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Jeremy Bentham:Defence of Usury(一)

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Defence of Usury



by Jeremy Bentham



1787







Defence of Usury; Shewing the Impolity of the Present Legal



Restraints on the Terms of Pecuniary Bargains In a Series of



Letters to a Friend To Which is Added A Letter to Adam Smith,



Esq; LL.D. On the Discouragements opposed by the above Restraints



to the Progress of Inventive Industry



1787





LETTER I. Introduction



      Crichoff, in White Russia, January 1787





  Among the various species or modifications of liberty, of



which on different occasions we have heard so much in England, I



do not recollect ever seeing any thing yet offered in behalf of



the liberty of making one's own terms in money-bargains. From so



general and universal a neglect, it is an old notion of mine, as



you well know, that this meek and unassuming species of liberty



has been suffering much injustice.



  A fancy has taken me, just now, to trouble you with my



reasons: which, if you think them capable of answering any good



purpose, you may forward to the press: or in the other case, what



will give you less trouble, to the fire.



  In a word, the proposition I have been accustomed to lay down



to myself on this subject is the following one, viz. that no man



of ripe years and of sound mind, acting freely, and with his eyes



open, ought to be hindered, with a view to his advantage, from



making such bargain, in the way of obtaining money, as he thinks



fit: nor, (what is a necessary consequence) any body hindered



from supplying him, upon any terms he thinks proper to accede to.



  This proposition, were it to be received, would level, you



see, at one stroke, all the barriers which law, either statute or



common, have in their united wisdom set up, either against the



crying sin of Usury, or against the hard-named and



little-heard-of practice of Champerty; to which we must also add



a portion of the multifarious, and as little heard-of offence, of



Maintenance.



  On this occasion, were it any individual antagonist I had to



deal with, my part would be a smooth and easy one. "You, who



fetter contracts; you, who lay restraints on the liberty of man,



it is for you" (I should say) "to assign a reason for your doing



so." That contracts in general ought to be observed, is a rule,



the propriety of which, no man was ever yet found wrong-headed



enough to deny: if this case is one of the exceptions (for some



doubtless there are) which the safety and welfare of every



society require should be taken out of that general rule, in this



case. as in all those others, it lies upon him, who alledges the



necessity of the exception, to produce a reason for it.



  This, I say, would be a short and very easy method with an



individual: but, as the world has no mouth of its own to plead



by, no certain attorney by which it can "come and defend this



force and injury," I must even find arguments for it at a



venture, and ransack my own imagination for such phantoms as I



can find to fight with.



  In favour of the restraints opposed to the species of liberty



I contend for, I can imagine but five arguments.



  1. Prevention of usury.



  2. Prevention of prodigality.



  3. Protection of indigence against extortion.



  4. Repression of the temerity of projectors.



  5. Protection of simplicity against imposition. Of all these



in their order.







LETTER II Reasons for Restraint. -- Prevention of Usury.





  I will begin with the prevention of usury: because in the



sound of the word usury lies, I take it, the main strength of the



argument: or, to speak strictly, of what is of more importance



than all argument, of the hold which the opinion I am combating



has obtained on the imaginations and passions of mankind.



  Usury is a bad thing, and as such ought to be prevented:



usurers are a bad sort of men, a very bad sort of men, and as



such ought to be punished and suppressed. These are among the



string of propositions which every man finds handed down to him



from his progenitors: which most men are disposed to accede to



without examination, and indeed not unnaturally nor even



unreasonably disposed, for it is impossible the bulk of mankind



should find leisure, had they the ability, to examine into the



grounds of an hundredth part of the rules and maxims, which they



find themselves obliged to act upon. Very good apology this for



John Trot: but a little more inquisitiveness may be required of



legislators.



  You, my friend, by whom the true force of words is so well



understood, have, I am sure, gone before me in perceiving, that



to say usury is a thing to be prevented, is neither more nor less



than begging the matter in question. I know of but two



definitions that can possibly be given of usury: one is, the



taking of a greater interest than the law allows of: this may be



stiled the political or legal definition. The other is the taking



of a greater interest than it is usual for men to give and take:



this may be stiled the moral one: and this, where the law has not



interfered, is plainly enough the only one. It is plain, that in



order for usury to be prohibited by law, a positive description



must have been found for it by law, fixing, or rather



superseding, the moral one. To say then that usury is a thing



that ought to be prevented, is saying neither more nor less, than



that the utmost rate of interest which shall be taken ought to be



fixed; and that fixation enforced by penalties, or such other



means, if any, as may answer the purpose of preventing the breach



of it. A law punishing usury supposes, therefore, a law fixing



the allowed legal rate of interest: and the propriety of the



penal law must depend upon the propriety of the



simply-prohibitive, or, if you please, declaratory one.



  One thing then is plain; that, antecedently to custom growing



from convention, there can be no such thing as usury: for what



rate of interest is there that can naturally be more proper than



another? what natural fixed price can there be for the use of



money more than for the use of any other thing? Were it not then



for custom, usury, considered in a moral view, would not then so



much as admit of a definition: so far from having existence, it



would not so much as be conceivable: nor therefore could the law,



in the definition it took upon itself to give of such offence,



have so much as a guide to steer by. Custom therefore is the sole



basis, which, either the moralist in his rules and precepts, or



the legislator in his injunctions, can have to build upon. But



what basis can be more weak or unwarrantable, as a ground for



coercive measures, than custom resulting from free choice? My



neighbours, being at liberty, have happened to concur among



themselves in dealing at a certain rate of interest. I, who have



money to lend, and Titius, who wants to borrow it of me, would be



glad, the one of us to accept, the other to give, an interest



somewhat higher than theirs: why is the liberty they exercise to



be made a pretence for depriving me and Titius of ours?



  Nor has blind custom, thus made the sole and arbitrary guide,



any thing of steadiness or uniformity in its decisions: it has



varied, from age to age, in the same country: it varies, from



country to country, in the same age: and the legal rate has



varied along with it: and indeed, with regard to times past, it



is from the legal rate, more readily than from any other source,



that we collect the customary. Among the Romans, till the time of



Justinian, we find it as high as 12 per cent: in England, so late



as the time of Hen. VIII, we find it at 10 per cent: succeeding



statutes reduced it to 8, then to 6, and lastly to 5, where it



stands at present. Even at present in Ireland it is at 6 per



cent; and in the West-Indies at 8 per cent; and in Hindostan,



where there is no rate limited by law, the lowest customary rate



is 10 or 12. At Constantinople, in certain cases, as I have been



well informed, thirty per cent is a common rate. Now, of all



these widely different rates, what one is there, that is



intrinsically more proper than another? What is it that evidences



this propriety in each instance? what but the mutual convenience



of the parties, as manifested by their consent? It is convenience



then that has produced whatever there has been of custom in the



matter: What can there then be in custom, to make it a better



guide than the convenience which gave it birth? and what is there



in convenience, that should make it a worse guide in one case



than in another? It would be convenient to me to give 6 per cent



for money: I wish to do so. "No," (says the law) "you shan't." -



Why so? "Because it is not convenient to your neighbour to give



above 5 for it." Can any thing be more absurd than such a reason?



  Much has not been done, I think, by legislators as yet in the



way of fixing the price of other commodities: and, in what little



has been done, the probity of the intention has, I believe, in



general, been rather more unquestionable than the rectitude of



the principle, or the felicity of the result. Putting money out



at interest, is exchanging present money for future: but why a



policy, which, as applied to exchanges in general, would be



generally deemed absurd and mischievous, should be deemed



necessary in the instance of this particular kind of exchange,



mankind are as yet to learn. For him who takes as much as he can



get for the use of any other sort of thing, an house for



instance, there is no particular appellation, nor any mark of



disrepute: nobody is ashamed of doing so, nor is it usual so much



as to profess to do otherwise. Why a man who takes as much as he



can get, be it six, or seven, or eight, or ten per cent for the



use of a sum of money should be called usurer, should be loaded



with an opprobrious name, any more than if he had bought an house



with it, and made a proportionable profit by the house, is more



than I can see.



  Another thing I would also wish to learn, is, why the



legislator should be more anxious to limit the rate of interest



one way, than the other? why he should set his face against the



owners of that species of property more than of any other? why he



should make it his business to prevent their getting more than a



certain price for the use of it, rather than to prevent their



getting less? why, in short, he should not take means for making



it penal to offer less, for example, than 5 per cent as well as



to accept more? let any one that can, find an answer to these



questions; it is more than I can do: I except always the distant



and imperceptible advantage, of sinking the price of goods of all



kinds; and, in that remote way, multiplying the future enjoyments



of individuals. But this was a consideration by far too distant



and refined, to have been the original ground for confining the



limitation to this side.





LETTER III. Reasons for Restraint. -- Prevention of Prodigality.





  Having done with sounds, I come gladly to propositions;



which, as far as they are true in point of fact, may deserve the



name of reasons. And first, as to the efficacy of such



restrictive laws with regard to the prevention of Prodigality.



  That prodigality is a bad thing, and that the prevention of



it is a proper object for the legislator to propose to himself,



so long as he confines himself to, what I look upon as, proper



measures, I have no objection to allow, at least for the purpose



of the argument; though, were this the principal question, I



should look upon it as incumbent on me to place in a fair light



the reasons there may be for doubting, how far, with regard to a



person arrived at the age of discretion, third persons may be



competent judges, which of two pains may be of greater force and



value to him, the present pain of restraining his present



desires, or the future contingent pain he may be exposed to



suffer from the want to which the expence of gratifying these



desires may hereafter have reduced him. To prevent our doing



mischief to one another, it is but too necessary to put bridles



into all our mouths: it is necessary to the tranquillity and very



being of society: but that the tacking of leading-strings upon



the backs of grown persons, in order to prevent their doing



themselves a mischief, is not necessary either to the being or



tranquillity of society, however conducive to its well-being, I



think cannot be disputed. Such paternal, or, if you please,



maternal, care, may be a good work, but it certainly is but a



work of supererogation.



  For my own part, I must confess, that so long as such methods



only are employed, as to me appear proper ones, and such there



are, I should not feel myself disinclined to see some measures



taken for the restraining of prodigality: but this I can not look



upon as being of the number. My reasons I will now endeavour to



lay before you.



  In the first place, I take it, that it is neither natural nor



usual for prodigals, as such, to betake themselves to this



method, I mean, that of giving a rate of interest above the



ordinary one, to supply their wants.



  In the first place, no man, I hope you will allow. prodigal



or not prodigal, ever thinks of borrowing money to spend, so long



as he has ready money of his own, or effects which he can turn



into ready money without loss. And this deduction strikes off



what, I suppose, you will look upon as the greatest proportion of



the persons subject, at any given time, to the imputation of



prodigality.



  In the next place, no man, in such a country as Great Britain



at least, has occasion, nor is at all likely, to take up money at



an extraordinary rate of interest, who has security to give,



equal to that upon which money is commonly to be had at the



highest ordinary rate. While so many advertise, as are to be seen



every day advertising, money to be lent at five per cent what



should possess a man, who has any thing to offer that can be



called a security, to give, for example, six per cent is more



than I can conceive.



  You may say, perhaps, that a man who wishes to lend his money



out upon security, wishes to have his interest punctually, and



that without the expence, and hazard, and trouble, and odium of



going to law; and that, on this account, it is better to have a



sober man to deal with than a prodigal. So far I allow you; but



were you to add, that on this account it would be necessary for a



prodigal to offer more than another man, there I should disagree



with you. In the first place, it is not so easy a thing, nor, I



take it, a common thing, for the lender upon security to be able



to judge, or even to form any attempt to judge, whether the



conduct of one who offers to borrow his money is or is not of



such a cast, as to bring him under this description. The



question, prodigal or not prodigal, depends upon two pieces of



information; neither of which, in general, is very easy to come



at: on the one hand, the amount of his means and reasonable



expectations; on the other band, the amount of his expenditure.



The goodness or badness of the security is a question of a very



different nature: upon this head, every man has a known and ready



means of obtaining that sort of information, which is the most



satisfactory the nature of things affords, by going to his



lawyer. It is accordingly, I take it, on their lawyers opinion,



that lenders in general found their determination in these cases,



and not upon any calculations they may have formed, concerning



the receipt and expenditure of the borrower. But even supposing a



man's disposition to prodigality to be ever so well known, there



are always enough to be found, to whom such a disposition would



be rather an inducement than an objection, so long as they were



satisfied with the security. Every body knows the advantage to be



made in case of mortgage, by foreclosing or forcing a sale: and



that this advantage it not uncommonly looked out for, will, I



believe, hardly be doubted by any one, who has had any occasion



to observe the course of business in the court of Chancery.



  In short, so long as a prodigal has any thing to pledge, or



to dispose of, whether in possession, or even in reversion,



whether of a certain or even of a contingent nature, I see not,



how he can receive the smallest benefit, from any laws that are,



or can be made to fix the rate of interest. For, suppose the law



to be efficacious as far as it goes, and that the prodigal can



find none of those monsters called usurers to deal with him, does



he lie quiet? No such thing: he goes on and gets the money he



wants, by selling his interest instead of borrowing. He goes on,



I say: for if he has prudence enough to stop him any where, he is



not that sort of man, whom it can be worth while for the law to



attempt stopping by such means. It is plain enough then, that to



a prodigal thus circumstanced, the law cannot be of any service;



on the contrary, it may, and in many cases must, be of disservice



to him, by denying him the option of a resource, which, how



disadvantageous soever, could not well have proved more so, but



would naturally have proved less so, than those which it leaves



still open to him. But of this hereafter.



  I now come to the only remaining class of prodigals, viz.



those who have nothing that can be called a security to offer.



These, I should think, are not more likely to get money upon an



extraordinary rate of interest, than an ordinary one. Persons who



either feel, or find reasons for pretending to feel, a friendship



for the borrower, can not take of him more than the ordinary rate



of interest: persons, who have no such motive for lending him,



will not lend him at all. If they know him for what he is, that



will prevent them of course: and even though they should know



nothing of him by any other circumstance, the very circumstance



of his not being able to find a friend to trust him at the



highest ordinary rate, will be sufficient reason to a stranger



for looking upon him as a man, who, in the judgment of his



friends, is not likely to pay.



  The way that prodigals run into debt, after they have spent



their substance, is, I take it, by borrowing of their friends and



acquaintance, at ordinary interest, or more commonly at no



interest, small sums, such as each man may be content to lose, or



be ashamed to ask real security for; and as prodigals have



generally an extensive acquaintance (extensive acquaintance being



at once the cause and effect of prodigality), the sum total of



the money a man may thus find means to squander, may be



considerable, tho' each sum borrowed may, relatively to the



circumstances of the lender, have been inconsiderable. This I



take to be the race which prodigals, who have spent their all,



run at present, under the present system of restraining laws: and



this, and no other, I take it, would be the race they would run,



were those laws out of the way.



  Another consideration there is, I think, which will compleat



your conviction, if it was not compleat before, of the inefficacy



of these laws, as to the putting any sort of restraint upon



prodigality. This is, that there is another set of people from



whom prodigals get what they want, and always will get it, so



long as credit lasts, in spite of all laws against high interest;



and, should they find it necessary, at an expence more than equal



to an excess of interest they might otherwise have to give. I



mean the tradesmen who deal in the goods they want. Every body



knows it is much easier to get goods than money. People trust



goods upon much slenderer security than they do money: it is very



natural they should do so: ordinary profit of trade upon the



whole capital employed in a man's trade, even after the expence



of warehouse-rent, journeymen's wages, and other such general



charges are taken into the account, and set against it, is at



least equal to double interest; say 10 per cent. Ordinary profit



upon any particular parcel of goods must therefore be a great



deal more, say at least triple interest, 15 per cent: in the way



of trading, then, a man can afford to be at least three times as



adventurous, as he can in the way of lending, and with equal



prudence. So long, then, as a man is looked upon as one who will



pay, he can much easier get the goods he wants, than he could the



money to buy them with, though he were content to give for it



twice, or even thrice the ordinary rate of interest.



  Supposing any body, for the sake of extraordinary gain, to be



willing to run the risk of supplying him, although they did not



look upon his personal security to be equal to that of another



man, and for the sake of the extraordinary profit to run the



extraordinary risk; in the trader, in short in every sort of



trader whom he was accustomed to deal with in his solvent days,



he sees a person who may accept of any rate of profit, without



the smallest danger from any laws that are, or can be made



against usury. How idle, then, to think of stopping a man from



making six, or seven, or eight per cent interest, when, if he



chuses to run a risk proportionable, he may in this way make



thirty or forty per cent or any rate you please. And as to the



prodigal, if he cannot get what he wants upon these terms, what



chance is there of his getting it upon any terms, supposing the



laws against usury to be away? This then is another way, in



which, instead of serving; it injures him, by narrowing his



option, and driving him from a market which might have proved



less disadvantageous, to a more disadvantageous one.



  As far as prodigality, then, is concerned, I must confess, I



cannot see the use of stopping the current of expenditure in this



way at the fosset, when there are so many unpreventable ways of



letting it run out of the bung-hole.



  Whether any harm is done to society, upon the whole, by



letting so much money drop at once out of the pockets of the



prodigal, who would have gone on wasting it, into the till of the



frugal tradesman, who will lay it up, is not worth the enquiry



for the present purpose: what is plain is, that, so far as the



saving the prodigal from paying at an extraordinary rate for what



he gets to spend, is the object of the law, that object is not at



all promoted, by fixing the rate of interest upon money borrowed.



On the contrary, if the law has any effect, it runs counter to



that object: since, were he to borrow, it would only be, in as



far as he could borrow at a rate inferior to that at which



otherwise he would be obliged to buy. Preventing his borrowing at



an extra-rate, may have the effect of increasing his distress,



but cannot have the effect of lessening it: allowing his



borrowing at such a rate, might have the effect of lessening his



distress, but could not have the effect of increasing it.



  To put a stop to prodigality, if indeed it be worth while, I



know but of one effectual course that can be taken, in addition



to the incompleat and insufficient courses at present



practicable. and that is, to put the convicted prodigal under an



interdict, as was practised formerly among the Romans, and is



still practised among the French, and other nations who have



taken the Roman law for the ground-work of their own. But to



discuss the expediency, or sketch out the details of such an



institution. belongs not to the present purpose.





LETTER IV Reasons for Restraint. -- Protection of Indigence.





  Besides prodigals, there are three other classes of persons,



and but three, for whose security I can conceive these



restrictive laws to have been designed. I mean the indigent, the



rashly enterprizing, and the simple: those whose pecuniary



necessities may dispose them to give an interest above the



ordinary rate. rather than not have it, and those who, from



rashness, may be disposed to venture upon giving such a rate, or



from carelessness combined with ignorance, may be disposed to



acquiesce in it.



  In speaking of these three different classes of persons, I



must beg leave to consider one of them at a time: and



accordingly, in speaking of the indigent, I must consider



indigence in the first place as untinctured with simplicity. On



this occasion. I may suppose, and ought to suppose, no particular



defect in a man's judgment, or his temper, that should mislead



him, more than the ordinary run of men. He knows what is his



interest as well as they do, and is as well disposed and able to



pursue it as they are.



  I have already intimated, what I think is undeniable. that



there are no one or two or other limited number of rates of



interest, that can be equally suited to the unlimited number of



situations, in respect of the degree of exigency, in which a man



is liable to find himself: insomuch that to the situation of a



man, who by the use of money can make for example 11 per cent,



six per cent is as well adapted, as 5 per cent is to the



situation of him who can make but 10; to that of him who can make



12 per cent seven and so on. So, in the case of his wanting it to



save himself from a loss, (which is that which is most likely to



be in view under the name of exigency) if that loss would amount



to 11 per cent 6 per cent is as well adapted to his situation, as



5 per cent would be to the situation of him, who had but a loss



amounting to ten per cent to save himself from by the like means.



And in any case. though. in proportion to the amount of the loss,



the rate of interest were even so great, as that the clear saving



should not amount to more than one per cent or any fraction per



cent yet so long as it amounted to any thing, he would be just so



much the better for borrowing, even on such comparatively



disadvantageous terms. If, instead of gain, we put any other kind



of benefit or advantage -- if: instead of loss. we put any other



kind of mischief or inconvenience, of equal value, the result



will be the same.



  A man is in one of these situations, suppose, in which it



would be for his advantage to borrow. But his circumstances are



such, that it would not be worth any body's while to lend him, at



the highest rate which it is proposed the law should allow; in

short, he cannot get it at that rate. If he thought he could get



it at that rate, most surely he would not give a higher: he may



he trusted for that: for by the supposition he has nothing



defective in his understanding. But the fact is, he cannot get it



at that lower rate. At a higher rate, however he could get it:



and at that rate, though higher, it would be worth his while to



get it: so he judges, who has nothing to hinder him from judging



right; who has every motive and every means for forming a right



judgment; who has every motive and every means for informing



himself of the circumstances, upon which rectitude of judgment,



in the case in question, depends. The legislator, who knows



nothing, nor can know any thing, of any one of all these



circumstances, who knows nothing at all about the matter, comes



and says to him -- "It signifies nothing; you shall not have the



money: for it would be doing you a mischief to let you borrow it



upon such terms." -- And this out of prudence and



loving-kindness! -- There may be worse cruelty. but can there be



greater folly?



  The folly of those who persist, as is supposed, without



reason, in not taking advice, has been much expatiated upon. But



the folly of those who persist, without reason, in forcing their



advice upon others, has been but little dwelt upon, though it is,



perhaps, the more frequent, and the more flagrant of the two. It



is not often that one man is a better judge for another, than



that other is for himself, even in Cases where the adviser will



take the trouble to make himself master of as many of the



materials for judging, as are within the reach of the person to



be advised. But the legislator is not, can not be, in the



possession of any one of these materials. -- What private, can be



equal to such public folly?



  I should now speak of the enterprizing class of borrowers:



those. who, when characterized by a single term, are



distinguished by the unfavourable appellation of projectors: but



in what I shall have to say of them, Dr Smith, I begin to



foresee, will bear so material a part, that when I come to enter



upon that subject, I think to take my leave of you, and address



myself to him.





LETTER V Reasons for Restraint.-Protection of Simplicity.





  I come, lastly, to the case of the simple. Here, in the first



place, I think I am by this time entitled to observe, that no



simplicity, short of absolute idiotism, can cause the individual



to make a more groundless judgment, than the legislator, who, in



the circumstances above stated, should pretend to confine him to



any given rate of interest, would have made for him.



  Another consideration, equally conclusive, is, that were the



legislator's judgment ever so much superior to the individual's,



how weak soever that may be, the exertion of it on this occasion



can never be any otherwise than useless, so long as there are so



many similar occasions, as there ever must be, where the



simplicity of the individual is equally likely to make him a



sufferer, and on which the legislator cannot interpose with



effect, nor has ever so much as thought of interposing.



  Buying goods with money, or upon credit, is the business of



everyday. borrowing money is the business, only, of some



particular exigency, which, in comparison, can occur but seldom.



Regulating the prices of goods in general would be an endless



task, and no legislator has ever been weak enough to think of



attempting it. And supposing he were to regulate the prices, what



would that signify for the protection of simplicity, unless he



were to regulate also the quantum of what each man should buy?



Such quantum is indeed regulated, or rather means are taken to



prevent buying altogether; but in what cases? In those only where



the weakness is adjudged to have arrived at such a pitch, as to



render a man utterly unqualified for the management of his



affairs: in short, when it has arrived at the length of idiocy.



  But in what degree soever a man's weakness may expose him to



imposition, he stands much more exposed to it, in the way of



buying goods, than in the way of borrowing money. To be informed,



beforehand, of the ordinary prices of all the sorts of things, a



man may have occasion to buy, may be a task of considerable



variety and extent. To be informed of the ordinary rate of



interest, is to be informed of one single fact, too interesting



not to have attracted attention, and too simple to have escaped



the memory. A few per cent enhancement upon the price of goods,



is a matter that may easily enough pass unheeded; but a single



per cent beyond the ordinary interest of money, is a stride more



conspicuous and startling, than many per cent upon the price of



any kind of goods.



  Even in regard to subjects, which, by their importance would,



if any, justify a regulation of their price, such as for instance



land, I question whether there ever was an instance where,



without some such ground as, on the one side fraud, or



suppression of facts necessary to form a judgment of the value,



or at least ignorance of such facts, on the other, a bargain was



rescinded, merely because a man had sold too cheap, or bought too



dear. Were I to take a fancy to give a hundred years purchase



instead of thirty, for a piece of land, rather than not have it,



I don't think there is any court in England, or indeed any where



else, that would interpose to hinder me, much less to punish the



seller with the loss of three times the purchase money, as in the



case of usury. Yet when I had got my piece of land, and paid my



money, repentance, were the law ever so well disposed to assist



me, might be unavailing: for the seller might have spent the



money, or gone off with it. But, in the case of borrowing money,



it is the borrower always, who, according to the indefinite, or



short term for which money is lent, is on the safe side: any



imprudence he may have committed with regard to the rate of



interest, may be corrected at any time: if I find I have given



too high an interest to one man. I have no more to do than to



borrow of another at a lower rate, and pay off the first: if I



CannOt find any body to lend me at a lower, there cannot be a



more certain proof that the first was not in reality too high.



But of this hereafter.





LETTER VI Mischiefs of the anti-usurious laws.





  In the preceding letters, I have examined all the modes I can



think of, in which the restraints, imposed by the laws against



usury, can have been fancied to be of service.



  I hope it appears by this time, that there are no ways in



which those laws can do any good. But there are several, in which



they can not but do mischief.



  The first, I shall mention, is that of precluding so many



people, altogether, from the getting the money they stand in need



of, to answer their respective exigencies. Think what a distress



it would produce, were the liberty of borrowing denied to every



body: denied to those who have such security to offer, as renders



the rate of interest, they have to offer, a sufficient



inducement, for a man who has money, to trust them with it. Just



that same sort of distress is produced, by denying that liberty



to so many people, whose security, though, if they were permitted



to add something to that rate, it would be sufficient, is



rendered insufficient by their being denied that liberty. Why the



misfortune, of not being possessed of that arbitrarily exacted



degree of security, should be made a ground for subjecting a man



to a hardship, which is not imposed on those who are free from



that misfortune, is more than I can see. To discriminate the



former class from the latter, I can see hut this one



circumstance, viz. that their necessity is greater. This it is by



the very supposition: for were it not, they could not be, what



they are supposed to be, willing to give more to be relieved from



it. In this point of view then, the sole tendency of the law is,



to heap distress upon distress.



  A second mischief is, that of rendering the terms so much the



worse, to a multitude of those, whose circumstances exempt them



from being precluded altogether from getting the money they have



occasion for. In this case, the mischief, though necessarily less



intense than in the other, is much more palpable and conspicuous,



Those who cannot borrow may get what they want, so long as they



have any thing to sell. But while, out of loving-kindness, or



whatsoever other motive, the law precludes a man from borrowing,



upon terms which he deems too disadvantageous, it does not



preclude him from selling, upon any terms, howsoever



disadvantageous. Every body knows that forced sales are attended



with a loss: and, to this loss, what would be deemed a most



extravagant interest bears in general no proportion. When a man's



moveables are taken in execution, they are, I believe, pretty



well sold, if, after all expences paid, the produce amounts to



two thirds of what it would cost to replace them. In this way the



providence and loving-kindness of the law costs him 33 per cent



and no more, supposing, what is seldom the case, that no more of



the effects are taken than what is barely necessary to make up



the money due. If, in her negligence and weakness, she were to



suffer him to offer 11 per cent per annum for forbearance, it



would be three years before be paid what he is charged with, in



the first instance, by her wisdom.



  Such being the kindness done by the law to the owner of



moveables, let us see how it fares with him who has an interest



in immoveables. Before the late war, 30 years purchase for land



might be reckoned, I think it is pretty well agreed, a medium



price. During the distress produced by the war, lands, which it



was necessary should be sold, were sold at 20, 18, nay, I



believe, in some instances, even so low as 15 years purchase. If



I do not misrecollect, I remember instances of lands put up to



public auction, for which nobody bid so high as fifteen. In many



instances, villas, which had been bought before the war, or at



the beginning of it, and, in the interval, had been improved



rather than impaired, sold for less than half, or even the



quarter, of what they had been bought for. I dare not here for my



part pretend to be exact: but on this passage, were it worth



their notice, Mr Skinner, or Mr Christie, could furnish very



instructive notes. Twenty years purchase, instead of thirty, I



may be allowed to take, at least for illustration. An estate then



of ?00 a year, clear of taxes, was devised to a man, charged,



suppose, with ?,500 with interest till the money should be paid.



Five per cent interest, the utmost which could be accepted from



the owner, did not answer the incumbrancer's purpose: he chose to



have the money. But 6 per cent perhaps, would have answered his



purpose, if not, most certainly it would have answered the



purpose of somebody else: for multitudes there all along were,



whose purposes were answered by five per cent The war lasted, I



think, seven years: the depreciation of the value of land did not



take place immediately: but as, on the other hand, neither did it



immediately recover its former price upon the peace, if indeed it



has even yet recovered it, we may put seven years for the time,



during which it would be more advantageous to pay this



extraordinary rate of interest than sell the land, and during



which, accordingly, this extraordinary rate of interest would



have had to run. One per cent for seven years, is not quite of



equal worth to seven per cent the first year: say, however, that



it is. The estate, which before the war was worth thirty years



purchase, that is ?,000 and which the devisor had given to the



devisee for that value, being put up to sale, fetched but 20



years purchase, ?,000. At the end of that period it would have



fetched its original value, ?,000. Compare, then, the situation



of the devisee at the 7 years end, under the law, with what it



would have been, without the law. In the former case, the land



selling for 20 years purchase, i.e. ?,000 what he would have,



after paying the ?,500 is ?00; which, with the interest of that



sum, at 5 per cent for seven years, viz. ?75 makes, at the end



of that seven years, ?75. In the other case, paying 6 per cent



on the ?,500 that is ?0 a year, and receiving all that time the



rent of the land, viz. ?00 he would have had, at the seven years



end, the amount of the remaining ten pound during that period,



that is ?0 in addition to his ?,000. -- ?75 substracted from



?,070 leaves ?95. This ?95 then, is what he loses out of



?,070, almost 37 per cent of his capital, by the loving-kindness



of the law. Make the calculations, and you will find, that, by



preventing him from borrowing the money at 6 per cent interest,



it makes him nearly as much a sufferer as if he had borrowed it



at ten.



What I have said hitherto is confined to the case of those



who have present value to give, for the money they stand in need



of. If they have no such value, then, if they succeed in



purchasing assistance upon any terms, it must be in breach of the



law; their lenders exposing themselves to its vengeance: for I



speak not here of the accidental case, of its being so



constructed as to be liable to evasion. But, even in this case,



the mischievous influence of the law still pursues them;



aggravating the very mischief it pretends to remedy. Though it be



inefficacious in the way in which the legislator wishes to see it



efficacious, it is efficacious in the way opposite to that in



which he would wish to see it so. The effect of it is, to raise



the rate of interest, higher than it would be otherwise, and that



in two ways. In the first place, a man must, in common prudence,



as Dr Smith observes, make a point of being indemnified, not only



for whatsoever extraordinary risk it is that he runs,



independently of the law, but for the very risk occasioned by the



law: he must be insured, as it were, against the law. This cause



would operate, were there even as many persons ready to lend upon



the illegal rate, as upon the legal. But this is not the case: a



great number of persons are, of course, driven out of this



competition by the danger of the business; and another great



number, by the disrepute which, under cover of these prohibitory



laws or otherwise, has fastened itself upon the name of usurer.



So many persons, therefore, being driven out of the trade, it



happens in this branch, as it must necessarily in every other,



that those who remain have the less to withhold them from



advancing their terms; and without confederating, (for it must be



allowed that confederacy in such a case is plainly impossible)



each one will find it easier to push his advantage up to any



given degree of exorbitancy, than he would, if there were a



greater number of persons of the same stamp to resort to.



  As to the case, where the law is so worded as to be liable to



be evaded, in this case it is partly inefficacious and nugatory,



and partly mischievous. It is nugatory, as to all such, whose



confidence of its being so is perfect: it is mischievous, as



before, in regard to all such who fail of possessing that perfect



confidence. If the borrower can find nobody at all who has



confidence enough to take advantage of the flaw, he stands



precluded from all assistance, as before: and, though he should,



yet the lender's terms must necessarily run the higher, in



proportion to what his confidence wants of being perfect. It is



not likely that it should be perfect: it is still less likely



that he should acknowledge it so to be: it is not likely, at



least as matters stand in England, that the worst-penned law made



for this purpose should be altogether destitute of effect: and



while it has any, that effect, we see, must be in one way or



other mischievous.



  I have already hinted at the disrepute, the ignominy, the



reproach, which prejudice, the cause and the effect of these



restrictive laws, has heaped upon that perfectly innocent and



even meritorious class of men, who, not more for their own



advantage than to the relief of the distresses of their



neighbour, may have ventured to break through these restraints.



It is certainly not a matter of indifference, that a class of



persons, who, in every point of view in which their conduct can



be placed, whether in relation to their own interest, or in



relation to that of the persons whom they have to deal with, as



well on the score of prudence, as on that of beneficence, (and of



what use is even benevolence, but in as far as it is productive



of beneficence?) deserve praise rather than censure, should be



classed with the abandoned and profligate, and loaded with a



degree of infamy, which is due to those only whose conduct is in



its tendency the most opposite to their own.



  "This suffering," it may be said, "having already been taken



account of, is not to be brought to account a second time: they



are aware, as you yourself observe, of this inconvenience, and



have taken care to get such amends for it, as they themselves



look upon as sufficient." True: but is it sure that the



compensation, such as it is, will always, in the event, have



proved a sufficient one? Is there no room here for



miscalculation? May there not be unexpected, unlooked-for



incidents, sufficient to turn into bitterness the utmost



satisfaction which the difference of pecuniary emolument could



afford? For who can see to the end of that inexhaustible train of



consequences that are liable to ensue from the loss of



reputation? Who can fathom the abyss of infamy? At any rate, this



article of mischief, if not an addition in its quantity to the



others above-noticed, is at least distinct from them in its



nature, and as such ought not to be overlooked.



  Nor is the event of the execution of the law by any means an



unexampled one: several such, at different times, have fallen



within my notice. Then comes absolute perdition: loss of



character, and forfeiture, not of three times the extra-interest,



which formed the profit of the offence, but of three times the



principal, which gave occasion to it.(1*)



  The last article I have to mention in the account of



mischief, is, the corruptive influence, exercised by these laws,



on the morals of the people; by the pains they take, and cannot



but take, to give birth to treachery and ingratitude. To purchase



a possibility of being enforced, the law neither has found, nor,



what is very material, must it ever hope to find, in this case,



any other expedient, than that of hiring a man to break his



engagement, and to crush the hand that has been reached out to



help him. In the case of informers in general, there has been no



troth plighted, nor benefit received. In the case of real



criminals invited by rewards to inform against accomplices, it is



by such breach of faith that society is held together, as in



other cases by the observance of it. In the case of real crimes,



in proportion as their mischievousness is apparent, what can not



but be manifest even to the criminal, is, that it is by the



adherence to his engagement that he would do an injury to



society, and, that by the breach of such engagement, instead of



doing mischief he is doing good: in the case of usury this is



what no man can know, and what one can scarcely think it possible



for any man, who, in the character of the borrower, has been



concerned in such a transaction, to imagine. He knew that, even



in his own judgment, the engagement was a beneficial one to



himself, or he would not have entered into it: and nobody else



but the lender is affected by it.





LETTER VII Efficacy of anti-usurious laws.





  Before I quit altogether the consideration of the case in



which a law, made for the purpose of limiting the rate of



interest, may be inefficacious with regard to that end, I can not



forbear taking some further notice of a passage already alluded



to of Dr Smith's: because, to my apprehension, that passage seems



to throw upon the subject a degree of obscurity, which I could



wish to see cleared up, in a future edition of that valuable



work.



  "No law" says he,(2*) "can reduce the common rate of interest



below the lowest ordinary market rate, at the time when that law



was made. Notwithstanding the edict of 1766, by which the French



king attempted to reduce the rate of interest from five to four



per cent money continued to be lent in France at five per cent



the law being evaded in several different ways."



  As to the general position, if so it be, so much, according



to me, the better: but I must confess I do not see why this



should be the case. It is for the purpose of proving the truth of



this general position, that the fact of the inefficacy of this



attempt seems to be adduced: for no other proof is adduced but



this. But, taking the fact for granted, I do not see how it can



be sufficient to support the inference. The law, we are told at



the same time, was evaded: but we are not told how it came to be



open to evasion. It might be owing to a particular defect in the



penning of that particular law; or, what comes to the same thing,



in the provisions made for carrying it into execution. In either



case, it affords no support to the general position: nor can that



position he a just one, unless it were so in the case where every



provision had been made, that could be made, for giving efficacy



to the law. For the position to be true, the case must be, that



the law would still be broken, even after every means of what can



properly be called evasion had been removed. True or untrue, the



position is certainly not self-evident enough to be received



without proof: yet nothing is adduced in proof of it, but the



fact above-noticed, which we see amounts to no such thing. What



is more, I should not expect to find it capable of proof. I do



not see, what it is, that should render the law incapable of



"reducing the common rate of interest below the lowest ordinary



market rate," but such a state of things, such a combination of



circumstances, as should afford obstacles equally powerful, or



nearly so, to the efficacy of the law against all higher rates.



For destroying the law's efficacy altogether. I know of nothing



that could serve, but a resolution on the part of all persons any



way privy not to inform: but by such a resolution any higher rate



is just as effectually protected as any lower one. Suppose the



resolution, strictly speaking, universal, and the law must in all



instances be equally inefficacious; all rates of interest equally



free; and the state of men's dealings in this way just what it



would be, were there no law at all upon the subject. But in this



case, the position, in as far as it limits the inefficacy of the



law to those rates which are below the "lowest ordinary market



rate," is not true. For my part, I cannot conceive how any such



universal resolution could have been maintained, or could ever be



maintained, without an open concert, and as open a rebellion



against government; nothing of which sort appears to have taken



place: and, as to any particular confederacies, they are as



capable of protecting any higher rates against the prohibition,



as any lower ones.



  Thus much indeed must be admitted, that the low rate in



question. viz. that which was the lowest ordinary market rate



immediately before the making of the law, is likely to come in



for the protection of the public against the law, more frequently



than any other rate. That must be the case on two accounts:



first, because by being of the number of the ordinary rates, it



was, by the supposition, more frequent than any extraordinary



ones: secondly, because the disrepute annexed to the idea of



usury, a force which might have more or less efficacy in



excluding, from the protection above spoken of, such



extraordinary rates, cannot well be supposed to apply itself, or



at least not in equal degree, to this low and ordinary rate. A



lender has certainly less to stop him from taking a rate, which



may be taken without disrepute, than from taking one, which a man



could not take without subjecting himself to that inconvenience:



nor is it likely, that men's imaginations and sentiments should



testify so sudden an obsequiousness to the law, as to stamp



disrepute to-day, upon a rate of interest, to which no such



accompaniment had stood annexed the day before.



  Were I to be asked how I imagined the case stood in the



particular instance referred to by Dr Smith; judging from his



account of it, assisted by general probabilities, I should answer



thus: -- The law, I should suppose, was not so penned as to be



altogether proof against evasion. In many instances, of which it



is impossible any account should have been taken, it was indeed



conformed to: in some of those instances, people who would have



lent otherwise, abstained from lending altogether; in others of



those instances, people lent their money at the reduced legal



rate. In other instances again, the law was broken: the lenders



trusting, partly to expedients recurred to for evading it, partly



to the good faith and honour of those whom they had to deal with:



in this class of instances it was natural, for the two reasons



above suggested, that those where the old legal rate was adhered



to, should have been the most numerous. From the circumstance,



not only of their number, but of their more direct repugnancy to



the particular recent law in question, they would naturally be



the most taken notice of. And this, I should suppose, was the



foundation in point of fact for the Doctor's general position



above-mentioned, that "no law can reduce the common rate of



interest below the lowest ordinary market rate, at the time when



that law was made."



  In England, as far as I can trust my judgment and imperfect



general recollection of the purport of the laws relative to this



matter, I should not suppose that the above position would prove



true. That there is no such thing as any palpable and



universally-notorious, as well as universally-practicable receipt



for that purpose, is manifest from the examples which, as I have



already mentioned, every now and then occur, of convictions upon



these statutes. Two such receipts, indeed, I shall have occasion



to touch upon presently: but they are either not obvious enough



in their nature, or too troublesome or not extensive enough in



their application, to have despoiled the law altogether of its



terrors or of its preventive efficacy.



  In the country in which I am writing, the whole system of



laws on this subject is perfectly, and very happily,



inefficacious. The rate fixed by law is 5 per cent: many people



lend money; and nobody at that rate: the lowest ordinary rate,



upon the very best real security, is 8 per cent: 9, and even 10,



upon such security, are common. Six or seven may have place, now



and then, between relations or other particular friends: because,



now and then, a man may choose to make a present of one or two



per cent to a person whom he means to favour. The contract is



renewed from year to year: for a thousand roubles, the borrower,



in his written contract, obliges himself to pay at the end of the



year one thousand and fifty. Before witnesses, he receives his



thousand roubles: and, without witnesses, he immediately pays



back his 30 roubles, or his 40 roubles, or whatever the sum may



be, that is necessary to bring the real rate of interest to the



rate verbally agreed on.



  This contrivance, I take it, would not do in England: but why



it would not, is a question which it would be in vain for me to



pretend, at this distance from all authorities, to discuss.





LETTER VIII



Virtual Usury allowed.





  Having proved, as I hope, by this time, the utter impropriety



of the law's limiting the rate of interest, in every case that



can be conceived, it may be rather matter of curiosity, than any



thing else, to enquire, how far the law, on this head, is



consistent with itself, and with any principles upon which it can



have built.



  1. Drawing and re-drawing is a practice, which it will be



sufficient here to hint at. It is perfectly well known to all



merchants, and may be so to all who are not merchants, by



consulting Dr Smith. In this way, he has shewn how money may be,



and has been, taken up, at so high a rate, as 13 or 14 per cent



-- a rate nearly three times as high as the utmost which the law



professes to allow. The extra interest is in this case masked



under the names of commission, and price of exchange. The



commission is but small upon each loan, not more, I think, than



1/2 per cent: custom having stretched so far but no farther, it



might be thought dangerous, perhaps, to venture upon any higher



allowance under that name. The charge, being repeated a number of



times in the course of the year, makes up in frequency what it



wants in weight. The transaction is by this shift rendered more



troublesome, indeed, but not less practicable, to such parties as



are agreed about it. But if usury is good for merchants, I don't



very well see what should make it bad for every body else.

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