Vanderbilt Law Review


James J. White

First Page



It is always more interesting to challenge the received wisdom than to defend it. Yet in this case, a careful analysis of the facile assertions about the expansion of credit by the granting of security and about the other presumed efficiencies of security produces arguments and evidence that strengthen rather than weaken the efficiency arguments. In the first place, it appears that the granting of security does in fact expand the credit granted to risky debtors and thus that any efficiency equation must consider the probable benefits of such expansion. Second, a close examination of the actual experience not only of consumer lenders but also of business lenders in bankruptcy indicates that our basic assumption about the relationship between the presence of secured credit and the reduction of the value of the unsecured creditors' claims may be inaccurate. If the improvement of the creditor's position by granting security carries with it no corresponding reduction in the status of other unsecured creditors, the basic challenge to the efficiency of security is undermined. Finally one must consider the alternatives that would prevail in a society that nominally prohibited personal property security. I suggest that less efficient security substitutes such as leasing and factoring would grow up and that we would be left with most of the inefficiencies inherent in those security substitutes. While I concede that I have not proven security to be efficient, a careful consideration of the arguments and evidence set out above makes security's efficiency more likely than the critics have suggested. Dismal as such a prospect is, the facile assertions about the efficiency of security may be accurate.