Some aspects of durable consumer goods financing and investment fluctuations

Paper presented at a Round Table Conference of the American Economic Association at Atlantic City, December 30, 1937. The financing of durable goods of non-productive character may be considered to include a minor part of public construction activity, the financing of private residential building, and installment financing. The second of these appears to be responsible for major fluctuations of long duration and extreme intensity. These fluctuations disturb other phases of the capital market and account for much of the instability in interest rates other than that produced by war conditions. Periods of war disturbance, changes in the rate of urban population growth, and the extent of population movement, are important factors in initiating substantial expansion in the field of private non-productive construction. For many years the financing of a large fraction of this activity has been based upon narrow equities, lack of proper amortization of loans, speculative recklessness, all contributing toward the accumulation of more debt than could be discharged from income. The periodic breakdown of the process ap. pears to have had some relation to the average term of home mortgage loans. These breakdowns have exerted a cumulative effect, and by destroying values and the incentive for building activity, have contributed to general curtailment of income, business depres-sion, and financial liquidation. The major fluctuations in the general financial situation can be explained in large measure by the cyclical tendencies in housing construction and finance as practised in the past in this country.