most satisfactory to the recipients. 18 | The progressive urbanization of the eountry has aided the growth of instalment selling. Concomitant with urbanization has been an increasing reliance upon factory-made consumer goods, as against those made at home. Urbanization, furthermore, set up flows of income which were better suited to the instalment system of buying than was that typical of the flow of farm incomes.j Wages and salaries received at regular intervals permitted the assumption of debt payments at frequent intervals. It was also possible for instalment sellers to keep the costs of instalment credit within reasonable limits. Collections from widely scattered customers would have resulted in much higher costs. As early as the 1870's, manufacturers of some goods found it necessary to take over the instalment paper of their dealers. This led eventually to the formation of finance subsidiaries that could draw on _ j the general money market in-order to handle the instal ment paper of retailers. Out of the organizations es tablished to finance the open book sales of retailers and wholesalers grew the sales finance companies. Manufacturers participated in the formation of the more important companies which drew upon the commercial banks for funds. Later on, some of the banks began to elim inate the finance company stage in the process by direct 19 financing of dealers and even by loans to consumers. The notion of the classical economists that con sumer credit was socially wasteful, since it tended to draw upon productive resources, has led to the deep- seated conviction of many modern day critics that con sumer credit is inconsistent with old-fashioned stan~ dards of thrift. Most present day attitudes toward consumer credit, however, are more favorable. The change in soeial attitudes is largely attributable to an increasing awareness that borrowing to buy consumer durables performs different functions and has different effects from those involved in buying goods whose utility disappears before payment is completed. Govern ment campaigns during the first world war of selling liberty bonds on instalments helped to make social atti tudes receptive to the growth of this technique of pay ment . Completing the picture of the changing social attitudes toward consumer credit is that group of opti mists who hold that the last century and a half has been a period of continuing progress and that instalment buying has made it possible for the bulk of the popula tion to share in the better life created by the applica tion of mass production to consumers’ durables. 20 Consumer credit and economic stability. Of the various broad economic problems raised by instalment buying, its influence upon fluctuations in general business is the one that has received the most attention recently from economists.^ Economists have disagreed sharply among them selves concerning the importance of instalment buying as a factor affecting economic stability. For example, Rolf Nugent has said that the influence of consumer credit on economic stability is "increasingly power- 2 ful." On the other hand, Margaret Reid finds the likelihood very slight that instalment credit has an 3 inflationary effect. The weight of available evidence and opinion seems to support more of an intermediate position. Haberler concluded that fluctuations in consumer credit represent a small element in the forces at work to pro duce either cyclical movements in business or long-run 1 Reavis Cox, The Economics of Instalment Buy ing (New York: The Ronald Press Company, 19*1-8), p. ¥TTT. 2 Rolf Nugent, Consumer Credit and Economic Sta bility (New York: Russell Sage Foundation, 1939) , P* 19* 3 Margaret Reid, Consumers and the Market (New York: F. S. Crofts and Company, 1938), p. 253. 21 changes in the level of production, even after making allowances for the multiplier effect embodied in 4 Keynesian analysis. Perhaps it was Mors, in his study of consumer credi't**theories, who best summed up the prevalent atti tude concerning the importance of instalment buying with respect to business fluctuations. He said that the preponderance of authority is on the side of admit ting consumer eredit fluctuations to a place of minor 5 influence in their effect on business cycles. Much of the disagreement respecting the role of instalment buying in economic fluctuations has resulted from the confusion of theories about the business cycle itself. The concentration of purchases of consumers' dur ables either on a cash or instalment basis is a factor tending to affect economic stability. The concept that instalment buying has a cyclical influence is crystal- ized in the notion that this type of credit operation eneourages people to buy today from tomorrow's income. 4 Gottfried Harberler, Consumer Instalment Credit and Economic Fluctuations (New York: The National Bureau I of Economic Research, 1942), pp. 11, 12, 149, 151, and Chapter 5* ^ Wallace Mors, Consumer Credit Theories (Chicago: 1 The University of Chicago Press, 1944), p. t>3. ; When levels of full or near full employment are reached, the use of consumer credit is analagous to supplying consumers with greater volumes of income, which are in turn translated into bids for goods and services, the supply of which is increasing at a lower rate, or is constant or diminishing, as in times of war production. This so-called stimulant-effeet tends to push business into an inflationary spiral or to intensify an inflation already underway. This theory has another side labeled the depress- ant-effect. Eventually the time comes when consumers find themselves obligated for periodic payments heavier than they want to carry, particularly if their incomes begin to drop. Thus, they reduce or even stop their buying, tending to push business into a depression or to intensify a depression already underway. Despite the efforts of some writers in the field to minimize the influence of this stimulant-depressant effect, the theory has gained widespread acceptance in 6 some quarters. Proponents of this theory have been able to argue cogently that the stimulant-depressant effects of consumer credit present a good case for in cluding instalment buying within the general structure Cox, op. cit., Chapter 24. ©f controls aimed at ironing out business fluctuations. Such men as Rolf Nugent and Leon Henderson have pressed constantly for the permanent regulation of in- 7 stalment buying. The Board of Governors of the Federal Reserve System substantially adopted the stimulant- depressant theory advanced by these men when announcing the imposition of Regulation W. Furthermore, there is evidence that it has been the Board's policy to urge the adoption of legislation enabling it to bring in- 8 stalment buying under permanent regulation. II. BACKGROUND OF REGULATION W History. Acting under the power granted him by section 5(b) of the Trading With The Enemy Act of 1917# President Roosevelt, on August 9, 1941, issued Executive Order No. 8843, relating to the regulation of consumer credit. . This order became known as Regulation W. Regulation W continued throughout World War II, 7 Rolf Nugent and Leon Henderson, "Instalment Selling and the Consumer: A Brief for Regulation," 193, Annals of the American Academy of Political and Social Science, May, 1943, pp. 93-1OTT” 8 Carl E. Parry, Conference on Consumer Credit in the National Emergency: Proceedings, November, T g 4 T 7 ~ p T “ 5 T n *-------------------------. ' 24 extending into the postwar period. Since the regula tion had been issued pursuant to a presidential emer gency power, it was felt that in the absence of con gressional authorization, the regulation should be terminated. In June of 1947, President Truman notified Marriner Eccles, Chairman of the Board of Governors, that unless the Board was able to persuade congress to enact legislation for the continuance of the regulation, the executive order would be vacated. Unsuccessful in their attempts to secure the necessary legislative sanc tion, the Board witnessed the rescission of the regula tion in November of 1947* However, inflation was posing a serious threat to the economy, and it was not long thereafter that Regulation W was revived. On August 16, 1948, Public Law 905 was signed by the President, authorizing the reinstatement of the regulation. As business began to slump in early 1949* businessmen vigorously protested j the continuance of the regulation. By June 30, 1949, Regulation W was terminated for the second time. The Korean War was responsible for the third appearance of the regulation. Pursuant to the provisions of the Defense Production Act of 1950, Regulation W was reimposed once again. This time the regulation was authorized to continue until June 30, 1952. 25 Production demands for the Korean War were not as exacting as those for World War II, and consumer dur able inventories were accumulating by the end of 1951* Early in 1952, many influential business groups urged the removal of the regulation, citing many instances of slow-moving inventories in consumer durables. After several successive liberalizations in the terms of the regulation, the Board of Governors suspended the regu lation on May 7> 1952, about two months before the ex piration date. Purposes and aims. Not since the issuance of Executive Order No. 8843 have the purposes and aims of Regulation W clearly been set forth, although the regu~ lation was imposed on two other occasions. With respect to the last two times the regulation was put into effect, neither Congress nor the Board of Governors restated the purposes and aims of the regulation in the clearly de fined manner of the original executive order. Nonetheless, the language used in the executive order was sufficiently broad so as to be applicable to virtually any situation in which either war production or inflation, or a combination of the two, warranted primary consideration as economic problems. Section (5) of the declaration of necessity and purposes 26 prefacing Executive Order No. 8843 provides a succinct statement of the major objectives of the regulation: The public interest requires control of the use of instalment credit for financing and re financing purchases of consumers' durable goods the production of which absorbs resources needed for national defense, in order (a) to facilitate the transfer of productive resources to defense industries, (b) to assist in curbing unwarranted price advances and profiteering which tend to result when the supply of goods is curtailed without corresponding curtailment of demand, (c) to assist in restraining general inflation ary tendencies, to support or supplement taxa tion imposed to restrain such tendencies, and to promote the accumulation of savings available for financing the defense program, (d) to aid in creating a backlog of demand for consumers 1 durable goods, and (e) to restrain the develop ment of a consumer debt structure that would depress effective demand for goods and services in the post-defense period. Administration. Executive Order No. 8843 indi cated that it was appropriate for credit to be controlled and regulated through an existing governmental agency with primary responsibilities respecting the determina tion and administration of national credit policies. Section 1 (a) of the Act designated the Board of Gover nors of the Federal Reserve System as the administrative agency for the regulation. In section 1 (b) the Board was empowered to en force the purposes of the act by such lawful steps as it deemed necessary or appropriate. In addition, the 27 Board was given the right to utilize the services of the Federal Reserve Banks and any other agencies, Fed eral or State, which were available_and appropriate. Operation. Although the regulation existed during three separate periods and was amended on numer ous occasions with respect to down-payments, maturities, terms of repayment, and items covered, the structural set-up remained substantially unchanged. The following description is based upon Regulation W, as amended to July 31, 1951: The regulation applied in general to any person engaged in the business of extending instalment credit in amounts of $5,000 or less, or discounting, purchas ing or lending on, obligations arising out of such credit. It applied whether the person was a bank, loan company, or finance company, or a person who was so en gaged in connection with any other business, such as by extending such credit as a dealer, retailer, or other person in connection with the selling of consumers1 dur able goods. The regulation required that all instalment sales be secured by down-payments not less than those specified in the Supplement to the regulation. As of the time of this amended form of the regulation, the down-payment 28 requirements for automobiles were 33 1/3 per cent mini mum. Also required was that all instalment sales have time balances not to exceed the maximum maturity speci fied for the listed article in the Supplement. For automobiles,the Supplement provided eighteen months maximum maturity. The provisions for instalment loans were the same as those for instalment sales, with one additional requirement that the lender have the borrower sign a statement in good faith as to the purposes of the loan. The regulation also required that records of in stalment credit arising from the sale of listed articles be maintained. CHAPTER IV INTERVIEWEES' AWARENESS OP THE OBJECTIVES OP REGULATION W The awareness of the objectives of Regulation W, as revealed through the interviews, ranged from in stances of almost complete lack of recognition to in stances of virtually complete comprehension. However, as will be shown, knowledge of the mechanics of the regulation did not always mean knowledge of its objec tives; and literal knowledge of the objectives of the regulation was not always the same as actual knowledge of the objectives. In addition, some of the more important reasons that appeared to be responsible for much of the con fusion surrounging the objectives of the regulation will be presented. Knowledge of mechanics versus knowledge of objec tives. Briefly, the principal objectives of Regulation W were to aid in curbing inflation and to facilitate the diversion of strategic war materials to the defense effort. By setting minimum down-payments on selected items and by limiting the contract maturity of the un paid balance on these items, the government sought to limit the quantity of credit that could be converted into consumer purchasing power, thus releasing funds which would be used to buy and to bid up the prices of the then relatively scarce supply of consumers1 goods. The objective of the regulation was to combat inflation ary pressures. The mechanics by which this was to be achieved was the placing of limitations on the issuance of consumer credit. Clearly, then, there is an impor tant distinction between the objectives of the regula tion and the mechanics by which these objectives were to be achieved. It appeared that quite frequently this distinc tion was nebulous to persons in industry. Typical of a good many of the responses encountered were those which expressed the opinion that Regulation W purported to: "restrain consumer spending," "cut down on consumer in stalment credit," "prevent overbuying on credit," and "curtail consumer purchases." These reponses did not reflect knowledge of the basic objectives of the regula tion as devised by the original executive order; rather, they described the mechanism by which the objectives 31 were to be achieved. Remembering that it had been about a year and a half since the control terminated for the last previous time, it was thought that much of this haziness regard ing the objectives was due largely to the time interval which had elapsed. Then, too, Regulation W had been imposed on three different occasions, each one of which occurred at a time when slightly different terms were in effect. It seemed possible that both the lapse of time and the number of modifications had contributed to a blurring of the memories of the interviewees. In evaluating the responses of those who said that the objectives of the regulation were to curb con sumer credit or to restrain consumer spending, it was not presumed that the interviewee was unaware of the real objectives of the regulation, having confused them with the mechanics of the regulation. Precise verbal reproductions of the objectives could not readily be expeeted. It was necessary to determine whether the interviewee said what he actually meant. When these responses were encountered, the question was reworded to state: "What do you think the objectives of the gov ernment were in curbing consumer instalment credit?" While some of the interviewees proved better able to grasp the meaning of this query, there were other inter- 32 viewees to whom this query apparently meant nothing more than the original question. Subjects in this latter group persisted in hold ing that the government wanted to prevent "overbuying" on instalment credit. By "overbuying" was apparently meant a process whereby consumers acquired more debt than their incomes warranted. While great caution was taken not to lead the subject to a predetermined answer, again an attempt was made to simplify and clarify the meaning of the question. Something to this effect was asked: "Why do you think the government considered it important to prevent consumers from overbuying on instalment credit?" Any further attempts at clarification, it was felt, might possibly have defeated the purpose of the interview. In responding to this question, many of the interviewees launched into discussions of the personal dangers involved to both seller and buyer in the indis criminate use of instalment credit. At this juncture, it was reasonable to assume that these interviewees, while able to describe the mechanics of Regulation W, were unaware of the true objectives of the regulation. Literal knowledge versus actual knowledge. Therei \ appeared to be some interviewees who, in spite of pos sessing literal knowledge of the objectives, did not 33 demonstrate an actual awareness of the objectives. Unlike the ones discussed in the preceding section, these interviewees experienced no trouble in expressing the exact objectives of the regulation. But, where the problem in the preceding section was to determine whether an apparent lack of awareness was real or verbal, the problem in this section was to determine whether an apparent complete awareness was real or merely verbal. The cases of literal familiarity with the objec tives of the regulation appeared to be more numerous among banks and finance companies than among the used- ear dealers interviewed, and more numerous among the larger of the used-car dealers than among the smaller dealers. This is not meant to be an interesting obser vation, and it is not supposed that the reader will be surprised in seeing it. What is important is to note that the literal knowledge of some of the large lending institutions and car dealers, when subjected to analysis, proved to be just as defective as the knowledge of some of the smaller car dealers who were unable to distin guish between the mechanics and the objectives of Regu lation W. It was possible to discern that there were some 34 interviewees literally but not actually-aware of the objectives of the regulation by checking the internal consistency of their completed interviews. The difference between literal and actual aware ness is best seen when viewed in the light of some of the reasons advanced by these interviewees for disap proving of the regulation. A suggestive, but not ex haustive, list of the possible reasons for disapproval of Regulation W by one who is aware of its objectives would be linked with any one or a combination of the following factors: (l) the regulation did not achieve its objectives; (2) inflation was not as serious as the government said it was, and hence, the regulation was not needed; and (3) while the regulation may have done some good, the harm it caused was more serious than any good it may have accomplished. Yet some interviewees who had shown literal knowledge of the objectives criticized the control, not for any of the above reasons, but because they said they did not need government controls to endorse safe lending standards in their business. They spoke of their long experience in the field and their ability to fix standards of safety, some of them producing graphic evidence of their firms' success in the consumer loan field. They asserted their own capability of 35 policing their own lending practices without government interference. This attitude is not indicative of an actual awareness of the objectives, despite a literal familiarity. Confusion with OPA price controls. There seemed to be a good deal of confusion among several of the interviewees, especially some of the smaller used-car dealers, as to the difference between Regulation W and OPA price controls. On several occasions statements were made that the regulation was intended to establish ceiling prices on automobiles. In some instances, in terviewees spoke about certain requirements of the regu lation that made it necessary for the dealer to place stickers on his automobiles bearing the maximum price at which the automobile could be sold. This was one of the requirements of price controls; Regulation W, how ever, had no such provision. While both of these government controls purported to accomplish the same objeetive-~to help combat inflation— they were admin istered by different agencies and their provisions were markedly dissimilar. In spite of these dissimilarities, several of the interviewees seemes unable to distinguish between them. Some of the interviewees complained that they 36 were deluged with government controls whose purposes, aims and mechanics were confusedly intermingled. Whether there was an absence of scrutiny by the businessmen, or whether the confusion was the result of an absence of effective communication by the government could not be ascertained. Probably, both of these factors were in volved in varying degrees. One thing, however, does seem clear. Many of the businessmen interviewed seemed to have no idea of the existence of a wide assortment of government regulations, each of which served differ ent purposes, although many of these regulations were constructed to implement broad economic programs, such as curbing inflation. It appeared that many of the — -'businessmen, while perhaps able to recall the provisions of Regulation W, were unable to think of it as an inde pendent control with specifically designated purposes and aims. While these interviewees may have had enough knowledge of the regulation to comply with its terms, it seems reasonable to infer that they did not have enough knowledge of the objectives of the regulation to appraise its merits in terms of what the objectives purported to accomplish. Without being aware that Regulation W was a discrete government control, these businessmen were unable to perceive the link between 37 Regulation ¥ and the achievement of its objectives. To them, the regulation may have meant only the abridge ment of business freedom. Similarity of the requirements of Regulation W and the requirements of accepted credit standards. Much of the confusion surrounding the objectives of Regula tion W , it would appear, stemmed from the fact that businessmen had interpreted the control as an attempt by government to fix safe credit standards in the in dustry. Prom the interviews conducted, it appeared that consumer instalment credit had grown to be an extremely important financing instrument in the hands of the busi nessmen interviewed. A few of the large commercial banks and finance companies had engaged in this type of financing for thirty or more years. However, some of these institutions admitted that they had an unfortunate experience with this type of loan during the depression and were forced to liquidate their consumer paper. While most of the used-car dealers were unable to give precise estimates of how important instalment credit had been to their sales volume, there seemed to be a unanimity of opinion that more than sixty per cent of all sales were made on an Instalment basis. All agreed 38 that instalment credit was the heart of a successful used-car operation. There was also a dismal side of the picture. Besides contributing a great deal to the phenomenal growth of the used-car industry, instalment credit had also been responsible for many business failures, if not properly administered. Interviewees mentioned numerous cases in which unwise credit practices had forced deal ers into insolvency and bankruptcy. The tendency was to regard instalment credit as a two-edged sword which, when properly used, meant a sound and growing organiza tion, but when improperly used, meant business fatality. Through their experience with consumer instal ment credit, these dealers had evolved certain standards and principles to guide their credit activities. For the sake of safety this had become essential. It had grown customary in the trade, when discounting contracts to the banks or finance companies, to guarantee the automobile purchaser's payment on the contract. This was known as "with recourse" discounting. In the event of a repossession, the dealer stood to lose the differ ence between the current market value of the automobile and the unpaid balance of the contract that had been discounted to ‘ the bank or finance company. Even in the 39 case of a few large dealers who did not need to discount, but were able to arrange different financial connections, repossessions were often very costly. Experience had taught that standards of safety in credit extension had to be followed. If the standards of safety that evolved out of the trade are juxtaposed to the requirements of Regula tion ¥, and the striking similarities noted, it will be seen that much of the confusion surrounding the objec tives of the regulation becomes understandable. The standards that had grown out of the trade were designed to promote safe lending practices. Since these require ments were remarkably similar to those of Regulation W, it became easy to think of the regulation in terms of promoting safe credit standards which, as has been seen, was not an original objective of the regulation. It is submitted that not only was this similarity responsible for much of the confused thinking regarding the objec tives of the regulation, but was responsible also for creating much of the controversy concerning the desir ability of those objectives. The two most important principles the trade had incorporated into Its credit practices were substantial down-payments and contract maturities, the latter seldom exceeding twenty-four months. The greater the down 40 payment and the shorter the contract maturity, the more sound the "risk." This came to be recognized as a uni versally accepted principle in automobile consumer fi-\b) nancing. The advent of Regulation W meant compulsory down-payments of at least one-third the purchase price of the automobile and contract maturities that generally averaged no more than eighteen months. And, were it not for one other element involved, it is doubtful whether the wave of controversy touched off by Regulation W would ever have occurred. Substantial down-payments and short contract maturities were principles widely known and accepted in the trade. Certainly, federal legislation that seemingly endorsed these terms would not meet with too much disapproval from the industry. Yet it did. The answer to this paradox lies in an in vestigation of the intense competitiveness character istic of the used-car industry, and the effect which Regulation W had on this competition. CHAPTER V ATTITUDES OF APPROVAL AND DISAPPROVAL BASED ON THE UNIFORM TERMS OF REGULATION W Regulation W had the effect of making uniform credit terms for the entire used-car industry. Regard less of size, each dealer had to require a one-third down-payment from the purchaser, and each dealer had to limit the contract maturity to the prevailing terms of the regulation. To have allowed different terms for dealers of different size would have given rise to charges of dis crimination and unfair treatment. To have adopted other proposals, such as limiting the aggregate amount of credit permissible for any dealer as based on past sales volumes, would have given rise to insurmountable admin istrative problems. Therefore, the government chose to make the requirements apply equally to all the dealers in the industry, as the most effective way of administer ing the regulation. The uniform terms of Regulation W was one of the factors largely responsible for the con flicting opinions and attitudes uncovered in the course of the present investigation. 42 Effect on competition. Many of the small and medium sized dealers interviewed regarded the uniform terms of Regulation ^ as a blessing for their business. As a result of the regulation, these smaller members of the industry no longer had to compete with the larger members in offering the most liberal credit terms to customers. The large used-car dealers, with well estab lished financial connections and ample reserves, had been able to extend more liberal financing terms to cus tomers than had the smaller dealers. These large deal ers widely publicized their ability to grant credit on terms to suit the need of any family budget. Even where this type of advertising was mostly fiction, it managed to attract many customers to the dealer's place of busi ness. The ability to grant and the capacity to adver tise liberal credit terms was one of the most effective competitive instruments in a highly competitive industry. The smaller dealers were neither able to grant terms as liberal as the larger dealers, nor were they able to advertise as extensively. As happened frequently, the smaller dealers were forced to discard transactions because down-payments were too low or because contract . maturities were too long to suit the requirements of the 43 discounting agency. The large dealers with strong fi nancial positions were able to consummate many of these same transactions. The smaller dealers lauded the uniform terms re quired by the regulation. The regulation made it un necessary to surrender sales to the larger dealers be cause of their inability to meet the credit terms offered by these larger dealers. Customers could be told that credit terms were no longer in the province of the dealers but had been fixed by the government. No longer would the smaller dealer need to watch Cus tomers by-pass his place of busine.ss, heading in the direction of those larger dealers who had been able to advertise low budget terms, many of whom, as the smaller dealers knew, were actually unable to sell on terms as liberal as they had advertised. Before Regulation W, some of the smaller dealers had attempted to manipulate their financing to meet the credit terms offered by the larger dealers. This prac tice had resulted in numerous business failures. As was seen in an earlier chapter, the terms fixed by Regula tion W were closely akin to those requirements of safety emerging from the industry. No longer would the smaller dealers need to risk possible bankruptcy by breaching those standards of safety because of the ability of some 44 of the larger dealers to do so with impunity. The uniform terms of Regulation W were a windfall to many of the smaller dealers. Many of them interviewed in this study were regretful that the regulation had since been allowed to lapse, and expressed great anxiety to see it reenacted. While the effect of the uniform terms of the regulation had been very beneficial for many of the smaller dealers, many of the larger dealers found this effect to have been very harmful to their business. I They asserted that they were forced to forego the use of their most powerful competitive weapon. They seemed to feel that they had been penalized by the regulation for having built up large financial reserves and for having developed superior credit judgment. These larger dealers contended that the effect of the regulation had been to render both of these attributes inoperative. Unpopular make automobiles♦ Some of the dealers interviewed said that a good portion of their sales « volume consisted in the sales of unpopular make auto mobiles, and that terms more liberal than those for the more popular makes of cars were needed to sell these less popular makes of ears. If they were not permitted to offer lower terms than the other dealers, they would 45 experience great difficulty in moving these ears from their inventories. These dealers vigorously protested Regulation ¥ because of its uniform terms. Regional price differences. Uncovered in the interviews was one objection to the regulation that was peculiar to West Coast dealers. Since automobiles are manufactured in the East, they must be shipped to the Western markets. The shipping charges on new cars fre quently run as high as $250 to $300. The used-car deal ers must, therefore, pay more for their inventories, and this cost must be passed on to the consumers. Thus, prices for automobiles, both new and used, are higher in the West than they are in the East. The terms of Regulation W were uniform throughout the country. Pur chasers of automobiles in the West would need to have more cash for the down-payment than would purchasers of the same automobile in the East. There would also be a greater outstanding balance for the contract originating in the West. This would mean a greater hard ship for buyers and sellers living on the West Coast because, these interviewees said, there was no substan tial evidence indicating that incomes were proportion ally that much higher on the West Coast. Hence, many of them expressed disapproval of the regulation because 46 it failed to provide for this regional price differ ence. Removal of personal relationship in lending. The effect of the uniform terms of Regulation W was not confined to the used-car dealers interviewed, but also had had an impact on the lending institutions inter viewed. During the interviews, officers of many of the banks and finance companies lashed out against the regu lation because, they said, it abolished the personal re lationship between borrower and lender which had long been considered the essence of successful consumer loans. Many of the officers spoke boastfully of their companies1 long record of success in consumer loans, a great part of which they attributed to the observance of sound credit principles and the ability to judge the personal credit risk of all applicants. When Regulation W was passed, these interviewees said, it was no longer possible for the financial insti tution to foster a personal relationship with its cus tomers. The terms of the regulation had received wide spread circulation, and prospective purchasers who were able to meet these terms felt that they were entitled to a loan. These bank and finance company officers indi cated that in many instances, despite the ability of the 47 applicant to meet the requirements of Regulation W, they would have preferred to reject the loan. They ex plained that, while under Regulation W they were not compelled to grant any loan, they did not find accept able, the extensive publication of the terms of the regulation led many applicants to believe that these were the terms sanctioned by the government. If the bank or finance company rejected_the loan, the applicant became disgruntled and pointed to his ability to meet the terms that had been promulgated by the government. He then expected an explanation of why the bank should turn down a loan that the government had endorsed as sound. This put the banks and finance companies in an awkward position. Any explanation that they might offer | would expose the institution to the odium of the appli cant. It was the opinion of these officers that the banks and finance companies were under pressure to grant | many loans which, in the absence of Regulation W, they could have rejected without incurring the ill-will of the applicant. On the other hand, these officers directed atten- I tion to the great number of applicants who, while unable to meet the requirements of Regulation ¥, were consid ered to be sound credit risks by the lending institution , and had to be turned down. This meant the loss of a 48 great source of revenue to the lending institution. This attitude was much the same as that of the larger used-car dealers who objected to the regulation because it curtailed their ability to grant credit on terms more liberal than their competition could meet. In both in stances, the uniform terms of Regulation W was held to be responsible for considerable loss of sales volume to the company. Another objection to Regulation W relating to its uniform terms was brought out by the bank and finance company officers. They said that many purchasers who could have paid all cash or normally would have paid in more cash than the minimum requirements of the regulation demanded were not inclined to do so. Although the re quirements fixed by Regulation W were minimum require ments, many purchasers interpreted them as meaning that the government had endorsed these terms as consti tuting safe credit margins. Despite their capacity to pay in more and pay off sooner, these purchasers in sisted on buying on the minimum terms set out in the regulation. Thus, instead of reducing the amount of consumer instalment credit, it was actually being in creased by the minimum terms fixed in the regulation. CHAPTER VI ATTITUDES OP APPROVAL AND DISAPPROVAL WITH REGARD TO REGULATION W AS A GOVERNMENT CONTROL A good deal of the controversy surrounding Regu lation W grew out of the fact that it was considered to be a case of government interference in an otherwise free market. While many of the interviewees raised no vocal objection to the regulation because it was pro mulgated by the government, but rather, praised the government for its foresight. There were also many in terviewees to whom the very suggestion of government controls seemed repugnant. Some chose to appraise the regulation on its merits, and some, despite what merits the regulation may have had for them, clung tenaciously to the deep-seated notion that government controls bode the destruction of free enterprise. The need for Regulation W. Some of the business men interviewed favored the regulation because they were in accord with the objectives which the regulation sought to achieve. They saw inflation as a real threat 50 to the stability of the economy, and indicated that it was imperative that steps be taken to combat the danger of runaway inflation. They made manifest their opinions that curbing inflation was a job for government. Al though they did indicate that they would have favored a program instituted by private business, such a program, they felt, would be extremely difficult to execute. It was felt that the intense competitiveness of most Ameri can private business would operate against the coopera tion needed for this type of program. The urgency of the situation was conceded to demand prompt attention. This group said that it would not have been wise to begin experimenting with plans proposed by private business. Regulation W was not considered to be an encroachment on free enterprise. Quite the contrary. This group regarded the regulation as an instrument designed to preserve this system. An unbridled Inflation was perceived as one of the greatest perils with which a free enterprise economy could be faced. According to this group, the function of govern ment in a free enterprise economy was to maintain the framework in which this system operates. When serious disequilibriums arose in the natural forces of supply and demand, It was incumbent upon government to provide remedies. Inflation meant such a disequilibrium, and they charged the government with the responsibility of attempting to restore the necessary short-run balance. For the most part, this group was impressed with the fact that the government acted to check inflation. Although some of the representatives in this group indi cated that certain defects in the regulation could have been adjusted, the opinions and attitudes to the regula tion as a government control were, as a whole, that it was a well-timed and well-administered regulation. Government controls inconsistent with free enter prise. Contrasted with the opinions and attitudes of the group just discussed are those of the group that denounced the regulation because it was a government control. This latter group was of the opinion that con trols such as Regulation ¥ are inconsistent with the concept of free enterprise and should be strictly con fined to periods of wartime emergency. None of the members of this group indicated that they were in favor of an inflation; they, too, regarded inflation as a great threat to the economy. However, this group felt that the government's power to impose controls on busi ness should be limited to wartime situations, and that any attempts to pass controls during peacetime should be prohibited. Most of the members of this group said that the government was justified in imposing Regulation ! W during World War II and at the outbreak of the Korean Conflict. But., with respect t© peacetime continuation of the regulation, they felt that the control was un warranted. The question was posed as to whether peace time inflation could constitute an emergency period in which the government would be warranted in imposing Regulation W. The response to this question was that the inflation would have to be far more serious than the one that followed World War II and the outbreak of the Korean Conflict. It was suggested that if the government waited i too long before they passed measures to curb inflation, the harm might be done before the control could be ef fective.' Assurances were given that this possibility was very remote, since most businessmen were capable of self-policing their own activities. Once the danger sign of inflation appeared, these businessmen would take steps to check the inflation before it reached dangerous proportions. The ability to self-police. When further ques tioned about their ability to act in the best interests of the country as a whole, this group indicated that i most present-day business concerns had taken a very ; 53 active interest in safeguarding the stability of the nation's economy. Extensive research facilities had been set up for this purpose, and management had been trained to be alert to all economic trends. Trade as sociations had been established to promote a greater interchange of information among the members about overall economic problems. Important economic data had been accumulated over a period of many years; fore casts and indices had been developed; and charts and graphs offered pictorial evidence of the trend of economic conditions. This group seemed to feel that there was little doubt as to their ability to police i the economy without government interference. If infla tion became a matter of great concern, they indicated that there would be a concerted effort by private business to act swiftly in stamping it out. Supply and demand. Contrary to the reasoning of I the group that endorsed the government's stand in pass ing Regulation W to help to restore equilibrium in sup ply and demand, the reasoning of this group was that government should not attempt to modify the forces of supply and demand. It was their contention that in time supply would catch up to demand and the threat of run- i away inflation would disappear. The important thing was 54 for government not to tamper with these forces; this adjustment would come about as a matter of course. According to this group, government controls regulating consumer credit would tend to make the manufacturers produce less, since fewer consumers would be able to buy. With less goods available for the consumer markets, in flationary pressures would grow stronger. But, in the absence of restrictions on consumer credit, the manu facturers would have incentive to produce more because there would be more consumers able to buy. They said the only solution to the problem of inflation is the increased production of goods. Regulation W had had the effect of restricting production rather than encour aging it. As a result, the regulation contributed toward intensifying the inflation. Violations. Many of the representatives inter viewed took the position that, since Regulation W had a restrictive effect on business, it would be evaded by both sellers and buyers. Loopholes would be found to render the regulation ineffective, and where loopholes could not be found, there would be outright violations of the regulation. Where violations were resorted to, to circumvent the regulation, the "smart operators" would escape detection, but the ordinary businessman 55 would probably be apprehended and be forced to suffer heavy penalties. As a case in point, the Prohibition laws were cited. Designed to outlaw the consumption of alcoholic beverages, these laws were abortive. People continued to drink not less than before, but probably more. Doctors, lawyers, businessmen, and many other respectable citizens simply ignored the law. Boot leggers became multi-millionaires, and a new industry grew up with gangsters and hoodlums at the reins. The upshot of Prohibition was that many unscrupulous persons became millionaires, and many basically honest people received prison sentences. This group felt that the analogy between Prohibition and Regulation W was perfect. Like Prohibition, Regulation W did not have the support of the people. Violations were widespread. Even the honest businessman had to violate the regulation in order to meet competition. The effect of Regulation W was to make criminals out of many honest businessmen. Discrimination against low-income groups. During the interviews, objections were frequently encountered that charged the regulation with being discriminatory against the low-income groups. The group making this accusation said that government controls, unless they applied equally to all groups, were in violation of 56 ; constitutional rights. The government had no authority to impose controls which created greater hardships for some groups than for others. Consumers in the lower in come groups who were in need of reliable cars for trans portation, but were unable to meet the terms required by Regulation W, were prevented from buying. The consumers with sufficient liquid reserves and incomes were not af fected by the regulation— they were free to make their purchases. But Regulation W denied the lower-income groups the right to purchase automobiles to satisfy their transportation needs. It was conceded that if the regulation applied only to luxury items, this charge ! of discrimination would be unfounded. But automobiles could not be classified as luxury items. The importance of automobiles was comparable to that of a home in which to live. Workers had to depend on their automobiles to transport them to and from their places of employment. Reliable transportation was as essential to workers, many of them World War II veterans, as the tools they used on their jobs. The consequence of Regulation W was to place the livelihood of some families in serious Jeopardy because the head of the family was unable to buy an automobile to reach his place of work. Although it was admitted j that Regulation W did not prevent the lower-income groups * 5 7 ; from buying all cars, it was emphasized that the cars they could buy were of inferior quality and could not be relied upon to provide safe and dependable transporta tion. In used-car parlance, these ears were known as "junkers." Their cost of maintenance was extremely high. Gas, oil, and repair expenses were inordinate. Automobile associations had shown that the mechanical defects of these cars were responsible for many traffic fatalities. Insurance companies had labeled them safety hazards, responsible for the increased premiums on policies. These representatives interviewed seriously ques- j tioned the desirability of a government regulation that prevented many people from buying needed transportation; that forced many people to buy inferior quality cars whose cost of upkeep was far more than for better quality cars; and that necessitated the use of cars whose life span had terminated and whose existence on the highways created a grave menace to the community and to the driver. Regulation W was aimed at curbing consumer ex penditures. This group said that it was folly to suppose [ that Regulation W was accomplishing this when the con- ! sumers forced to buy inferior cars were spending more money than they would, had they been allowed to buy newer j cars which would have provided reliable transporation 58 at a cost more reasonable than the haphazard transporta tion provided by the "junkers." Discrimination against the used-car industry. Complaints of discrimination were not confined to un fairness to consumers. There were many dealers inter viewed who said that Regulation W was unfair to the used-car industry. Generally, the terms of the regula tion were more rigid for the used-car industry than for the other industries affected. Where the regulation would require a one-third down-payment for used cars, only a fifteen to twenty per cent down-payment would be required for electric appliances or other household items. And at times, the maximum contract maturities for household items was longer than that permitted for used-cars. These dealers explained that consumers who were unable to meet the terms required for used car purchases would then buy household items. Instead of saving enough | cash to buy the used car, the consumers would rather buy a refrigerator or television set. It was difficult for people to accumulate money to buy cars when there were so many other items they wanted which were within easy reach of the family savings. The effect of Regulation W, i this group felt, was to send many people who were in the market for used cars into the market for household items , which they would not otherwise have purchased. 59 Incompetent administration. Some of the repre sentatives interviewed took exception to Regulation W because, they said, it was incompetently administered. While they admitted that there was merit in some plan to combat inflatipn, such a plan, unless it could be executed by private business, would not be desirable. For government, in spite of what may have been good in tentions, did not have enough competent personnel to administer such a program effectively. Many of the interviewees in this group cited in stances in which they had been called upon to submit records or reports to government agencies, such as the local federal reserve banks. At these meetings with government officials, these businessmen said that they had received poor impressions of the government person nel. Among a good many others mentioned, one of the frequent objections to the government personnel was their eagerness to assert, as this group called it, "petty authority." The government personnel were charged with being uncooperative and unable to see the businessman's side of things. Unfortunately, the major ity of them had not held responsible positions previously in the business world, and as a result of this they 60 demonstrated that they could not capably administer the government controls, such as Regulation W, according to these businessmen. In order to be effectively adminis tered, Regulation W would have to be administered by businessmen who could understand and sympathize with the positions of other businessmen, in the opinion of the interviewees. Threat to the American system of mass production. This group expressed the fear that Regulation W threat ened seriously to impair the American system of mass production. It was pointed out that consumer credit had played an immensely important role in the development of mass production methods and was still the life blood of this system. The availability of credit to consumers made it possible for them to make purchases in mass quan tities. The markets for the products of manufacturers were vastly expanded. Manufacturers were motivated to find ways of producing in great quantities to meet the increased demand of the consumers. This large-scale production led to the discovery of many cost-saving de vices, which meant that more goods could be produced at lower prices. At these lower prices, even more consum ers were able to enter the market. Before the use of consumer credit became wide- spread, there had been a considerable lag between the manufacture of the goods and the time at which the con sumer had accumulated enough cash to purchase the goods. The introduction of consumer credit made it possible to overcome this lag. Manufacturers had the assurance of a steady demand for their products, and they could esti mate with reasonable accuracy what their markets would be. This stimulated them to make additional investments in their enterprises, to expand their plant capacities, and to employ more workers. Armed with evidence showing good prospects for future profits, these manufacturers were able to sell their stocks and bonds more readily to investors. This group of interviewees felt that the placing of restrictions on consumer credit would be disastrous to the further growth of American industries. Incentives for expansion and development might disappear. It seemed-paradoxical to this group that Regulation W, which was designed to check an inflation, could be re sponsible for creating a condition even more dangerous than the inflation itself. Consumer credit had helped to make this country a model of industrial efficiency, and it had helped to give this country one of the world's highest standards of living. It was unthink able that the government should impose controls, like Regulation W, which conceivably could destroy something that had helped to make the country so great. CHAPTER VII SUMMARY AND CONCLUSIONS I. SUMMARY The purpose of the study. This study has pro ceeded on the assumption that government controls, to be effective, must receive voluntary compliance from those covered by the controls. This voluntary compli ance can be achieved best in a climate of public aware ness of and conversance with the objectives of the controls. Ignorance and apathy breed a condition that operates against the cooperation needed for the success ful prosecution of the objectives of government controls. It is antithetic to the democratic concept that such ignorance and apathy with respect to government controls be allowed to persist. The test of government controls in a democratic society is the power of those controls to gain acceptance in the trade, in an informed and articulate market. Regulation ¥ was a control invoked by the American government to help to check inflation. It managed to 64 provoke a good deal of controversy among business groups. It was the purpose of this study to determine (1) whether the members of a selected business group were familiar with the objectives of Regulation W, and (2) whether the reasons for the unpopularity of the regulation appeared to be founded on logical or illogi cal complaints. If Regulation W is subsequently to be reinstated, then the logical complaints can be consid ered as a basis for possible revision of the enactment. And by focusing attention on the illogical complaints, it will conceivably be possible to promote a spirit of closer cooperation with the regulation through better communication. Methods and techniques. Used^ear dealer com panies, of varying sizes, and banks and finance com panies were chosen as the business groups to be inter viewed. Both of these groups were vitally concerned <r with the regulation. But they did provide a sharp con trast in the sense that used-car dealers are, as a rule, rather loosely organized in their trade associations, while banks and finance companies are, as a rule, ex tremely well organized. As a result, the opinions and attitudes of the used-car dealers are comparatively free of the influence of trade associations and professional 6 5 ! research staffs, while the opinions and attitudes of banking and finance company officials are largely shaped by these forces. All interviews were conducted in person, and a prepared questionnaire was used. However, this question naire was used chiefly as a guide to insure the continu- t ity of the interviews. Much in evidence was the need of ! personal judgment to extract the real opinions and atti tudes of the businessmen. Questions had to be adapted to the tenor of the interview. Collateral remarks of the businessmen could not be ignored; they sometimes provided valuable clues of how the businessman actually felt about a given point. Interviewees1 awareness of the objectives of Regulation W. Varying degrees of awareness of the regulation's objectives were displayed during the inter views. Some of the businessmen seemed to lack even the vaguest notion of what Regulation W purported to accom plish while some of the others demonstrated great in sight into the objectives. It appeared, however, that in some instances what seemed to be verbal reproductions } of the objectives turned out to be but an adumbration of the objectives of the regulation. Some of the businessmen confessed that they had not troubled to find out what the regulation sought to accomplish. To.them, the regulation was just another control for which the government must have had some reason. Some of the businessmen protested that they did not have enough time to carefully examine and ap praise all the controls that government enacted. They said that they had to rely on the information they heard from their trade associations and business acquaintances, and that there seemed to be a paucity of such information concerning Regulation W. Frequently, the objection was encountered that government controls were couched in obscure language, and the objectives could not be deter mined clearly. There appeared to be a good deal of confusion among some of the businessmen concerning the difference between Regulation W and OPA price controls. While similar in character, these two controls differed mark edly in their requirements and administration. The complaint was often heard that government controls were extremely difficult to interpret beeause the government was remiss in offering adequate explanations and instruc tions on how the controls operated and what good they accomplished. The similarity between the requirements of 67 Regulation W and the requirements of accepted credit standards was responsible for much of the confusion con cerning the objectives of the control. Many of the used-car dealers indicated that they thought Regulation W was imposed for the purpose of establishing safe cred it standards in the industry. Even some of the officers of the banks and finance companies, in spite of a lit eral knowledge of the objectives, did not seem able to dismiss this similarity from their thinking. References i were constantly made to the government's attempt to in stitute safe credit practices in the industry, although this objective was not within the purview of the regula tions. It appears that the adoption of acceptable credit standards for the used-car industry long has been a problem of major concern to the dealers. Some of the dealers apparently would regard government action in this area as most welcome, while others would regard it as an anathema. At any rate, the importance of this problem has been such as to color the opinions and atti tudes of the dealers with regard to other issues, such as Regulation W. While it is beyond the scope of this study to examine the merits of proposed government legislation aimed at fixing acceptable credit standards for the industry, it would be interesting to read the 68 contents of a study made for this purpose. The uniform terms of Regulation W. One of the two broad areas into which the objections to Regulation W fell was that of the uniform terms required by the control. Each dealer, regardless of size, was required to accept a one-third down payment on the purchase of automobiles and to limit the contract maturity to the prevailing terms of the regulation. No exceptions were made for dealers either regionally or individually. The large dealers with strong financial positions were forced to abide by the same terms as were applied to the small dealers, even though the large dealers would have been able to grant credit on terms much more lib eral than the regulation allowed. West Coast dealers were compelled to observe the same terras as were East Coast dealers, even though the prices for automobiles were from $250 to $300 higher on the West Coast than on the East. The small dealers found Regulation W much to their liking. No longer were they forced to surrender sales to the larger dealers who could extend credit on contracts which the banks and finance companies would not accept for discount from the small dealers. It would no longer be possible for the large dealers to 69 j lure customers to their place of business on the strength of easy credit terms. Because of the uniform terms of Regulation W, many of the smaller dealers were placed on ; almost an equal competitive footing with the larger dealers. Conversely, the large dealers vigorously pro tested Regulation W because it rendered useless one of their most important competitive weapons. They felt that they had been penalized by the regulation for hav ing built up strong financial positions, and for having developed superior credit judgment. Some of the dealers accused the regulation of working a hardship on them, complaining that it made difficult the sale of unpopular make ears. To compete with the sale of the popular make ears it was necessary to offer more liberal credit terms on the unpopular make cars. Similarly, some of the dealers asserted that the regulation worked a hardship on the West Coast dealers because incomes were not proportionately that much higher on the West Coast to offset the difference in the prices of automobiles there. Some of the banks and finance companies objected to the regulation because it removed the personal rela tionship of lending. The terms of the regulation had received widespread circulation, and people able to meet 70 these terms felt entitled to receive loans. Even though the hanks and finance companies would have preferred to reject many of these loans, they could not do so without arousing the antagonism of the customer. In addition, the complaint was encountered that many other wise cash or heavy-equity buyers interpreted the require ments of the regulation as an endorsement by the govern ment and purchased on the basis of the minimum down payment and maximum contract maturity allowed by the regulation. Regulation W and free enterprise. The other broad area into which the complaints against the regu lation fell was that of its threat to free enterprise. Many of the businessmen Interviewed regarded the regu lation as an encroachment on free enterprise. While anxious to see that something be done about the infla tion, they felt that the necessary measures should come from outside government. They indicated that private business was perfectly capable of policing its own activities without government interference. It was submitted that private business could have instituted anti-inflation programs which would have been far more efficient than those of the government. It was contended that the very unpopularity of government controls induced violations. The result of 71 these violations was that the clever businessman es caped punishment while the not-so-clever businessman was apprehended and made to seem a criminal. Further more , the incompetent administration of government controls exacerbated the anger of the public, bringing about even more violations of the regulation. There was a deep-seated notion on the part of many of the businessmen that any government action af fecting the forces of supply and demand was inconsistent with free enterprise. It was asserted that Regulation W, instead of restoring the balance between supply and de mand, was actually aggravating the disequilibrium. With fewer purchasers able to enter the market due to the restrictions on consumer credit, manufacturers were in clined to produce less. But in the absence of restric tions on consumer credit, the manufacturers would have added incentive to produce more. It was felt that in a free enterprise economy the forces of supply and de mand should be immune from government interference, and that Regulation W constituted such an interference. Moreover, the businessman made clear that con sumer credit had played a major role in building this country's system of mass production. Government re strictions on consumer credit posed a serious threat to the continuance of this system. It was further 72 ! pointed out that such restrictions could paralyze the whole economy, destroying the many advantages consumer credit had made possible. An objection frequently encountered was that Regulation W discriminated against the low-lneome groups. By placing restrictions on consumer credit, the govern ment prevented them from buying much-needed transporta tion. Instead of being able to buy reliable automobiles, ! the people in the low-income groups were forced to buy inferior quality automobiles whose cost of maintenance was prohibitive and whose danger of accidents was very great. However, those who had the money to pay cash or to meet the terms of the regulation were free to buy the more economical and reliable automobiles. It was felt that a disproportionate burden of the regulation fell on the lower-income groups. Complaints of discrimination were not confined to buyers. Many of the dealers felt that the regulation discriminated against them. They said that potential : customers who did not have the cash or earning power to meet the terms of the regulation left the market for 1 used cars and entered the market for other consumer items.; Instead of saving the required amount of cash they would need to buy a used car, these people would buy refriger- j ? ; ators, washing machines, or other household items which they could afford. Since the regulation's requirements for household appliances were at times more liberal than for used cars, it was felt that this shifting of consumer purchases was accelerated. II. CONCLUSIONS An analysis of the objections based on the uniform! terms of Regulation W. The first group of objections to be analyzed are those which arose out of the uniform terms of Regulation W. ^Common among all these objections is the fact that they were not directed against the merits of the regulation, but rathen^against the effect of the regulation on the particular groups involved.”! ' *3v®a There is little doubt that the larger used-car dealers were divested of a valuable competitive instrument. There seems to be much validity to their argument that the regulation penalized their credit efficiency. There ! is also much to be said for the argument of the dealers whose sales volume consisted largely of unpopular make cars. They appear to have suffered a hardship in sell ing their inventory on equal terms with the more popular j cars. With respect to the allegation that the regula tion worked a hardship on the West Coast dealers, some ! 7^ doubt arises. While it is true that the prices of automobiles are higher on the West Coast, there is also the fact that incomes are higher. Before lower terms for the West Coast would be justified, it would have to be shown that while incomes are proportionately higher on the West Coast, they are not so high as to absorb the higher prices of automobiles without hard ship. This would involve considerable research and statistical compilation, in the absence of which no conclusive answer can be presumed. No such evidence was given during the interviews. Hence, final judgment as to the validity of this argument must hang in abey ance. To say that Regulation W abolished the personal relationship of lending seems a rather tenuous argument against the regulation. While Regulation W did require that certain terms be met, the banks and finance com panies were still free to reject any loan application notwithstanding compliance with the terms of the regula tion. But the banks and finance companies complained that when they rejected loans that had complied with the requirements of the regulation, they incurred the ill- will of the applicant. This cannot be doubted. But it would seem more accurate to say that most of the loan rejections made by the banks and finance companies are 75 never cordially received by the applicants, and are always likely to expose the institution to some bad public relations. There seems to be much more validity to the argu ment of the banks and finance companies that Regulation W prevented them from making many loans which they consid ered sound, but whiqh did not meet the requirements of the regulation. Here, again, as in the case of the large used-car dealers, these financial institutions appear to have been Justified in protesting the regula tion because it handicapped sound credit Judgment and strong financial condition. There may be some merit to the contention that Regulation W induced some otherwise cash and heavy- equity buyers to pay only the minimum down-payment and to carry the balance for the maximum period. However, the likelihood of the regulation being widely construed as a government endorsement of its terms for safe credit margins seems remote. Also to be considered is the fact that many cash and heavy-equity buyers are con cerned with saving interest charges, despite what may be considered safe credit margins. By and large, the above objections to Regulation W appear to be logical. Whether they present enough evidence of hardship to offset the benefits provided by 76 the regulation in checking inflation is not known. It is submitted that a study aimed in this direction would be interesting and helpful. But one thing does seem clear. Regulation W would have met with much greater popular support if those objections could have been eliminated. Two plans have been suggested for remavljj^iBajnv^ * of these objections. One is the limiting of the aggre- gate amount of credit of the individual firm, and the other is the setting of maximum terms at the average of credit terms. Nonetheless, there is a probability that the adoption of either one or both of these plans would give rise to other objections. Besides, these plans would entail considerable administrative problems, such as could render Regulation W less useful, especially as an emergency measure. An analysis of the objections to Regulation W as a . government control. The second group of objections to be evaluated are those which attacked the regulation primarily because it was promulgated by the government. Contrasted with the first group, these objections im pugned the desirability of having an anti-inflation program administered by government at the expense of imperiling the free enterprise economy. Whether govern- ment or private business is best for carrying out a program like Regulation W is a hoary problem. However, it is submitted that the contention of several of the businessmen interviewed that they are capable of self policing the economy with regard to inflation is ques tionable. Effectively to stamp out inflation, a con certed effort on the part of the businessmen would be needed. In addition, curbing inflation pursuant to a program such as Regulation W would mean the voluntary surrender of at least some sales volume. The intense competitiveness characteristic of most American private business would very likely make the cooperation needed for this type of program very difficult to obtain. Since inflation, such as followed the postwar period, was of emergency proportions, it was imperative that immediate action be taken. It is hard to think of private business without government action as being able to supply an effective program. The objection that Regulation W made criminals out of many basically honest men is exceedingly tenuous Those who violated Regulation W did so for their own business gain5 they were under no compulsion to break the law. They were aware of the consequences when they violated the regulation and should have been prepared 78 to suffer the penalty for their actions. Furthermore, there may undoubtedly have been some incompetent per sonnel connected with the administration of Regulation ¥.j But to say that the regulation should have been abolished| because of these two reasons would be as absurd as to say that all the criminal statutes and law enforcement agencies of the country should be abolished because people will violate the law anyway and some lay enforce ment officers are incompetent. There appears to be little merit to the complaint I that Regulation W tended to hamper mass production. By definition, inflation is a situation in which production 5 of goods is inadequate to meet the demand for goods. Regulation W did not prevent so many people from buying that surpluses of goods arose. Manufacturers and mer chants experienced no trouble in selling under the regu lation. As a matter of fact, the country was witnessing an unprecedented business prosperity during most of the existence of the regulation. Reguation W was only a temporary measure. When it appeared that consumer dur able inventories were beginning to accumulate, the terms of the regulation were successively liberalized, and when it appeared that business was headed for a slump, the regulation was completely suspended. As for those i who contended that, if left alone, the forces of supply 79 and demand would have eventually balanced themselves, there is the possibility that, if left alone, the forces of supply and demand never may have had the chance to balance themselves. There is every reason to believe that the inflation may have continued unabated until it developed into a debacle. It is difficult to see how manufacturers would have had more incentive to produce in the absence of Regulation W, when they could not produce enough with the regulation in effect. It does not seem logical to hold that Regulation W discriminated against the low-income groups because they were kept out of the market while the high-income groups were free to enter the market. First of all, the low-income groups were not kept out of the market; they were still able to buy automobiles to satisfy their transportation needs in most instances. But they were kept from further bidding up the prices of the automo biles by the use of excessive consumer credit. It seems reasonable to suppose that the low-income groups are just as much or more affected by inflation as the high- income groups. Such is the power of money that those who possess it are always able to buy. Unfortunately, the curse of the poor is their poverty; easier credit terms will not change this. In the absence of Regula- _ tion W, it is submitted that the low-income groups 80 would not have been able to buy more automobiles, but only to contribute toward bidding up their prices. There is much to be said for the contention that Regulation W was not completely successful in its at tempt to help combat inflation. Consumers who did not have enough cash to meet the down-payment requirements for high priced items, such as automobiles, did not always refrain from purchasing altogether. Instead of consumer durables, there were consumer soft-goods to buy. Instead of the higher-priced automobiles, there were the lower-priced household appliances to buy. Un doubtedly, Regulation W was responsible for helping to shift the demand for goods of one industry to the goods of another industry. But to say that the regulation discriminated against the used-car industry because the terms for used cars were higher than for household ap pliances is quite another matter. Regulation ¥ was concerned with checking an inflation. It sought to achieve this objective in the most effective yet con venient way possible. Since the great bulk of consumer credit originated with the purchase of automobiles, it seemed reasonable that this area of the market should be restricted the most. When it appeared that restric- i tions in other areas of the market could be relaxed without impairing the effectiveness of the regulation, these restrictions were removed. For the most part, the requirements of the regulation for automobiles and household appliances were the same. When it became possible to relax the requirements of the regulation somewhat, the requirements for the purchase of household appliances were made less rigid, since this was a rela tively less important area in the consumer market than were automobiles. Because liberalizations in the terms of the regulation with respect to automobiles might have weakened the anti-inflation program did not mean that • these liberalizations in terms could not be made in other relatively less important areas of the consumer market where the program would not have been weakened. It is submitted that such claims of discrimination as were based on the disparity of terms in the used-car market and the household market were without justifica tion. The need for better communication and education. To promote greater cooperation with government controls, ! such as Regulation W, the emphasis must be placed on securing voluntary compliance. To achieve this, the objectives of the regulation must be communicated to the businessmen. As was shown in this study, several of the businessmen interviewed had little or no percep- 82 tion of the objectives of Regulation W. Others who had some idea of what the regulation purported to ac complish displayed very little understanding of the fundamental economic theories upon which the regulation was predicated. Just a little information about some of its basic economic concepts might have dissipated many of the specious arguments encountered in the inter views, arguments which impeded voluntary compliance with the regulation. Since the Federal Reserve Board was charged with the responsibility of administering Regulation W, it seems reasonable that this body should also be respon sible for improving the businessman's understanding of it. More particularly, it is suggested that there be one member of the board whose primary duty is that of public communication and education. It is outside the scope of this study to explore the different channels through which this information can be funneled. But it would seem that the commercial banking system would provide an excellent medium for circulating information among the business community. The value of establishing a strong link between the government agencies charged with administering regu lations and the public charged with obeying them cannot 83 be overemphasized. In the final analysis, the success or failure of any government regulation hinges upon the public's willingness to accept or reject it. With out adequate understanding by the public of the objec tives and operation of a regulation, the regulation will have only a gossamer chance of achieving its aim. B I B L I O G R A P H Y BIBLIOGRAPHY Board of Governors of the Federal Reserve System, Consumer Credit: Regulation W, as Amended to July 31* l95l* Washington, D.C.: United sTiates Government Printing Office, 1952. 22 pp. Cox, Reavis> The Economics of Instalment Buying♦ New York: The Ronald Press Company, 1948. 526 pp. Harberler, Gottfried, Consumer Instalment Credit and Economic Fluctuations. New York: TheNational Bureau of Economic Research, 1942. 239 PP» Mors, Wallace, Consumer Credit Theories.. Chicago: The University of Chicago Press, 1944. 74 pp. Nugent, Rolf, Consumer Credit and Economic Stability. New York: Russell Sage Foundation, 1939* 420 pp. j Nugent, Rolf, and Leon Henderson, "Instalment Selling and the Consumer: A Brief for Regulation," 193* Annals of the American Academy of Political and Social Science, May, 1943* PP» 5T3-103. Parry, Carl E., Conference on Consumer Credit in the National Emergency: Proceedings, November, 1941. BO pp. Reid, Margaret, Consumers and the Market. New York: F. S. Crofts and Company, 19387 584 pp. on,v«BMC¥ m sowthana QmIfSania

Asset Metadata

Creator Brown, Eugene Merrill (author)

Core Title An investigation of the opinions and attitudes of selected business groups in the Los Angeles area toward Regulation W

Contributor Digitized by ProQuest (provenance)

Degree Master of Business Administration

Degree Program Finance

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag business administration, general,OAI-PMH Harvest

Language English

Advisor Martin, G. Preston (committee chair), Barnholdt, Robert L. (committee member), Wait, William B. (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c20-129572

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Rights Brown, Eugene Merrill

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