J. M'Creery, PriiterT Black-Horse Court, London.
Stack Annex 5" 3ZG CONTENTS.
LETTER I.
LETTER II.
Reasons for Restraint. — Prevention of Usury 6 LETTER III.
Reasons for Restraint. — Prevention of Prodigality.. 16 CONTENTS.
LETTER IV.
Reasons for Restraint.— Protection of Indigence Page 32 LETTER V.
Reasons for Restraint. — Protection of Simplicity 39 LETTER VI.
Mischiefs of the anti-usurious Laws, 45 LETTER VII.
Efficacy of anti-usurious Laws...62 CONTENTS.
LETTER VIII.
Virtual Usury allowed...Page 73 LETTER IX.
Blackstone considered...#4 LETTER X.
Grounds of the Prejudices against LETTER XI.
Compound Interest LETTER XII. Maintenance and Champerty...117 CONTENTS.
LETTER XIII.
To Dr. Smith, on Projects in Arts, Xc Page 129 DEFENCE OF USURY.
LETTER I.
Introduction.
Crichof, in White Russia, January, 1787.
AfylONG the various species or modifications of liberty, of which on different occasions we have heard so much in England, I do not re- collect ever seeing any thing yet of- fered in behalf of the liberty of mak- ing one's own terms in money -bargains. From so general and universal a ne- glect, 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 answer- ing any good purpose, you may for- ward 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 my- self 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 hin- dered from supplying him, upon any terms he thinks proper to accede to.
This proposition, were it to be re- ceived, would level, you see, at one stroke, all the barriers which law, either LETT. I. Introduction. S 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 indi- vidual antagonist I had to deal with, my part would be a smooth and easy one. *' You, who fetter contracts j " you, who lay restraints on the liber- " ty of man, it is for you" (I should say) " to assign a reason for your do- " ing 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 excep- tions (for some doubtless there are) which the safety and welfare of every B fc society -4 LETT. I. Introduction.
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 excep- tion, 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 ff 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.
LETT. I. Introduction. 5 4. Repression of the temerity of projectors.
5. Protection of simplicity against imposition.
Of all these in their order.
LETT. II. Reasons for Restraint.
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 import- ance 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 punish- ed and suppressed. These are among the Prevention of Usury. 7 the string of propositions which every man finds handed down to him from his progenitors: which most men are disposed to accede to without exami- nation, and indeed not unnaturally nor even unreasonably disposed, for it is impossible the bulk of mankind should find leisure, had they the abi- lity, to examine into the grounds of an hundredth part of the rules and maxims, which they find themselves obliged to act upon. Very good apo- logy 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 mat- ter in question. I know of but two definitions 8 LETT. II. Reasons for Restraint.
definitions that can possibly be given of usury: one is, the taking of a greater interest than the law allows of: this may be styled 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 styled 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 descrip- tion 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 in- terest 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 Prevention of Usury. 9 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 pe- nal law must depend upon the pro- priety of the simply-prohibitive, or, if you please, declaratory one.
One thing then is plain; that, an- tecedently to custom growing from convention, there can be no such thing as usury: for what rate of in- terest is there that can naturally be more proper than another? what na- tural 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 there- fore could the law, in the definition 10 LETT. II. Reasons for Restraint.
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 le- gislator 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 them- selves 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 in- terest somewhat higher than theirs: why is the liberty they exercise to be made a pretence for depriving me and Tilius of ours r Nor Prevention of Usury. \ 1 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 va- ries, from country to country, in the same age: and the legal rate has va- ried 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 Henry VIII., we find;<jt 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. 5 and in the West- Indies at 8 per cent.; and in Hin- dostan, where there is no rate limited by 1-2 LETT. II. Reasons for Restraint.
by law, the lowest customary rate is 10 or 12. At Constantinople, in cer- tain cases, as I have been well in- formed, thirty per cent, is a com- mon rate. Now, of all these widely different rates, what one is there, that is intrinsically more proper than ano- ther? What is it that evidences this propriety in each instance? what but the mutual convenience of the par- ties, as manifested by their consent? It is convenience then that has pro- duced whatever there has been of cus- tom in the matter: What can there then be in custom, to make it a bet- ter 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 ano- ther? It would be convenient to me to give 6 per cent, for money: I wish to do so. " No," (says the law) " you Prevention of Usury. 13 " you shan't." — Why so? " Because "it is not convenient to your neigh- " hour 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 fix- ing 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 fu- ture: 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 par- ticular kind of exchange, mankind are as yet to learn. For him who takes 14 LETT. II. Reasons for Restraint.
takes as much as he can get for the use of any other sort of thing, an house for instance, there is no parti- cular appellation, nor any mark of disrepute: nobody is ashamed of do- ing 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 Prevention of Usury. 15 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 sink- ing 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 limi- tation to this side.
16 LETT. III. Reasons for Restraint.
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 restric- tive laws with regard to the prevention of Prodigality.
That prodigality is a bad thing, and that the prevention of it is a pro- per object for the legislator to propose to himself, so long as he confines him- self to, what I look upon as, proper measures, I have no objection to allow, at least for the purpose of the argu- ment; Prevention of Prodigality. 1?
ment; though, were this the principal question, I should look upon it as in- cumbent on me to place in a fair light the reasons there may be for doubting, how far, with regard to a person arriv- ed at the age of discretion, third per- sons 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 ex- posed to suffer from the want to which the expense 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 ne- cessary to the tranquillity and very be- ing 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 18 LETT. III. Reasons for Restraint.
not necessary either to the being or tranquillity of society, however con- ducive to its well-being, I think can- not 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 cannot 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 prodi- gals, 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 Prevention of Prodigality. 19 In the first place, no man, I hope you will allow, prodigal or not prodi- gal, 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 im- putation 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 ad- vertise, as are to be seen every day advertising, money to be lent at five per cent, what should possess a man, who 20 LETT. III. Reasons for Restraint.
who has any thing to offer that can be called a security, to give, for ex- ample, six per cent, is more than I can conceive.
You may say, perhaps, that a man who wishes to lend his money out up- on security, wishes to have his inter- est punctually, and that without the expense, 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 ac- count it would be necessary for a pro- digal 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 Prevention of Prodigality. 21 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 informa- tion; 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 hand, the amount of his expenditure. The goodness or badness of the se- curity is a question of a very differ- ent nature: upon this head, every man has a known and ready means of obtaining that sort of information, which is the most satisfactory the na- ture of things affords, by going to his lawyer. It is accordingly, I take it, on their lawyer's opinion, that lenders in general found their deter- mination in these cases, and not upon any calculations they may have form- ed, 22 LETT. III. Reasons for Restraint.
ed, concerning the receipt and expen- diture of the borrower. But even supposing a man's disposition to pro- digality 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 objec- tion, 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 is not uncommonly looked out for, will, I believe, hardly be doubted by any one, who has had any occasion to ob- serve 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 re- version, whether of a certain or even of a contingent nature, I see not, hovr Prevention of Prodigality. 23 how he can receive the smallest bene- fit, from any Jaws 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 sel- ling his interest instead of borrow- ing. 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 con- trary, 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 24 LETT. HI. Reasons for Restraint.
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 ex- traordinary rate of interest, than an or- dinary 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 circum- stance of his not being able to find a friend Prevention of Prodigality. 2,5 friend to trust him at the highest or- dinary 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 sub- stance, is, I take it, by borrowing of their friends and acquaintance, at or- dinary 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 exten- sive acquaintance (extensive acquaint- ance 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 c be 26 LETT. III. Reasons for Restraint.
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 Jaws out of the way.
Another consideration there is, I think, which will compleat your con- viction, if it was not compleat be- fore, 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 al- ways will get it, so long as credit lasts, in spite of all laws against high in- terestj and, should they find it neces- sary, at an expense 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 Prevention of Prodigality. 27 easier to get goods than money. Peo- ple trust goods upon much slenderer se- curity than they do money: it is very natural they should do so: ordinary profit of trade upon the whole capi- tal employed in a man's trade, even after the expense 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 pai> ticular parcel of goods must there- fore be a great deal more, say at least triple interest, 15 per cent.: in the way of trading, then, a man can af- ford to be at least three times as ad- venturous, as he can in the way of lending, aud 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, C 2 than 28 LETT. III. Reasons for Restraint.
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, al- though 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 ex- traordinary 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 pro- portionable, Prevention of Prodigality. 29 portionable, 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, sup- posing 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 disadvantage- ous, to a more disadvantageous one.
As far as prodigality, then, is con- cerned, I must confess, I cannot see the use of stopping the current of ex- penditure in this way at the fosset, when there are so many unpreventa- ble ways of letting it run out at the bung-hole.
Whether any harm is done to so- ciety, upon the whole, by letting so much 30 LETT. III. Reasons for Restraint.
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 inquiry for the present purpose: what is plain is, that, so far as the saving the pro- digal 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 ef- fect, 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 Prevention of Prodigality. 31 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 in- deed 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, be- longs not to the present purpose.
LETT. IV. Reasons for Restraint.
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 sim- ple: those whose pecuniary necessities may dispose them to give an interest above the ordinary rate, rather than not have it, and those who, from rash- ness, may be disposed to venture upon giving such a rate, or from careless- ness combined with ignorance, may be disposed to acquiesce in it.
In In Protection of Indigence. S3 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 indi- gent, I must consider indigence in the first place as untinctured with simpli- city. On this occasion, I may sup- pose, and ought to suppose, no parti- cular 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 dis- posed 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 num- ber of rates of interest, that can be equally suited to the unlimited num- ber of situations, in respect of the de- gree of exigency ', in which a man is li- able to find himself: insomuch that c3 to 34 LETT. IV. Reasons for Restraint.