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 situ- ation 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 1 1 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 Protection of Indigence. 55 so long as it amounted to any thing* he would be just so much the better for borrowing, even on such compa- ratively disadvantageous terms. If* instead of gain, we put any other kind of benefit or advantage — if, in- stead 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 cir- cumstances 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 be trusted for that: for by the supposition he has nothing defective in his understanding. But the 36 LETT. IV. Reasons for Restraint.
the fact is, he cannot get it at that lower rate. At a higher rate, how- ever, 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 circum- stances, upon which rectitude of judg- ment, in the case in question, de- pends. 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 j you shall not " have the money: for it would be " doing you a mischief to let you " borrow it upon such terms." — And Protection of Indigence. 57 And this out of prudence and lov- ing-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 expa- tiated 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 were the ad- viser will take the trouble to make himself master of as many of the ma- terials 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 38 LETT. IV. Reasons for Restraint.
materials. — What private, can be equal to such public folly?
I should now speak of the enter" prizing class of borrowers: those, who, when characterized by a single term, are distinguished by the unfa- vourable 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 sub- ject, I think to take my leave of yoUj and address myself to him.
Protection of Simplicity. 39 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 in- dividual 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 con- clusive, is, that were the legislator's judgment ever so much superior to the individual's, how weak soever that 40 LETT. V. Reasons for Restraint.
that may be, the exertion of it on this occasion can never be any otherwise than useless, so long as there are so ma- ny similar occasions, as there ever must be, where the simplicity of the indi- vidual is equally likely to make him a sufferer, and on which the legisla- tor cannot interpose with effect, nor has ever so much as thought of interposing.
Buying goods with money, or upon credit, is the business of every day: borrowing money is the business, on- ly, of some particular exigency, which, in comparison, can occur but seldom. Regulating the prices of goods in ge- neral would be an endless task, and no legislator has ever been weak enough to think of attempting it. And sup- posing he were to regulate the prices, what would that signify for the pro- tection of simplicity, unless he were to Protection of Simplicity. 41 to regulate also the quantum of what each man should buy? Such quan- tum is indeed regulated, or rather means are taken to prevent buying altogether; but in what cases? In those only where the weakness is ad- judged 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 imposi- tion, 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 42 LETT. V. Reasons for Restraint.
be informed of one single fact, too in- teresting not to have attracted atten- tion, and too simple to have escaped the memory. A few per cent, en- hancement upon the price of goods, is a matter that may easily enough pass unheeded j but a single per cent, beyond the ordinary interest of money, is a stride more conspicuous and start- ling, 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 Protection of Simplicity. 43 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, repent- ance, were the law ever so well dis- posed to assist me, might be unavail- ing: 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 44 LETT. V. Reasons for Restraint.
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*.
Mischiefs of anti-usurious Laws. 45 LETTER VI.
Mischiefs of the anti-usurious Laws.
IN the preceding Letters, I have ex- amined 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 se- veral, in which they can not but do mischief.
The first I shall mention, is that of precluding so many people, altoge- ther, from the getting the money they stand in need of, to answer their re- spective exigencies. Think what a distress 46 LETT. VI. Mischiefs of the 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 suffi- cient 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 some- thing to that rate, it would be suffi- cient, is rendered insufficient by their being denied that liberty. Why the misfortune, of not being possessed of that arbitrarily exacted degree of se- curity, 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 but this 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 re- lieved 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 ren- dering the terms so much the worse, to a multitude of those, whose circum- stances exempt them from being pre- cluded altogether from getting the money they have occasion for. In this case, the mischief, though neces- sarily 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, 48 LETT. VI. Mischiefs of the borrowing, upon terms which it deems too disadvantageous, it does not pre- clude 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 move- ables are taken in execution, they are, I believe, pretty well sold, if, after all expenses paid, the produce amounts to two-thirds of what it would cost to replace them. In this way the providence and loving-kind- ness of the law costs him 33 per cent, and no more, supposing, what is sel- dom the case, that no more of the ef- fects 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.
cent, per annum for forbearance, it would be three years before he 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 immovables. 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 in- stances of lands put up to public auc- tion, 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 D the 50 LETT. VI. Mischiefs of the 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 no- tice, 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 1001. a year, clear of taxes, was devised to a man, charged, suppose, with 15001. with interest till the money should be paid. Five per cent, inte- rest, the utmost which could be ac- cepted from the owner, did not answer the incumbrancer's purpose: he chose to have the money. But 6 per cent, per- haps, would have answered^his purpose, if not, most certainly it would have an- swered the purpose of somebody else: for 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 im- mediately: but as, on the other hand, neither did it immediately recover its former price upon the peace, if indeed it lias 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 in- terest 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 30001. and which the devisor had given to the devisee for that value, D 2 being 52 LETT. VI. Mischief s vf the being put up to sale, fetched but 20 years purchase, 20001. At the end of that period it would have fetched its original value, 30001. 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 sel- ling for 20 years purchase, i. e. 20001. what he would have, after paying the 15001. is 5001.; which, with the interest of that sum, at 5 per cent, for seven years, viz. 175L makes, at the end of that seven years, 6751. In the other case, paying 6 per cent, on the 15001. that is 90L a year, and receiving all that time the rent of the land, viz. 1001. he would have had, at the seven years end, the amount of the remaining ten pound during that period, that is 701. in ad- dition to his 10001.— 675. substracted from 10701. leaves 3951. This 3951. then, is what he loses out of 10701. almost 37 per cent, of his ca- pital, 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, in- terest, it makes him nearly as much a sufferer as if he had borrowed it at ten. What I have said hitherto is con- fined to the case of those who have pre- sent value to give, for the money they stand in need of. If they have no such value, then, if they succeed in pur- chasing assistance upon any terms, it must be in breach of the law; their lenders exposing themselves to its ven- geance; for I speak not hereof the ac- cidental case, of its being sq construct- ed as to be liable to evasion. But, even in this case, the mischievous influence of the law still pursues them; aggra- vating 54 LETT. VI. Mischiefs of the vating the very mischief it pretends to remedy. Though it be ineffica- cious in the way in which the legisla- tor wishes to see it efficacious, it is ef- ficacious 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 in- terest, higher than it would be other- wise, 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 com- petition, petition, by the danger of the busi- ness, 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 with-hold 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 num- ber of persons of the same stamp to resort to.
As to the case, where the }aw is so worded as to be liable to be evaded, iu this case it is partly inefficacious and 46 LETT. VI. Mischief s of the 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 confi- dence 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 propor- tion 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 mat- ters stand in England, that the worst- penned law made for this purpose should be altogether destitute of ef- fect: and while it has any, that effect, we see, must be in one way or other mischievous.
I have already hinted at the disre- pute, 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 advan- tage than to the relief of the distresses of their neighbour, may have ven- tured to break through these restraints. It is certainly not a matter of indif- ference, that a class of persons, who,' in every point of view in which their' conduct can be placed, whether in re- lation to their own interest, or in re- lation to that of the persons whom they have to deal with, as well on the score of prudence, as on that of be- neficence, (and of what use is even benevolence, but in as far as it is productive of beneficence?) deserve praise rather than censure, should be D 3 classed 58 LETT* VI. Mischiefs of the classed with the abandoned and pro- fligate, 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 *c second time: they are aware, as you " yourself observe, of this inconve- " nience, 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, un- looked-for incidents, sufficient to turn into bitterness the utmost satisfaction which the difference of pecuniary emolument could afford? For who can can see to the end of that inexhausti- ble train of consequences that are liable to ensue from the loss of repu- tation? 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 unex- ampled 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*.
* See Introduction to the Principles of Morals and Legislation, 4to. 1789. Cb. 14. On the pro- portion between punishments and offences.
60 LETT. VI. Mischiefs of the The last article I have to mention in the account of mischief, is, the cor- ruptive 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 pos- sibility of being enforced, the law nei- ther has found, nor, what is very ma- terial, must it ever hope to find, in this case, any other expedient, than that of hiring a man to break his en- gagement, 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 crimi- nals 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, anti-usurious Laws. HI crimes, in proportion as their mis- chievousness 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 in- jury 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.
f $ LETT. VII. Efficacy of LETTER VII.
Efficacy of anti-usurious Laws.
BEFORE I quit altogether the con- sideration 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 cannot for- bear taking some further notice of a passage already alluded to of Dr. Smith's: because, to my apprehen- sion, 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*, " can reduce " the common rate of interest below « the <r the lowest ordinary market rate, at " the time when that law was made. " Notwithstanding the edict of 1?66, *' by which the French king at- " tempted to reduce the rate of inte- " rest from five to four per cent., mo- " ney 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 in- ference. The law, we are told at the same time, was evaded: but we are not 64 LETT. VII. Efficacy of 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 be 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 po- sition 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 £C ordinary market rate," but such a state of things, such a combination of circumstances, as should afford obsta- cles 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 reso- lution any higher rate is just as ef- fectually protected as any lower one. Suppose the resolution, strictly speak- ing, 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 06 LETT. VII. Efficacy of 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 or- " dinary 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 con- cert, 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 admit- ted, 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 ordi- nary 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 effi- cacy in excluding, from the protec- tion above spoken of, such extraor- dinary 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 senti- ments 68 LETT. VI I. Efficacy of ments should testify so sudden an ob- sequiousness to the law, as to stamp disrepute to-day, upon a rate of inte- rest to which no such accompaniment had stood annexed the day before.