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Jeremy Bentham:Defence of Usury(一)

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Defence of Usury

by Jeremy Bentham


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


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


  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


  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


  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


  "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.


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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