It will be seen that the three classes of business are fairly distinct and require different treatment; yet they shade off into one another by almost imperceptible gradations. The first two classes belong in an altogether different category from the third; and yet what I have called the low-grade business and the "fake" business are so interwoven, both often being carried on by the same man, that it will sometimes be difficult to see the lines of distinction. Nevertheless these lines exist. To avoid all possibility of misunderstanding, let it be said once and for all that both the high and the low-grade business, while of extremely doubtful social utility in my judgment, are none the less legitimate forms of business enterprise. The "fake" business, on the other hand, is economically, socially, legally and morally vicious. It has no more claim than has highway robbery to be considered legitimate business.

The characteristic feature of all instalment sales is that title to the property remains in the vender until the full purchase price has been paid, or else title passes and is immediately re-transferred to the vender in the shape of a chattel mortgage.* It is this separation of title and property which has been the occasion of all the grave abuses that have arisen. Under the New York law, if there is default in payment, the vender is entitled to recover his property without repaying any part of the instalment already paid. In case the return of the property be refused, he may begin an action for conversion. If he obtains judgment, he gets an execution against the property, and failing the satisfaction of that, an execution against the person of the debtor, who may thus be thrown into jail. These provisions of the law may be found in Articles 1240, 1487 and 549 of the New York Civil Code. The statute is of course intended to provide means of recourse against fraudulent debtors, but it is at present used principally as a means of extortion by fraudulent creditors, a fact that will later be demonstrated. It is sufficient here to point out the simple legal provisions upon which the whole "fake" business, by an ingenious system of perjury and corruption, has been built up.

II.

THE HIGH-GRADE BUSINESS.

Beginning the actual work of description, let us first turn to the legitimate high-grade business. It was begun in New York shortly after the year 1807 by the founder of the present great

*The contract which the buyer has to sign is really remarkable for the completeness with which he signs away all possible rights, except the one of gaining title to the property when it is completely paid for. The contract can be found on page 39 of the Appendix.

house of Cowperthwait & Sons, which has continued a career of unbroken prosperity, and maintained a reputation for honesty and fair-dealing from that day to this. Besides this house, which does a business of half a million dollars a year, a number of younger firms of more or less similar character have grown up, of which Ludwig, Bauman & Co., and Jordan, Moriarty & Co., are the best known. All these great concerns do chiefly an instalment business in the same general lines, furniture, carpets, bedding-in short, "everything for housekeeping." It is a well-known fact, also, that almost every furniture house in the city will sell goods on what is practically the instalment plan, though they do not so advertise, and though their terms of credit are somewhat less liberal than those of the avowed instalment houses. The goods sold are of course largely of the medium and cheaper grades. Sales vary in amount all the way from five dollars to as many thousand, the average account being from $75 to $100.

While the methods of conducting the business vary considerably from one firm to another, and even as between various customers of the same firm, yet in general it may be said that the methods of all the great houses are similar, and are quite remarkable in the sagacity they display and the good results they have to show. In the first place, the dealers are very careful, as indeed they are obliged to be, in the selection of customers. Some firms will not do business at all in certain parts of the city, one house for example refusing all trade east of the Bowery. Again, men employed in certain occupations known to be conductive to financial irresponsibility are likewise refused credit. Some racial distinctions are observed; negroes, for instance, are declined as customers by some concerns. So one might go on detailing the rules of credit which the experience of half and three-quarters of a century has slowly developed. In general, they are directed toward making sales only to responsible people in receipt of a fairly regular income. Accordingly, the manager of one of the largest houses states that 90 per cent. of their customers are wage-earners or men on a salary, the remaining 10 per cent. being small business people. These suggestions perhaps indicate sufficiently well the methods of selecting customers and the class of trade thereby secured.

The contract generally takes the form of a lease or a chattel mortgage, the seller in any case having the right to recover the goods in case of default, as already pointed out, without returning any part of the instalments already paid in. With the best firms, a deposit of at least 10 per cent. on sales is generally required. Thus the maximum period of credit is eighteen months,

but by reason of failure to make payments on time, accounts frequently run much longer. Ten per cent. discount is allowed for cash. Payments are made either at the office of the seller or to his authorized collector, and disputes concerning payments are rare. Owing to the care used in selecting customers, losses from dishonesty are surprisingly uncommon. The manager previously referred to states that their losses from that source do not amount to $500 a year, and that 95 per cent. of their accounts are paid in full. This is without question, however, an unusually good showing.

According to the unanimous testimony of dealers, customers and charity workers who have had opportunity to become familiar with their operations, the great dealers are on the whole remarkably lenient with delinquent customers. They exhaust all other possibilities before taking back goods, and do this as they have frequently stated, not in any large degeee from philanthropic motives, but purely as a matter of business. They find it to their advantage to keep a reputation for liberality and fairness, even at the expense of an occasional small monetary loss. Accordingly, in case a customer has been unfortunate and cannot complete his payments, it is no unusual thing for them to present him with a receipted bill, provided a large proportion of the agreed price has been paid. Even if obliged to take back goods, they often leave enough to cover a large part of the money already paid in. Only in cases of dishonesty, so far as I have been able to learn, are these large dealers severe in their treatment of customers; in such cases, likewise as a matter of business, they naturally make full use of the wide powers which the New York law gives them. Nearly all difficulties with customers are settled out of court, about the only resort to legal process being occasional replevin suits instituted for the purpose of recovering goods placed in storage. The imprisonment of debtors on the charge of conversion is practically unknown. The dealers are unanimous in testifying that the abolition of the body execution would make no difference at all to them.

House-furnishings, sewing-machines, books and pianos are the main lines of what I have called the high-grade instalment business*. It should not be supposed, however, that the list of instalment trades is by any means exhausted, for it would be hard to name anything that cannot be purchased on this system in New York to-day. If a man would have his clothes made to order for a dollar a week, he has only to repair to a tailoring firm on lower Broadway, and his wish will be grati

For details concerning the sewing-machine, book and piano trade see page 40 of Appendix.

fied. Indeed, one may buy a house and furnish it from top to bottom with every article of necessity, convenience and luxury he desires; he may clothe himself and his family; he may deck himself with jewelry and all sorts of articles of adornment; he may go abroad, and having seen Paris, he may die and be buried-all on the instalment plan. And all this is no mere pleasantry, but sober fact.

By way of brief summary it may be said that the highgrade instalment trade, as carried on by the great dealers of the city, is essentially only a rather unusual extension of credit in lines of goods which, because of durability and non-portability, are well adapted to credit sales. It was called into existence by the merchant's desire to extend his trade among a class of the community who wished to have the use of articles for which they could not pay cash. It is ordinarily carried on by responsible dealers and responsible purchasers. While specific instances of hardship and unfairness may be found, the same will prove true in any business. It is certainly due the great instalment houses to say that their business is fairly and honorably conducted, as it would be said of any reputable and established house doing business on a cash basis. As their trade is carried on chiefly with people living on small incomes, it is claimed by the dealers that they are performing a valuable social service in enabling a large number of persons to furnish their homes who could not otherwise do so. Though it is a matter worthy of careful study, it does not fall within the scope of this report to trace these general social and economic effects of buying on the instalment plan. Suffice it to say that the prices charged are necessarily high, and that the encouragement which the plan affords to the careless incurring of debt, and the tendency to careless treatment of the things purchased because of the lack of any feeling of real ownership-these two influences making against thrift-more than offset, in the opinion of some who have had special opportunity of knowing the facts, any advantage derived from the opportunity given the poor man to furnish his own home.

Conducted in such a fair manner, the high-grade instalment business has not led to serious abuses. But just in so far as a lower class of dealers has entered the business, or in so far as the trade has been extended to a poorer, weaker, or less responsible class of buyers, the dealer's methods have become more severe, and cases of injustice, hardship and loss have become more common. The business illustrates clearly the fact that a successful system of credit must rest on a basis of responsibility, honesty and business training in both creditor and debtor.

III.

THE LOW-GRADE BUSINESS.

The low-grade business, the parent of the "fake" business, must next be described. The most striking peculiarity distinguishing it from the high-grade is, that it is carried on wholly by means of peddlers, who either act as "pullers-in" or else carry the goods about from house to house.* Furthermore, the business is done by a large number of small dealers, instead of a comparatively few large ones. Again, they sell chiefly to persons who are poor, and their trade is pretty largely confined to the lower East Side, the district which is tabu to some of the great dealers. Their methods are copied after those of the large dealers, but necessarily involve more severity, because they deal with a less responsible class of customers, and are themselves of a lower grade of business training and ethics. It will be unnecessary to repeat concerning them what has already been said of the high-grade houses. It is sufficient to point out more carefully the lines of distinction. Furthermore, it must be remembered that the "fake" business has sprung up as an excrescence on this low-grade business, and that the "fake" dealers constitute a small sub-group within the lowgrade dealers. The remarkable complexity of the business, the mixture of legitimate and illegitimate, render description peculiarly difficult. From the separate description of the two it must not be imagined that they are carried on separately, or by distinct groups of men.

It is estimated that the low-grade dealers number 200 men and employ from 5,000 to 10,000 peddlers. (One enthusiastic statistician puts the number of peddlers at 50,000.) All these figures are worthless, except as mere guesses. The approximate number of dealers might be ascertained by an amount of work altogether disproportionate to the value of the result, but no means exists for getting at the number of peddlers, even approximately. An understanding of the nature of the peddler business is essential, however, if one would understand the East Side. instalment trade.

The peddlers are of three classes: Custom peddlers, instalment peddlers proper, and peddler dealers. The so-called custom peddlers do business for themselves but have no shops. They are said to number not less than 500 men, and to have been

* For description of goods handled by low-grade dealers see Appendix, page 42.