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Defence of Usury

Jeremy Bentham

1787

Defence of Usury; Shewing the Impolity of the Present Legal Restraints on the Terms of Pecuniary

Bargains In a Series of Letters to a Friend To Which is Added A Letter to Adam Smith, Esq; LL.D.

On the Discouragements opposed by the above Restraints to the Progress of Inventive Industry

1787

LETTER I. Introduction

Crichoff, in White Russia, January 1787

Among the various species or modifications of liberty, of

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

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

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

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

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

has been suffering much injustice.

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

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

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

will give you less trouble, to the fire.

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

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

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

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

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

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

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

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

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

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

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

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

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

Maintenance.

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

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

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

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

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

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

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

doubtless there are) which the safety and welfare of every

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

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

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

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

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

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

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

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

can find to fight with.

In favour of the restraints opposed to the species of liberty

I contend for, I can imagine but five arguments.

1. Prevention of usury.

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2. Prevention of prodigality.

3. Protection of indigence against extortion.

4. Repression of the temerity of projectors.

5. Protection of simplicity against imposition. Of all these

in their order.

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

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

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

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

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

has obtained on the imaginations and passions of mankind.

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

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

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

string of propositions which every man finds handed down to him

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

without examination, and indeed not unnaturally nor even

unreasonably disposed, for it is impossible the bulk of mankind

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

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

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

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

legislators.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

penal law must depend upon the propriety of the

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

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

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

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

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

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

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

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

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

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

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

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

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

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

coercive measures, than custom resulting from free choice? My

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neighbours, being at liberty, have happened to concur among

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

intrinsically more proper than another? What is it that evidences

this propriety in each instance? what but the mutual convenience

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

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

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

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

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

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

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

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

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

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

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

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

general, been rather more unquestionable than the rectitude of

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

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

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

generally deemed absurd and mischievous, should be deemed

necessary in the instance of this particular kind of exchange,

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

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

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

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

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

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

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

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

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

than I can see.

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

legislator should be more anxious to limit the rate of interest

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

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

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

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

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

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

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

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

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

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

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

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

limitation to this side.

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

Having done with sounds, I come gladly to propositions;

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

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

restrictive laws with regard to the prevention of Prodigality.

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

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

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

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

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

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

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

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

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

value to him, the present pain of restraining his present

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

suffer from the want to which the expence of gratifying these

desires may hereafter have reduced him. To prevent our doing

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

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

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

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

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

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

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

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

work of supererogation.

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

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

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

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

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

lay before you.

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

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

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

ordinary one, to supply their wants.

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

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

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

into ready money without loss. And this deduction strikes off

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

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

prodigality.

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

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

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

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

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

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

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

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

than I can conceive.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

satisfactory the nature of things affords, by going to his

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

that lenders in general found their determination in these cases,

and not upon any calculations they may have formed, concerning

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

still open to him. But of this hereafter.

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

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

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

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

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

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

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

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

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

nothing of him by any other circumstance, the very circumstance

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

highest ordinary rate, will be sufficient reason to a stranger

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

friends, is not likely to pay.

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

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

acquaintance, at ordinary interest, or more commonly at no

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

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

generally an extensive acquaintance (extensive acquaintance being

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

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

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

circumstances of the lender, have been inconsiderable. This I

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

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

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

were those laws out of the way.

Another consideration there is, I think, which will compleat

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

upon any particular parcel of goods must therefore be a great

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

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

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

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

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

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

twice, or even thrice the ordinary rate of interest.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

less disadvantageous, to a more disadvantageous one.

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

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

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

letting it run out of the bung-hole.

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

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

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

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

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

saving the prodigal from paying at an extraordinary rate for what

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

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

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

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

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

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

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

but cannot have the effect of lessening it: allowing his

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

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

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

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

to the incompleat and insufficient courses at present

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

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

still practised among the French, and other nations who have

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

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

institution. belongs not to the present purpose.

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

Besides prodigals, there are three other classes of persons,

and but three, for whose security I can conceive these

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

rashly enterprizing, and the simple: those whose pecuniary

necessities may dispose them to give an interest above the

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

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

from carelessness combined with ignorance, may be disposed to

acquiesce in it.

In speaking of these three different classes of persons, I

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

accordingly, in speaking of the indigent, I must consider

indigence in the first place as untinctured with simplicity. On

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

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

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

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

pursue it as they are.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

much the better for borrowing, even on such comparatively

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

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

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

will be the same.

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

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

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

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

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

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

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

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

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

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

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

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

judgment; who has every motive and every means for informing

himself of the circumstances, upon which rectitude of judgment,

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

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

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

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

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

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

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

greater folly?

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

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

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

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

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

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

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

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

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

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

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

equal to such public folly?

I should now speak of the enterprizing class of borrowers:

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

distinguished by the unfavourable appellation of projectors: but

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

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

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

myself to him.

LETTER V Reasons for Restraint.-Protection of Simplicity.

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

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

simplicity, short of absolute idiotism, can cause the individual

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

the circumstances above stated, should pretend to confine him to

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

Another consideration, equally conclusive, is, that were the

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

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

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

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

simplicity of the individual is equally likely to make him a

sufferer, and on which the legislator cannot interpose with

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

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

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

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

Regulating the prices of goods in general would be an endless

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

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

would that signify for the protection of simplicity, unless he

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

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

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

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

render a man utterly unqualified for the management of his

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

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

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

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

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

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

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

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

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

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

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

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

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

any kind of goods.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

imprudence he may have committed with regard to the rate of

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

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

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

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

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

But of this hereafter.

LETTER VI Mischiefs of the anti-usurious laws.

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

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

usury, can have been fancied to be of service.

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

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

they can not but do mischief.

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

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

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

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

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

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

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

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

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

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

rendered insufficient by their being denied that liberty. Why the

misfortune, of not being possessed of that arbitrarily exacted

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

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

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

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

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

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

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

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

to heap distress upon distress.

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

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

from being precluded altogether from getting the money they have

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

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

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

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

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

upon terms which he deems too disadvantageous, it does not

preclude him from selling, upon any terms, howsoever

disadvantageous. Every body knows that forced sales are attended

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

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

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

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

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

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

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

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

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

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

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

the first instance, by her wisdom.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

of £100 a year, clear of taxes, was devised to a man, charged,

suppose, with £1,500 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 £3,000 and which the devisor had given to the

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

years purchase, £2,000. At the end of that period it would have

fetched its original value, £3,000. 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. £2,000 what he would have,

after paying the £1,500 is £500; which, with the interest of that

sum, at 5 per cent for seven years, viz. £175 makes, at the end

of that seven years, £675. In the other case, paying 6 per cent

on the £1,500 that is £90 a year, and receiving all that time the

rent of the land, viz. £100 he would have had, at the seven years

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

that is £70 in addition to his £1,000. -- £675 substracted from

£1,070 leaves £395. This £395 then, is what he loses out of

£1,070, almost 37 per cent of his capital, by the loving-kindness

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

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

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

at ten.

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

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

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

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

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

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

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

the mischievous influence of the law still pursues them;

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

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

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

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

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

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

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

for whatsoever extraordinary risk it is that he runs,

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

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

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

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

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

competition by the danger of the business; and another great

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

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

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

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

that those who remain have the less to withhold them from

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

allowed that confederacy in such a case is plainly impossible)

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

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

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

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

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

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

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

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

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

confidence enough to take advantage of the flaw, he stands

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

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

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

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

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

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

for this purpose should be altogether destitute of effect: and

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

other mischievous.

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

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

restrictive laws, has heaped upon that perfectly innocent and

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

advantage than to the relief of the distresses of their

neighbour, may have ventured to break through these restraints.

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

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

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

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

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

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

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

classed with the abandoned and profligate, and loaded with a

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

its tendency the most opposite to their own.

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

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

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

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

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

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

proved a sufficient one? Is there no room here for

miscalculation? May there not be unexpected, unlooked-for

incidents, sufficient to turn into bitterness the utmost

satisfaction which the difference of pecuniary emolument could

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

consequences that are liable to ensue from the loss of

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

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

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

nature, and as such ought not to be overlooked.

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

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

within my notice. Then comes absolute perdition: loss of

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

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

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

The last article I have to mention in the account of

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

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

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

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

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

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

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

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

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

criminals invited by rewards to inform against accomplices, it is

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

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

in proportion as their mischievousness is apparent, what can not

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

adherence to his engagement that he would do an injury to

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

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

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

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

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

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

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

but the lender is affected by it.

LETTER VII Efficacy of anti-usurious laws.

Before I quit altogether the consideration of the case in

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

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

forbear taking some further notice of a passage already alluded

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

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

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

work.

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

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

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

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

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

the law being evaded in several different ways."

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

position is certainly not self-evident enough to be received

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

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

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

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

"reducing the common rate of interest below the lowest ordinary

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

circumstances, as should afford obstacles equally powerful, or

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

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

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

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

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

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

instances be equally inefficacious; all rates of interest equally

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

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

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

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

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

universal resolution could have been maintained, or could ever be

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

against government; nothing of which sort appears to have taken

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

capable of protecting any higher rates against the prohibition,

as any lower ones.

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

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

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

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

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

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

was, by the supposition, more frequent than any extraordinary

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

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

excluding, from the protection above spoken of, such

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

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

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

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

could not take without subjecting himself to that inconvenience:

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

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

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

accompaniment had stood annexed the day before.

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

particular instance referred to by Dr Smith; judging from his

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

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

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

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

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

lent otherwise, abstained from lending altogether; in others of

those instances, people lent their money at the reduced legal

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

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

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

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

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

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

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

the particular recent law in question, they would naturally be

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

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

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

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

that law was made."

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

general recollection of the purport of the laws relative to this

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

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

universally-notorious, as well as universally-practicable receipt

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

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

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

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

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

their application, to have despoiled the law altogether of its

terrors or of its preventive efficacy.

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

laws on this subject is perfectly, and very happily,

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

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

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

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

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

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

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

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

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

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

thousand roubles: and, without witnesses, he immediately pays

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

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

rate verbally agreed on.

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

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

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

LETTER VIII - Virtual Usury allowed.

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

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

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

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

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

have built.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2. At this distance from all the mountains of legal

knowledge, I will not pretend to say, whether the practice of

selling accepted bills at an under value, would hold good against

all attacks. It strikes my recollection as a pretty common one,

and I think it could not be brought under any of the penal

statutes against usury. The adequateness of the consideration

might, for aught I know, be attacked with success, in a court of

equity; or, perhaps, if there were sufficient evidence (which the

agreement of the parties might easily prevent) by an action at

common law, for money had and received. If the practice be really

proof against all attacks, it seems to afford an effectual, and

pretty commodious method of evading the restrictive laws. The

only restraint is, that it requires the assistance of a third

person, a friend of the borrower's; as for instance: B, the real

borrower, wants £100 and finds U, a usurer, who is willing to

lend it to him, at 10 per cent B. has F, a friend, who has not

the money himself to lend him, but is willing to stand security

for him, to that amount. B. therefore draws upon F, and F.

accepts, a bill of £100 at 5 per cent interest, payable at the

end of a twelvemonth from the date. F. draws a like bill upon B.:

each sells his bill to U. for fifty pound; and it is indorsed to

U. accordingly. The £50 that F. receives. he delivers over

without any consideration to B. This transaction, if it be a

valid one, and if a man can find such a friend, is evidently much

less troublesome than the practice of drawing and re-drawing. And

this, if it be practicable at all, may be practised by persons of

any description, concerned or not in trade. Should the effect of

this page be to suggest an expedient, and that a safe and

commodious one, for evading the laws against usury, to some, to

whom such an expedient might not otherwise have occurred, it will

not lie very heavy upon my conscience. The prayers of usurers,

whatever efficacy they may have in lightening the burthen, I hope

I may lay some claim to. And I think you will not now wonder at

my saying, that in the efficacy of such prayers I have not a whit

less confidence, than in that of the prayers of any other class

of men.

One apology I shall have to plead at any rate, that in

pointing out these flaws, to the individual who may be disposed

to creep out at them, I point them out at the same time to the

legislator, in whose power it is to stop them up, if in his

opinion they require it. If, notwithstanding such opinion, he

should omit to do so, the blame will lie, not on my industry, but

on his negligence.

These, it may be said, should they even be secure and

effectual evasions, are still but evasions, and, if chargeable

upon the law at all, are chargeable not as inconsistencies but as

oversights. Be it so. Setting these aside, then, as expedients

practised or practicable, only behind its back, I will beg leave

to remind you of two others, practised from the day of its birth,

under its protection and before its face.

The first I shall mention is pawnbroking. In this case there

is the less pretence for more than ordinary interest, inasmuch as

the security is, in this case, not only equal to, but better

than, what it can be in any other: to wit, the present possession

of a moveable thing, of easy sale, on which the creditor has the

power, and certainly does not want the inclination, to set such

price as is most for his advantage. If there be a case in which

the allowing of such extraordinary interest is attended with more

danger than another, it must be this: which is so particularly

adapted to the situation of the lowest poor, that is, of those

who, on the score of indigence or simplicity, or both, are most

open to imposition. This trade however the law, by regulating,

avowedly protects. What the rate of interest is, which it allows

to be taken in this way, I can not take upon me to remember: but

I am much deceived, if it amounts to less than 12 per cent in the

year, and I believe it amounts to a good deal more. Whether it

were 12 per cent or 1200, I believe would make in practice but

little difference. What commission is in the business of drawing

and re-drawing, warehouse-room is, in that of pawnbroking.

Whatever limits then are set to the profits of this trade, are

set, I take it, not by the vigilancy of the law, but, as in the

case of other trades, by the competition amongst the traders. Of

the other regulations contained in the acts relative to this

subject, I recollect no reason to doubt the use.

The other instance is that of bottomry and respondentia: for

the two transactions, being so nearly related, may be spoken of

together. Bottomry is the usury of pawnbroking: respondentia is

usury at large, but combined in a manner with insurance, and

employed in the assistance of a trade carried on by sea. If any

species of usury is to be condemned, I see not on what grounds

this particular species can be screened from the condemnation.

"Oh but" (says Sir William Blackstone, or any body else who takes

upon himself the task of finding a reason for the law) "this is a

maritime country, and the trade, which it carries on by sea, is

the great bulwark of its defence." It is not necessary I should

here enquire, whether that branch, which, as Dr Smith has shewn,

is, in every view but the mere one of defence, less beneficial to

a nation, than two others out of the four branches which

comprehend all trade, has any claim to be preferred to them in

this or any other way. I admit, that the liberty which this

branch of trade enjoys, is no more than what it is perfectly

right it should enjoy. What I want to know is, what there is in

the class of men, embarked in this trade, that should render

beneficial to them, a liberty, which would be ruinous to every

body else. Is it that sea adventures have less hazard on them

than land adventures? or that the sea teaches those, who have to

deal with it, a degree of forecast and rejection which has been

denied to land men?

It were easy enough to give farther and farther extension to

this charge of inconsistency, by bringing under it the liberty

given to insurance in all its branches, to the purchase and sale

of annuities, and of post-obits, in a word to all cases where a

man is permitted to take upon himself an unlimited degree of

risk, receiving for so doing an unlimited compensation. Indeed I

know not where the want of instances would stop me: for in what

part of the magazine of events, about which human transactions

are conversant, is certainty to be found? But to this head of

argument, this argument ad hominem, as it may be called, the Use

of which is but subsidiary, and which has more of confutation in

it than of persuasion or instruction, I willingly put an end.

LETTER IX - Blackstone considered.

I hope you are, by this time, at least, pretty much of my

opinion, that there is just the same sort of harm, and no other,

in making the best terms one can for one's self in a money loan,

as there is in any other sort of bargain. If you are not,

Blackstone however is, whose opinion I hope you will allow to be

worth something. In speaking of the rate of interest,(3*) he

starts a parallel between a bargain for the loan of money, and a

bargain about a horse, and pronounces, without hesitation, that

the harm of making too good a bargain, is just as great in the

one case, as in the other. As money-lending, and not

horse-dealing. was, what you lawyers call, the principal case, he

drops the horse-business, as soon as it has answered the purpose

of illustration, which it was brought to serve. But as, in my

conception, as well the reasoning by which he supports the

decision, as that by which any body else could have supported it,

is just as applicable to the one sort of bargain as to the other,

I will carry on the parallel a little farther, and give the same

extent to the reasoning, as to the position which it is made use

of to support. This extension will not be without its use; for if

the position, when thus extended, should be found just, a

practical inference will arise; which is, that the benefits of

these restraints ought to be extended from the money-trade to the

horse-trade. That my own opinion is not favourable to such

restraints in either case, has been sufficiently declared; but if

more respectable opinions than mine are still to prevail. they

will not be the less respectable for being consistent.

The sort of bargain which the learned commentator has

happened to pitch upon for the illustration, is indeed, in the

case illustrating, as in the case illustrated. a loan: but as, to

my apprehension, loan or sale makes, in point of reasoning, no

sort of difference, and as the utility of the conclusion will, in

the latter case, be more extensive. I shall adapt the reasoning

to the more important business of selling horses, instead of the

less important one of lending them.

A circumstance, that would render the extension of these

restraints. to the horse-trade more smooth and easy. is, that in

the one track, as well as in the other, the public has already

got the length of calling names. Jockey-ship, a term of reproach

not less frequently applied to the arts of those who sell horses

than to the arts of those who ride them, sounds, I take it, to

the ear of many a worthy gentleman, nearly as bad as usury: and

it is well known to all those who put their trust in proverbs,

and not less to those who put their trust in party, that when we

have got a dog to hang, who is troublesome and keeps us at bay,

whoever can contrive to fasten a bad name to his tail, has gained

more than half the battle. I now proceed with my application. The

words in italics are my own: all the rest are Sir William

Blackstone's: and I restore, at bottom, the words I was obliged

to discard, in order to make room for mine.

"To demand an exorbitant price is equally contrary to

conscience, for the loan of a horse, or for the loan of a sum of

money. but a reasonable equivalent for the temporary

inconvenience, which the owner may feel by the want of it, and

for the hazard of his losing it entirely, is not more immoral in

one case than in the other...

"As to selling horses, a capital distinction must be made,

between a moderate and an exorbitant profit: to the former of

which we give the name of horse-dealing,(4*) to the latter the

truly odious appellation of jockey-ship:(5*) the former is

necessary in every civil state, if it were but to exclude the

latter. For, as the whole of this matter is well summed up by

Grotius, if the compensation allowed by law does not exceed the

proportion of the inconvenience which it is to the seller of the

horse to part with it,(6*) or the want which the buyer has of

it,(7*) its allowance is neither repugnant to the revealed law,

nor to the natural law: but if it exceeds these bounds, it is

then an oppressive jockey-ship:(8*) and though the municipal laws

may give it impunity, they never can make it just.

"We see, that the exorbitance or moderation of the price

given for a horse(9*) depends upon two circumstances: upon the

inconvenience of parting with the horse one has,(10*) and the

hazard of not being able to meet with such another.(11*) The

inconvenience to individual sellers of horses,(12*) can never be

estimated by laws; the general price for horses(13*) must depend

therefore upon the usual or general inconvenience. This results

entirely from the quantity of horses(14*) in the kingdom: for the

more horses(15*) there are running about(16*) in any nation, the

greater superfluity there will be beyond what is necessary to

carry on the business of the mail coaches(17*) and the common

concerns of life. In every nation or public community there is a

certain quantity of horses(18*) then necessary, which a person

well skilled in political arithmetic might perhaps calculate as

exactly as a private horse-dealer(19*) can the demand for running

horses in his own stables:(20*) all above this necessary quantity

may be spared, or lent, or sold, without much inconvenience to

the respective lenders or sellers: and the greater the national

superfluity is, the more numerous will be the sellers,(21*) and

the lower ought the national price of horseflesh (22*) to be: but

where there are not enough, or barely enough spare horses(23*) to

answer the ordinary uses of the pubic, horse-flesh(24*) will be

proportionably high: for sellers(25*) will be but few, as few can

submit to the inconvenience of selling."(26*) -- So far the

learned commentator.

I hope by this time you are worked up to a proper pitch of

indignation, at the neglect and inconsistency betrayed by the

law, in not suppressing this species of jockey-ship, which it

would be so easy to do, only by fixing the price of horses.

Nobody is less disposed than I am to be uncharitable: but when

one thinks of the £1500 taken for Eclipse, and £2000 for

Rockingham, and so on, who can avoid being shocked, to think how

little regard those who took such enormous prices must have had

for "the law of revelation and the law of nature?" Whoever it is

that is to move for the municipal law, not long ago talked of,

for reducing the rate of interest, whenever that motion is made,

then would be the rime for one of the Yorkshire members to get

up, and move, by way of addition, for a clause for fixing and

reducing the price of horses. I need not expatiate on the

usefulness of that valuable species of cattle, which might have

been as cheap as asses before now, if our lawgivers had been as

mindful of their duty in the suppression of jockey-ship, as they

have been in the suppression of usury.

It may be said, against fixing the price of horse-flesh, that

different horses may be of different values. I answer -- and I

think I shall shew you as much, when I come to touch upon the

subject of champerty -- not more different than the values which

the use of the same sum of money may be of to different persons,

on different occasions.

LETTER X - Grounds of the Prejudices against Usury.

It is one thing, to find reasons why it is fit a law should

have been made: it is another to find the reasons why it was

made: in other words, it is one thing to justify a law: it is

another thing to account for its existence. In the present

instance, the former task, if the observations I have been

troubling you with are just, is an impossible one. The other,

though not necessary for conviction, may contribute something

perhaps in the way of satisfaction. To trace an error to its

fountain head, says lord Coke, is to refute it; and many men

there are who, till they have received this satisfaction, be the

error what it may, cannot prevail upon themselves to part with

it. "If our ancestors have been all along under a mistake, how

came they to have fallen into it?" is a question that naturally

presents itself upon all such occasions. The case is, that in

matters of law more especially, such is the dominion of authority

over our minds, and such the prejudice it creates in favour of

whatever institution it has taken under its wing, that, after all

manner of reasons that can be thought of, in favour of the

institution, have been shewn to be insufficient, we still cannot

forbear looking to some unassignable and latent reason for its

efficient cause. But if, instead of any such reason, we can find

a cause for it in some notion, of the erroneousness of which we

are already satisfied, then at last we are content to give it up

without further struggle; and then, and not till then, our

satisfaction is compleat.

In the conceptions of the more considerable part of those

through whom our religion has been handed down to us, virtue, or

rather godliness, which was an improved substitute for virtue,

consisted in self-denial: not in self-denial for the sake of

society, but of self-denial for its own sake. One pretty general

rule served for most occasions: not to do what you had a mind to

do; or, in other words, not to do what would be for your

advantage. By this of course was meant temporal advantage: to

which spiritual advantage was understood to be in constant and

diametrical opposition. For, the proof of a resolution, on the

part of a being of perfect power and benevolence, to make his few

favourites happy in a state in which they were to be, was his

determined pleasure, that they should keep themselves as much

strangers to happiness as possible, in the state in which they

were. Now to get money is what most men have a mind to do:

because he who has money gets, as far as it goes, most other

things that he has a mind for. Of course nobody was to get money:

indeed why should he, when he was not so much as to keep what he

had got already? To lend money at interest, is to get money, or

at least to try to get it: of course it was a bad thing to lend

money upon such terms. The better the terms, the worse it was to

lend upon them: but it was bad to lend upon any terms, by which

any thing could be got. What made it much the worse was, that it

was acting like a Jew: for though all Christians at first were

Jews, and continued to do as Jews did, after they had become

Christians, yet, in process of time, it came to be discovered,

that the distance between the mother and the daughter church

could not be too wide.

By degrees, as old conceits gave place to new, nature so far

prevailed, that the objections to getting money in general, were

pretty well over-ruled: but still this Jewish way of getting it,

was too odious to be endured. Christians were too intent upon

plaguing Jews, to listen to the suggestion of doing as Jews did,

even though money were to be got by it. Indeed the easier method,

and a method pretty much in vogue, was, to let the Jews get the

money any how they could, and then squeeze it out of them as it

was wanted.

In process of time, as questions of all sorts came under

discussion, and this, not the least interesting, among the rest,

the anti-Jewish side of it found no unopportune support in a

passage of Aristotle: that celebrated heathen, who, in all

matters wherein heathenism did not destroy his competence, had

established a despotic empire over the Christian world. As fate

would have it, that great philosopher, with all his industry, and

all his penetration, notwithstanding the great number of pieces

of money that had passed through his hands (more perhaps than

ever passed through the hands of philosopher before or since),

and notwithstanding the uncommon pains he had bestowed on the

subject of generation, had never been able to discover, in any

one piece of money, any organs for generating any other such

piece. Emboldened by so strong a body of negative proof, he

ventured at last to usher into the world the result of his

observations, in the form of an universal proposition, that all

money is in its nature barren. You, my friend, to whose cast of

mind sound reason is much more congenial than ancient philosophy,

you have, I dare to say, gone before me in remarking, that the

practical inference from this shrewd observation, if it afforded

any, should have been, that it would be to no purpose for a man

to try to get five per cent out of money -- not, that if he could

contrive to get so much, there would be any harm in it. But the

sages of those days did not view the matter in that light.

A consideration that did not happen to present itself to that

great philosopher, but which had it happened to present itself,

might not have been altogether unworthy of his notice, is, that

though a daric would not beget another daric, any more than it

would a ram, or an ewe, yet for a daric which a man borrowed, he

might get a ram and a couple of ewes, and that the ewes, were the

ram left with them a certain time, would probably not be barren.

That then, at the end of the year, he would find himself master

of his three sheep, together with two, if not three, lambs; and

that, if he sold his sheep again to pay back his daric, and gave

one of his lambs for the use of it in the mean time, he would be

two lambs, or at least one lamb, richer than if he had made no

such bargain.

These theological and philosophical conceits, the offspring

of the day, were not ill seconded by principles of a more

permanent complexion.

The business of a money-lender, though only among Christians,

and in Christian times, a proscribed profession, has no where,

nor at any time, been a popular one. Those who have the

resolution to sacrifice the present to future, are natural

objects of envy to those who have sacrificed the future to the

present. The children who have eat their cake are the natural

enemies of the children who have theirs. While the money is hoped

for, and for a short time after it has been received, he who

lends it is a friend and benefactor: by the time the money is

spent, and the evil hour of reckoning is come, the benefactor is

found to have changed his nature, and to have put on the tyrant

and the oppressor. It is an oppression for a man to reclaim his

own money: it is none to keep it from him. Among the

inconsiderate, that is among the great mass of mankind, selfish

affections conspire with the social in treasuring up all favour

for the man of dissipation, and in refusing justice to the man of

thrift who has supplied him. In some shape or other that favour

attends the chosen object of it, through every stage of his

career. But, in no stage of his career, can the man of thrift

come in for any share of it. It is the general interest of those

with whom a man lives, that his expence should be at least as

great as his circumstances will bear. because there are few

expences which a man can launch into, but what the benefit of it

is shared, in some proportion or other, by those with whom he

lives. In that circle originates a standing law, forbidding every

man, on pain of infamy, to confine his expences Within what is

adjudged to be the measure of his means, saving always the power

of exceeding that limit, as much as he thinks proper: and the

means assigned him by that law may be ever so much beyond his

real means, but are sure never to fall short of them. So close is

the combination thus formed between the idea of merit and the

idea of expenditure, that a disposition to spend finds favour in

the eyes even of those who know that a man's circumstances do not

entitle him to the means: and an upstart, whose chief

recommendation is this disposition, shall find himself to have

purchased a permanent fund of respect, to the prejudice of the

very persons at whose expence he has been gratifying his

appetites and his pride. The lustre, which the display of

borrowed wealth has diffused over his character; awes men, during

the season of his prosperity, into a submission to his insolence:

and when the hand of adversity has overtaken him at last, the

recollection of the height, from which he has fallen, throw the

veil of compassion over his injustice.

The condition of the man of thrift is the reverse. His

lasting opulence procures him a share, at least, of the same

envy, that attends the prodigal's transient display: but the use

he makes of it procures him no part of the favour which attends

the prodigal. In the satisfactions he derives from that use, the

pleasure of possession, and the idea of enjoying, at some distant

period, which may never arrive, nobody comes in for any share. In

the midst of his opulence he is regarded as a kind of insolvent,

who refuses to honour the bills, which their rapacity would draw

upon him, and who is by so much the more criminal than other

insolvents, as not having the plea of inability for an excuse.

Could there be any doubt of the disfavour which attends the

cause of the money-lender, in his competition with the borrower,

and of the disposition of the public judgment to sacrifice the

interest of the former to that of the latter, the stage would

afford a compendious, but a pretty conclusive proof of it. It is

the business of the dramatist to study, and to conform to, the

humours and passions of those, on the pleasing of whom he depends

for his success: it is the course which reflection must suggest

to every man, and which a man would naturally fall into, though

he were not to think about it. He may, and very frequently does,

make magnificent pretences, of giving the law to them: but wo be

to him that attempts to give them any other law than what they

are disposed already to receive. If he would attempt to lead them

one inch, it must be with great caution, and not without

suffering himself to be led by them at least a dozen. Now, I

question, whether, among all the instances in which a borrower

and a lender of money have been brought together upon the stage,

from the the days of Thespis to the present, there ever was one,

in which the former was not recommended to favour in some shape

or other, either to admiration, or to love, or to pity, or to all

three; and the other, the man of thrift, consigned to infamy.

Hence it is that, in reviewing and adjusting the interests of

these apparently rival parties, the advantage made by the

borrower is so apt to slip out of sight, and that made by the

lender to appear in so exaggerated a point of view. Hence it is,

that though prejudice is so far softened as to acquiesce in the

lender's making some advantage, lest the borrower should lose

altogether the benefit of his assistance, yet still the borrower

is to have all the favour, and the lender's advantage is for ever

to be clipped, and pared down, as low as it will bear. First it

was to be confined to ten per cent, then to eight, then to six,

then to five, and now lately there was a report of its being to

be brought down to four. with constant liberty to sink as much

lower as it would. The burthen of these restraints, of course,

has been intended exclusively for the lender: in reality, as I

think you have seen, it presses much more heavily upon the

borrower: I mean him who either becomes or in vain wishes to

become so. But the presents directed by prejudice, Dr Smith will

tell us, are not always delivered according to their address. It

was thus that the mill-stone designed for the necks of those

vermin, as they have been called, the dealers in corn, was found

to fall upon the heads of the consumers. It is thus -- but

further examples would lead me further from the purpose.

LETTER XI - Compound Interest.

A word or two I must trouble you with, concerning compound

interest; for compound interest is discountenanced by the law. I

suppose, as a sort of usury. That, without an express

stipulation, the law never gives it, I well remember: whether, in

case. of an express stipulation, the law allows it to be taken, I

am not absolutely certain. I should suppose it might: remembering

covenants in mortgages that interest should become principal. At

any rate, I think the law cannot well punish it under the name of

usury.

If the discountenance shewn to this arrangement be grounded

on the horror of the sin of usury, the impropriety of such

discountenance follows of course, from the arguments which shew

the un- "sinfulness of that sin."

Other argument against it, I believe, was never attempted,

unless it were the giving to such an arrangement the epithet of a

hard one: in doing which, something more like a reason is given,

than one gets in ordinary from the common law.

If that consistency were to be found in the common law, which

has never yet been found in man's conduct, and which perhaps is

hardly in man's nature, compound interest never could have been

denied.

The views which suggested this denial, were, I dare to say,

very good: the effects of it are, I am certain, very pernicious.

If the borrower pays the interest at the day, if he performs

his engagement, that very engagement to which the aw pretends to

oblige him to conform, the lender, who receives that interest,

makes compound interest of course, by lending it out again,

unless he chooses rather to expend it: he expects to receive it

at the day, or what meant the engagement? if he fails of

receiving it, he is by so much a loser. The borrower, by paying

it at the day, is no loser: if he does not pay it at the day, he

is by so much a gainer: a pain of disappointment takes place in

the case of the one, while no such pain takes place in the case

of the other. The cause of him whose contention is to catch a

gain, is thus preferred to that of him whose contention is to

avoid a loss: contrary to the reasonable and useful maxim of that

branch of the common law which has acquired the name of equity.

The gain, which the law in its tenderness thus bestows on the

defaulter, is an encouragement, a reward, which it holds out for

breach of faith, for iniquity, for indolence, for negligence.

The loss, which it thus throws upon the forbearing lender, is

a punishment which it inflicts on him for his forbearance: the

power which it gives him of avoiding that loss, by prosecuting

the borrower upon the instant of failure, is thus converted into

a reward which it holds out to him for his hard-heartedness and

rigour. Man is not quite so good as it were to be wished he were;

but he would be bad indeed, were he bad on all the occasions

where the law, as far as depends on her, has made it his interest

so to be.

It may be impossible, say you, it often is impossible, for

the borrower to pay the interest at the day: and you say truly.

What is the inference? That the creditor should not have it in

his power to ruin the debtor for not paying at the day, and that

he should receive a compensation for the loss occasioned by such

failure. -- He has it in his power to ruin him, and he has it not

in his power to obtain such compensation. The judge, were it

possible for a arrested debtor to find his way into a judge's

chamber instead of a spunging-house, might award a proper

respite, suited to the circumstances of the parties. It is not

possible: but a respite is purchased, proper or not proper,

perhaps at ten times, perhaps at a hundred times the expence of

compound interest, by putting in bail, and fighting the creditor

through all the windings of mischievous and unnecessary delay. Of

the satisfaction due either for the original failure, or for the

subsequent vexation by which it has been aggravated, no part is

ever received by the injured creditor: but the instruments of the

law receive, perhaps at his expence, perhaps at the debtor's,

perhaps ten times, perhaps a hundred times the amount of that

satisfaction. Such is the result of this tenderness of the law.

It is in consequence of such tenderness that on so many

occasions a man, though ever so able, would find himself a loser

by paying his just debts: those very debts of which. the law has

recognized the justice. The man who obeys the dictates of common

honesty, the man who does what the law pretends to bid him, is

wanting to himself. Hence your regular and securely profitable

writs of error in the house of lords: hence your random and

vindictive costs of one hundred pounds, and two hundred pounds,

now and then given in that house. It is natural, and it is

something, to find, in a company of lords, a zeal for justice: it

is not natural, to find, in such a company, a disposition to bend

down to the toil of calculation.

LETTER XII - Maintenance and Champerty.

Having in the preceding letters had occasion to lay down,

and, as I flatter myself, to make good, the general principle,

that no man of ripe years, and of sound mind, ought, out of

loving kindness to him, to be hindered from making such bargain,

in the way of obtaining money, as, acting with his eyes open, he

deems conducive to his interest, I will take your leave for

pushing it a little farther, and extending the application of it

to another class of regulations still less defensible. I mean the

antique laws against what are called Maintenance and Champerty.

To the head of Maintenance, I think you refer, besides other

offences which are not to the present purpose, that of

purchasing, upon any terms, any claim, which it requires a suit

at law, or in equity, to enforce.

Champerty, which is but a particular modification of this sin

of Maintenance, is, I think, the furnishing a man who has such a

claim, with regard to a real estate, such money as he may have

occasion for, to carry on such claim, upon the terms of receiving

a part of the estate in case of success.

What the penalties are for these offences I do not recollect,

nor do I think it worth while hunting for them, though I have

Blackstone at my elbow. They are, at any rate, sufficiently

severe to answer the purpose, the rather as the bargain is made

void.

To illustrate the mischievousness of the laws by which they

have been created, give me leave to tell you a story, which is

but too true an one, and which happened to fall within my own

observation.

A gentleman of my acquaintance had succeeded, during his

minority, to an estate of about £3,000 a year; I won't say where.

His guardian, concealing from him the value of the estate, which

circumstances rendered it easy for him to do, got a conveyance of

it from him, during his nonage, for a trifle. Immediately upon

the ward's coming of age, the guardian, keeping him still in

darkness, found means to get the conveyance confirmed. Some years

afterwards, the ward discovered the value of the inheritance he

had been throwing away. Private representations proving, as it

may be imagined, ineffectual, he applied to a court of equity.

The suit was in some forwardness: the opinion of the ablest

counsel highly encouraging: but money there remained none. We all

know but too well, that, in spite of the unimpeachable integrity

of the bench, that branch of justice, which is particularly

dignified with the name of equity, is only for those who can

afford to throw away one fortune for the chance of recovering

another. Two persons, however, were found, who, between them,

were content to defray the expence of the ticket for this

lottery, on condition of receiving half the prize. The prospect

now became encouraging: when unfortunately one of the

adventurers, in exploring the recesses of the bottomless pit,

happened to dig up one of the old statutes against Champerty.

This blew up the whole project: however the defendant,

understanding that, some how or other, his antagonist had found

support, had thought fit in the mean time to propose terms, which

the plaintiff, after his support had thus dropped from under him,

was very glad to close with. He received, I think it was, £3,000:

and for that he gave up the estate, which was worth about as much

yearly, together with the arrears, which were worth about as much

as the estate.

Whether, in the barbarous age which gave birth to these

barbarous precautions, whether, even under the zenith of feudal

anarchy, such fettering regulations could have had reason on

their side, is a question of curiosity rather than use. My notion

is, that there never was a time, that there never could have

been, or can be a time, when the pushing of suitors away from

court with one hand, while they are beckoned into. it with

another, would not be a policy equally faithless, inconsistent,

and absurd. But, what every body must acknowledge, is, that, to

the times which called forth these laws, and in which alone they

could have started up, the present are as opposite as light to

darkness. A mischief, in those times, it seems, but too common,

though a mischief not to be cured by such laws, was, that a man

would buy a weak claim, in hopes that power. might convert it

into a strong one, and that the sword of a baron, stalking into

court with a rabble of retainers at his heels, might strike

terror into the eyes of a judge upon the bench. At present, what

cares an English judge for the swords of an hundred

barons? -- Neither fearing nor hoping, hating nor loving, the judge

of our days is ready with equal phlegm to administer, upon all

occasions, that system, whatever it be, of justice, or injustice,

which the law has put into his hands. A disposition so consonant

to duty could not have then been hoped for one more consonant is

hardly to be wished. Wealth has indeed the monopoly of justice

against poverty: and such monopoly it is the direct tendency and

necessary effect of regulations like these to strengthen and

confirm. But with this monopoly no judge that lives now is at all

chargeable. The law created this monopoly: the law, whenever it

pleases, may dissolve it.

I will not however so far wander from my subject as to

enquire what measure might have been necessary to afford a full

relief to the case of that unfortunate gentleman, any more than

to the cases of so many other gentlemen who might be found, as

unfortunate as he. I will not insist upon so strange and so

inconceivable an arrangement, as that of the judge's seeing both

parties face to face in the first instance, observing what the

facts are in dispute, and declaring, that as the facts should

turn out this way or that way, such or such would be his decree.

At present, I confine myself to the removal of such part of the

mischief, as may arise from the general conceit of keeping men

out of difficulties, by cutting them off from such means of

relief as each man's situation may afford. A spunge in this, as

in so many other cases, is the only needful, and only availing

remedy: one stroke of it for the musty laws against maintenance

and champerty: another for the more recent ones against usury.

Consider, for example, what would have respectively been the

effect of two such strokes, in the case of the unfortunate

gentleman I have been speaking of. By the first, if what is

called equity has any claim to confidence, he would have got,

even after paying off his champerty-usurers, £1500 a year in

land, and about as much in money: instead of getting, and that

only by an accident, £3000 once told. By the other, there is no

saving to what a degree he might have been benefited. May I be

allowed to stretch so far in favour of the law as to suppose,

that so small a sum as £500 would have carried him through his

suit, in the course of about three years? I am sensible, that may

be thought but a short sum, and this but a short term, for a suit

in equity: but, for the purpose of illustration, it may serve as

well as a longer. Suppose he had sought this necessary sum in the

way of borrowing; and had been so fortunate, or, as the laws

against the sin of usury would stile it, so unfortunate, as to

get it at 200 per cent. He would then have purchased his £6000 a

year at the price of half as much once paid, viz, £3000; instead

of selling it at that price. Whether, if no such laws against

usury had been in being, he could have got the money, even at

that rate, I will not pretend to say: perhaps he might not have

got it under ten times that rate, perhaps he might have got it at

the tenth part of that rate. Thus far, I think, we may say, that

he might, and probably would, have been the better for the repeal

of those laws: but thus far we must say, that it is impossible he

should have been the worse. The terms, upon which he met with

adventurers willing to relieve him, though they come not within

that scanty field, which the law, in the narrowness of its views,

calls usury, do, in the present case, at twenty years purchase of

the £3000 a year he was content to have sacrificed for such

assistance, amount, in effect, to 4000 per cent. Whether it was

likely that any man, who was disposed to venture his money, at

all, upon such a chance, would have thought of insisting upon

such a rate of interest, I will leave you to imagine: but thus

much may be said with confidence, because the fact demonstrates

it, that, at a rate not exceeding this, the sum would actually

have been supplied. Whatever becomes then of the laws against

maintenance and champerty, the example in question, when applied

to the laws against usury, ought, I think, to be sufficient to

convince us, that so long as the expence of seeking relief at law

stands on its present footing, the purpose of seeking that relief

will, of itself, independently of every other, afford a

sufficient ground for allowing any man, or every man, to borrow

money on any terms on which he can obtain it.

Crichoff,

in White Russia,

March 1 787.

LETTER XIII

To Dr. Smith, on Projects in Arts, &c.

SIR,

I forget what son of controversy it was, among the Greeks,

who having put himself to school to a professor of eminence, to

learn what, in those days, went by the name of wisdom, chose an

attack upon his master for the first public specimen of his

proficiency. This specimen, whatever entertainment it might have

afforded to the audience, afforded, it may be supposed, no great

satisfaction to the master: for the thesis was, that the pupil

owed him nothing for his pains. For my part, being about to shew

myself in one respect as ungrateful as the Greek, it may be a

matter of prudence for me to look out for something like candour

by way of covering to my ingratitude: instead therefore of

pretending to owe you nothing, I shall begin with acknowledging,

that, as far as your track coincides with mine, I should come

much nearer the truth, were I to say I owed you every thing.

Should it be my fortune to gain any advantage over you, it must

be with weapons which you have taught me to wield, and with which

you yourself have furnished me: for, as all the great standards

of truth, which can be appealed to in this line, owe, as far as I

can understand, their establishment to you, I can see scarce any

other way of convicting you of any error or oversight, than by

judging you out of your own mouth.

In the series of letters to which this will form a sequel, I

had travelled nearly thus far in my researches into the policy of

the laws fixing the rate of interest, combating such arguments as

fancy rather than observation had suggested to my view, when, on

a sudden, recollection presented me with your formidable image,

bestriding the ground over which I was travelling pretty much at

my ease, and opposing the shield of your authority to any

arguments I could produce.

It was a reflection mentioned by Cicero as affording him some

com. fort, that the employment his talents till that time had met

with, had been chiefly on the defending side. How little soever

blest, on any occasion, with any portion of his eloquence, I may,

on the present occasion, however, indulge myself with a portion

of what constituted his comfort: for, if I presume to contend

with you, it is only in defence of what I look upon as, not only

an innocent, but a most meritorious race of men, who are so

unfortunate as to have fallen under the rod of your displeasure.

I mean projectors: under which inviduous name I understand you to

comprehend, in particular, all such persons as, in the pursuit of

wealth, strike out into any new channel, and more especially into

any channel of invention.

It is with the professed view of checking, or rather of

crushing, these adventurous spirits, whom you rank with

"prodigals", that you approve of the laws which limit the rate of

interest, grounding yourself on the tendency, they appear to you

to have, to keep the capital of the country out of two such

different sets of hands.

The passage, I am speaking of, is in the fourth chapter of

your second book, volume the second of the 8vo edition of 1784.

"The legal rate" (you say) "it is to be observed, though it ought

to be somewhat above, ought not to be much above, the lowest

market rate. If the legal rate of interest in Great Britain, for

example, was fixed so high as eight or ten per cent. the greater

part of the money which was to be lent, would be lent to

prodigals and projectors, who alone would be willing to give this

high interest. Sober people, who will give for the use of money

no more than a part of what they are likely to make by the use of

it, would not venture into the competition. A great part of the

capital of the country would thus be kept out of the hands which

were most likely to make a profitable and advantageous use of it,

and thrown into those which were most likely to waste and destroy

it. Where the legal interest, on the contrary, is fixed but a

very little above the lowest market rate, sober people are

universally preferred as borrowers, to prodigals and projectors.

The person who lends money, gets nearly as much interest from the

former, as he dares to take from the latter, and his money is

much safer in the hands of the one set of people than in those of

the other. A great part of the capital of the country is thus

thrown into the hands in which it is most likely to be employed

with advantage."

It happens fortunately for the side you appear to have taken,

and as unfortunately for mine, that the appellative, which the

custom of the language has authorized you, and which the poverty

and perversity of the language has in a manner forced you, to

make use of, is one, which, along with the idea of the sort of

persons in question, conveys the idea of reprobation, as

indiscriminately and deservedly applied to them. With what

justice or consistency, or by the influence of what causes, this

stamp of indiscriminate reprobation has been thus affixed, it is

not immediately necessary to enquire. But, that it does stand

thus affixed, you and every body else, I imagine, will be ready

enough to allow. This being the case, the question stands already

decided, in the first instance at least, if not irrevocably, in

the judgments of all those, who, unable or unwilling to be at the

pains of analysing their ideas, suffer their minds to be led

captive by the tyranny of sounds; that is, I doubt, of by far the

greater proportion of those whom we are likely to have to judge

us. In the conceptions of all such persons, to ask whether it be

fit to restrain projects and projectors, will be as much as to

ask, whether it be fit to restrain rashness, and folly, and

absurdity, and knavery, and waste.

Of prodigals I shall say no more at present. I have already

stated my reasons for thinking, that it is not among them that we

are to look for the natural customers for money at high rates of

interest. As far as those reasons are conclusive, it will follow,

that, of the two sorts of men you mention as proper objects of

the burthen of these restraints, prodigals and projectors, that

burthen falls exclusively on the latter. As to these, what your

definition is of projectors, and what descriptions of persons you

meant to include under the censure conveyed by that name, might

be material for the purpose of judging of the propriety of that

censure, but makes no difference in judging of the propriety of

the law, which that censure is employed to justify. Whether you

yourself, were the several classes of persons made to pass before

you in review, would be disposed to pick out this or that class,

or this and that individual, in order to exempt them from such

censure, is what for that purpose we have no need to enquire. The

law, it is certain, makes no such distinctions: it falls with

equal weight, and with all its weight, upon all those persons,

without distinction to whom the term Projectors, in the most

unpartial and extensive signification of which it is capable, can

be applied. It falls at any rate (to repeat some of the words of

my former definition), upon all such persons, as, in the pursuit

of wealth, or even of any other object, endeavour, by the

assistance of wealth, to strike into any channel of invention. It

falls upon all such persons, as, in the cultivation of any of

those arts which have been by way of eminence termed useful,

direct their endeavours to any of those departments in which

their utility shines most conspicuous and indubitable; upon all

such persons as, in the line of any of their pursuits, aim at any

thing that can be called improvement; whether it consist in the

production of any new article adapted to man's use, or in the

meliorating the quality, or diminishing the expence, of any of

those which are already known to us. It falls, in short, upon

every application of the human powers, in which ingenuity stands

in need of wealth for its assistant.

High and extraordinary rates of interest, how little soever

adapted to the situation of the prodigal, are certainly, as you

very justly observe, particularly adapted to the situation of the

projector: not however to that of the imprudent projector only,

nor even to his case more than another's, but to that of the

prudent and wellgrounded projector, if the existence of such a

being were to be supposed. Whatever be the prudence or other

qualities of the project, in whatever circumstance the novelty of

it may lie, it has this circumstance against it, viz. that it is

new. But the rates of interest, the highest rates allowed, are,

as you expressly say they are, and as you would have them to be,

adjusted to the situation which the sort of trader is in, whose

trade runs in the old channels, and to the best security which

such channels can afford. But in the nature of things, no new

trade, no trade carried on in any new channel, can afford a

security equal to that which may be afforded by a trade carried

on in any of the old ones: in whatever light the matter might

appear to perfect intelligence, in the eye of every prudent

person, exerting the best powers of judging which the fallible

condition of the human faculties affords, the novelty of any

commercial adventure will oppose a chance of ill success,

superadded to every one which could attend the same, or any

other, adventure, already tried, and proved to be profitable by

experience.

The limitation of the profit that is to be made, by lending

money to persons embarked in trade, will render the monied man

more anxious, you may say, about the goodness of his security,

and accordingly more anxious to satisfy himself respecting the

prudence of a project in the carrying on of which the money is to

be employed, than he would be otherwise: and in this way it may

be thought that these laws have a tendency to pick out the good

projects from the bad, and favour the former at the expence of

the latter. The first of these positions I admit: but I can never

admit the consequence to follow. A prudent man, (I mean nothing

more than a man of ordinary prudence) a prudent man acting under

the sole governance of prudential motives, I still say will not,

in these circumstances, pick out the good projects from the bad,

for he will not meddle with projects at all. He will pick out

old-established trades from all sorts of projects, good and bad;

for with a new project, be it ever so promisiug, he never will

have any thing to do. By every man that has money, five per cent.

or whatever be the highest legal rate, is at all times, and

always will be, to be had upon the very best security, that the

best and most prosperous old-established trade can afford.

Traders in general, I believe, it is commonly understood, are

well enough inclined to enlarge their capital, as far as all the

money they can borrow at the highest legal rate, while that rate

is so low as 5 per cent., will enlarge it. How it is possible

therefore for a project, be it ever so promising, to afford, to a

lender at any such rate of interest, terms equally advantageous,

upon the whole, with those he might be sure of obtaining from an

old-established business, is more than I can conceive. loans of

money may certainly chance, now and then, to find their way into

the pockets of projectors as well as of other men: but when this

happens it must be through incautiousness, or friendship, or the

expectation of some collateral benefit, and not through any idea

of the advantageousness of the transaction, in the light of a

pecuniary bargain.

I should not expect to see it alledged. that there is any

thing, that should render the number of well-grounded projects,

in comparison of the ill-grounded, less in time future, than it

has been in time past. I am sure at least that I know of no

reasons why it should be so, though I know of some reasons, which

I shall beg leave to submit to you by and by, which appear to me

pretty good ones, why the advantage should be on the side of

futurity. But, unless the stock of well-grounded projects is

already spent, and the whole stock of ill-grounded projects that

ever were possible, are to be looked for exclusively in the time

to come, the censure you have passed on projectors, measuring

still the extent of it by that of the operation of the laws in

the defence of which it is employed, looks as far backward as

forward: it condemns as rash and ill-grounded, all those

projects: by which our species have been successively advanced

from that state in which acorns were their food, and raw hides

their cloathing, to the state in which it stands at present: for

think, Sir, let me beg of you, whether whatever is now the

routine of trade was not, at its commencement, project? whether

whatever is now establishment, was not, at one time, innovation?

How it is that the tribe of well-grounded projects, and of

prudent projectors (if by this time I may have your leave for

applying this epithet to some at least among the projectors of

time past), have managed to struggle through the obstacles which

the laws in question have been holding in their way, it is

neither easy to know, nor necessary to enquire. Manifest enough,

I think, it must be by this time, that difficulties, and those

not inconsiderable ones, those laws must have been holding up, in

the way of projects of all sorts, of improvement (if I may say

so) in every line, so long as they have had existence: reasonable

therefore it must be to conclude, that, had it not been for these

discouragements, projects of all sorts, well-grounded and

successful ones, as well as others, would have been more numerous

than they have been: and that accordingly, on the other hand, as

soon, if ever, as these discouragements shall be removed,

projects of all sorts, and among the rest, well-grounded and

successful ones, will be more numerous than they would otherwise

have been: in short, that, as, without these discouragements, the

progress of mankind in the career of prosperity, would have been

greater than it has been under them in time past, so, were they

to be removed, it would be at least proportionably greater in

time future.

That I have done you no injustice, in assigning to your idea

of projectors so great a latitude, and that the unfavourable

opinion you have professed to entertain of them is not confined

to the above passage, might be made, I think, pretty apparent, if

it be material, by another passage in the tenth chapter of your

first book.(27*) "The establishment of any new manufacture, of

any new branch of commerce, or of any new practice in

agriculture," all these you comprehend by name under the list of

"projects": of every one of them you observe, that "it is a

speculation from which the projector promises himself

extraordinary profits. These profits (you add) are sometimes very

great, and sometimes, more frequently perhaps, they are quite

otherwise. but in general they bear no regular proportion to

those of other old trades in the neighbourhood. If the project

succeeds, they are commonly at first very high. When the trade or

practice becomes thoroughly established and well known, the

competition reduces them to the level of other trades." But on

this head I forbear to insist: nor should I have taken this

liberty of giving you back your own words, but in the hope of

seeing some alteration made in them in your next edition, should

I be fortunate enough to find my sentiments confirmed by your's.

In other respects, what is essential to the publick, is, what the

error is in the sentiments entertained, not who it is that

entertains them.

I know not whether the observations which I have been

troubling you with, will be thought to need, or whether they will

be thought to receive, any additional support from those

comfortable positions, of which you have made such good and such

frequent use, concerning the constant tendency of mankind to get

forward in the career of prosperity, the prevalence of prudence

over imprudence, in the sum of private conduct at least, and the

superior fitness of individuals for managing their own pecuniary

concerns, of which they know the particulars and the

circumstances, in comparison of the legislator, who can have no

such knowledge. I will make the experiment: for, so long as I

have the mortification to see you on the opposite side, I can

never think the ground I have taken strong enough, while any

thing remains that appears capable of rendering it still

stronger.

"With regard to misconduct, the number of prudent and

successful undertakings" (you observe(28*)) "is every where much

greater than that of injudicious and unsuccessful ones. After all

our complaints of the frequency of bankruptcies, the unhappy men

who fall into this misfortune make but a very small part of the

whole number engaged in trade, and all other sorts of business;

not much more perhaps than one in a thousand."

'Tis in support of this position that you appeal to history

for the constant and uninterrupted progress of mankind, in our

island at least, in the career of prosperity: calling upon any

one who should entertain a doubt of the fact, to divide the

history into any number of periods, from the time of Caesar's

visit down to the present: proposing for instance the respective

aeras of the Restoration, the Accession of Elizabeth, that of

Henry VII, the Norman Conquest, and the Heptarchy, and putting it

to the sceptic to find out, if he can, among all these periods,

any one at which the condition of the country was not more

prosperous than at the period immediately preceding it; spite of

so many wars, and fires, and plagues, and all other public

calamities, with which it has been at different times afflicted,

whether by the hand of God, or by the misconduct of the

sovereign. No very easy task, I believe: the fact is too manifest

for the most jaundiced eye to escape seeing it: -- But what and

whom are we to thank for it, but projects, and projectors?

"No," I think I hear you saying, "I will not thank projectors

for it, I will rather thank the laws, which by fixing the rates

of interest have been exercising their vigilance in repressing

the temerity of projectors, and preventing their imprudence from

making those defalcations from the sum of national prosperity

which it would not have failed to make, had it been left free.

If, during all these periods, that adventurous race of men had

been left at liberty by the laws to give full scope to their rash

enterprizes, the increase of national prosperity during these

periods might have afforded some ground for regarding them in a

more favourable point of view. But the fact is, that their

activity has had these laws to check it; without which checks you

must give me leave to suppose, that the current of prosperity, if

not totally stopt, or turned the other way, would at any rate

have been more or less retarded. Here then" (you conclude) "lies

the difference between us: what you look upon as the cause of the

increase about which we are both agreed, I look upon as an

obstacle to it: and what you look upon as the obstacle, I look

upon as the cause." instead of starting this as a sort of plea

that might be urged by you, I ought, perhaps, rather to have

mentioned it as what might be urged by some people in your place:

for as I do not imagine your penetration would suffer you to rest

satisfied with it, still less can I suppose that, if you were

not, your candour would allow you to make use of it as if you

were.

To prevent your resting satisfied with it, the following

considerations would I think be sufficient.

In the first place, of the seven periods which you have

pitched upon, as so many stages for the eye to rest at in viewing

the progress of prosperity, it is only during the three last,

that the country has had the benefit, if such we are to call it,

of these laws: for it is to the reign of Henry VIII that we owe

the first of them.

Here a multitude of questions might be started: Whether the

curbing of projectors formed any part of the design of that first

statute, or whether the views of it were not wholly confined to

the reducing the gains of that obnoxious and envied class of men,

the moneylenders? Whether projectors have been most abundant

before that statute, or since that statute? And whether the

nation has suffered, as you might say-benefited, as I should say,

most by them, upon the whole, during the former period or the

latter? All these discussions, and many more that might be

started, I decline engaging in, as more likely to retard, than to

forward, our coming to any agreement conceiling the main

question.

In the next place, I must here take the liberty of referring.

you to the proof, which I think I have already given, of the

proposition, that the restraints in question could never have had

the effect, in any degree, of lessening the proportion of bad

projects to good ones, but only of diminishing, as far as their

influence may have extended, the total number of projects, good

and bad together. Whatever therefore was the general tendency of

the projecting spirit previously to the first of these laws, such

it must have remained ever since, for any effect which they could

have had in purifying and correcting it.

But what may appear more satisfactory perhaps than both the

above considerations, and may afford us the best help towards

extricating ourselves from the perplexity, which the plea I have

been combating (and which I thought it necessary to bring to

view, as the best that could be urged) seems much better

calculated to plunge us into, than bring us out of, is, the

consideration of the small effect which the greatest waste that

can be conceived to have been made within any compass of time, by

injudicious projects, can have had on the sum of prosperity, even

in the estimation of those whose opinion is most unfavourable to

projectors, in comparison of the effect which within the same

compass of time must have been produced by prodigality.

Of the two causes, and only two causes, which you mention, as

contributing to retard the accumulation of national wealth, as

far as the conduct of individuals is concerned, projecting, as I

observed before, is the one, and prodigality is the other: but

the detriment, which society can receive even from the concurrent

efficacy of both these causes, you represent, on several

occasions, as inconsiderable; and, if I do not misapprehend you,

too inconsiderable, either to need, or to warrant, the

interposition of government to oppose it. Be this as it may with

regard to projecting and prodigality taken together, with regard

to prodigality at least, I am certain I do not misapprehend you.

On this subject you ride triumphant, and chastise the

"impertinence and presumption of kings and ministers," with a

tone of authority, which it required a courage like your's to

venture upon, and a genius like your's to warrant a man to

assume.(29*) After drawing the parallel between private thrift

and public profusion, "It is" (you conclude) "the highest

impertinence and presumption therefore in kings and ministers to

pretend to watch over the economy of private people, and to

restrain their expence, either by sumptuary laws, or by

prohibiting the importation of foreign luxuries. They are

themselves always, and without exception, the greatest

spendthrifts in the society. let them look well after their own

expence, and they may safely trust private people with theirs. If

their own extravagance does not ruin the state, that of their

subjects never will."

That the employing the expedients you mention for restraining

prodigality, is indeed generally, perhaps even without exception,

improper, and in many cases even ridiculous, I agree with you;

nor will I here step aside from my subject to defend from that

imputation another mode suggested in a former part of these

papers. But however presumptuous and impertinent it may be for

the sovereign to attempt in any way to check by legal restraints

the prodigality of individuals, to attempt to check their bad

management by such restraints seems abundantly more so. To err in

the way of prodigality is the lot, though, as you well observe,

not of many men, in comparison of the whole mass of mankind, yet

at least of any man: the stuff fit to make a prodigal of is to be

found in every alehouse, and under every hedge. But even to err

in the way of projecting is the lot only of the privileged few.

Prodigality, though not so common as to make any very material

drain from the general mass of wealth, is however too common to

be regarded as a mark of distinction or as a singularity. But the

stepping aside from any of the beaten paths of traffic, is

regarded as a singularity, as serving to distinguish a man from

other men. Even where it requires no genius, no peculiarity of

talent, as where it consists in nothing more than the finding out

a new market to buy or sell in, it requires however at least a

degree of courage, which is not to be found in the common herd of

men. What shall we say of it, where, in addition to the vulgar

quality of courage, it requires the rare endowment of genius, as

in the instance of all those successive enterprizes by which arts

and manufactures have been brought from their original nothing to

their present splendor? Think how small a part of the community

these must make, in comparison of the race of prodigals; of that

very race, which, were it only on account of the smallness of its

number, would appear too inconsiderable to you to deserve

attention. Yet prodigality is essentially and necessarily

hurtful, as far as it goes, to the opulence of the state:

projecting, only by accident. Every prodigal, without exception,

impairs, by the very supposition impairs, if he does not

annihilate, his fortune. But it certainly is not every projector

that impairs his: it is not every projector that would have done

so, had there been none of those wise laws to hinder him: for the

fabric of national opulence, that fabric of which you proclaim,

with so generous an exultation, the continual increase, that

fabric, in every apartment of which, innumerable as they are, it

required the reprobated hand of a projector to lay the first

stone, has required some hands at least to be employed, and

successfully employed. When in comparison of the number of

prodigals, which is too inconsiderable to deserve notice, the

number of projectors of all kinds is so much more

inconsiderable-and when from this inconsiderable number, must be

deducted, the not inconsiderable proportion of successful

projectors -- and from this remainder again, all those who can

carry on their projects without need of borrowing -- think

whether it be possible, that this last remainder could afford a

multitude, the reducing of which would be an object, deserving

the interposition of government by its magnitude, even taking for

granted that it were an object proper in its nature?

If it be still a question, whether it be worth while for

government, by its reason, to attempt to controul the conduct of

men visibly and undeniably under the dominion of passion, and

acting, under that dominion, contrary to the dictates of their

own reason; in short, to effect what is acknowledged to be their

better judgment, against what every body, even themselves, would

acknowledge to be their worse; is it endurable that the

legislator should by violence substitute his own pretended

reason, the result of a momentary and scornful glance, the

offspring of wantonness and arrogance, much rather than of social

anxiety and study, in the place of the humble reason of

individuals, binding itself down with all its force to that very

object which he pretends to have in view? -- Nor let it be

forgotten, that, on the side of the individual in this strange

competition, there is the most perfect and minute knowledge and

information, which interest, the whole interest of a man's

reputation and fortune, can ensure: on the side of the

legislator, the most perfect ignorance. All that he knows, all

that he can know, is, that the enterprize is a project, which,

merely because it is susceptible of that obnoxious name, he looks

upon as a sort of cock, for him, in childish wantonness, to shie

at. -- Shall the blind lead the blind? is a question that has

been put of old to indicate the height of folly: but what then

shall we say of him who, being necessarily blind, insists on

leading, in paths he never trod in, those who can see?

It must be by some distinction too fine for my conception, if

you clear yourself from the having taken, on another occasion,

but on the very point in question, the side, on which it would be

my ambition to see you fix.

"What is the species of domestic industry which his capital

can employ, and of which the produce is likely to be of the

greatest value, every individual" (you say(30*)), "it is evident,

can, in his local situation, judge much better than any statesman

or lawgiver can do for him. The statesman, who should attempt to

direct private people in what manner they ought to employ their

capitals, would not only load himself with a most unnecessary

attention, but assume an authority which could safely be trusted,

not only to no single person, but to no council or senate

whatsoever, and which would no where be so dangerous as in the

hands of a man who had folly and presumption enough to fancy

himself fit to exercise it.

"To give the monopoly of the home market to the produce of

domestic industry, in any particular art or manufacture, is in

some measure to direct private people in what manner they ought

to employ their capitals, and must in almost all cases be either

a useless or a hurtful regulation." -- Thus far you: and I add,

to limit the legal interest to a rate at which the carriers on of

the oldest and best established and least hazardous trades are

always glad to borrow, is to give the monopoly of the

money-market to those traders, as against the projectors of

new-imagined trades, not one of which but, were it only from the

circumstance of its novelty, must, as I have already observed,

appear more hazardous than the old.

These, in comparison, are but inconclusive topics. I touched

upon them merely as affording, what appeared to me the only

shadow of a plea, that could be brought, in defence of the policy

I am contending against. I come back therefore to my first

ground, and beg you once more to consider, whether, of all that

host of manufactures, which we both exult in as the causes and

ingredients of national prosperity, there be a single one, that

could have existed at first but in the shape of a project. But,

if a regulation, the tendency and effect of which is merely to

check projects, in as far as they are projects, without any sort

of tendency, as I have shewn, to weed out the bad ones, is

defensible in its present state of imperfect efficacy, it should

not only have been defensible, but much more worthy of our

approbation, could the efficacy of it have been so far

strengthened and compleated as to have opposed, from the

beginning, an unsurmountable bar to all sorts of projects

whatsoever: that is to say, if, stretching forth its hand over

the first rudiments of society, it had confined us, from the

beginning. to mud for our habitations, to skins for our

cloathing, and to acorns for our food.

I hope you may by this time be disposed to allow me, that we

have not been ill served by the projects of time past. I have

already intimated, that I could not see any reason why we should

apprehend our being worse served by the projects of time future.

I will now venture to add, that I think I do see reason, why we

should expect to be still better and better served by these

projects, than by those. I mean better upon the whole, in virtue

of the reduction which experience, if experience be worth any

thing, should make in the proportion of the number of the

ill-grounded and unsuccessful, to that of the well-grounded and

successful ones.

The career of art, the great road which receives the

footsteps of projectors, may be considered as a vast, and perhaps

unbounded, plain, bestrewed with gulphs, such as Curtius was

swallowed up in. Each requires an human victim to fall into it

ere it can close, but when it once closes, it closes to open no

more, and so much of the path is safe to those who follow. If the

want of perfect information of former miscarriages renders the

reality of human life less happy than this picture, still the

similitude must be acknowledged: and we see at once the only

plain and effectual method for bringing that similitude still

nearer and nearer to perfection; I mean, the framing the history

of the projects of time past, and (what may be executed in much

greater perfection were but a finger held up by the hand of

government) the making provision for recording, and collecting

and publishing as they are brought forth, the race of those with

which the womb of futurity is still pregnant. But to pursue this

idea, the execution of which is not within my competence, would

lead me too far from the purpose.

Comfortable it is to reflect, that this state of

continually-improving security, is the natural state not only of

the road to opulence, but of every other track of human life. In

the war which industry and ingenuity maintain with fortune, past

ages of ignorance and barbarism form the forlorn hope, which has

been detached in advance, and made a sacrifice of for the sake of

future. The golden age, it is but too true, is not the lot of the

generation in which we live: but, if it is to be found in any

part of the track marked out for human existence, it will be

found, I trust, not in any part which is past, but in some part

which is to come.

But to return to the laws against usury, and their

restraining influence on projectors. I have made it, I hope,

pretty apparent, that these restraints have no power or tendency

to pick out bad projects from the good. Is it worth while to add,

which I think I may do with some truth, that the tendency of them

is rather to pick the good out from the bad? Thus much at least

may be said, and it comes to the same thing, that there is one

case in which, be the project what it may, they may have the

effect of checking it, and another in which they can have no such

effect, and that the first has for its accompaniment, and that a

necessary one, a circumstance which has a strong tendency to

separate and discard every project of the injudicious stamp, but

which is wanting in the other case. I mean, in a word, the

benefit of discussion.

It is evident enough, that upon all such projects, whatever

be their nature, as find funds sufficient to carry them on, in

the hands of him whose invention gave them birth, these laws are

perfectly, and if by this time you will allow me to say so, very

happily, without power. But for these there has not necessarily

been any other judge, prior to experience, than the inventor's

own partial affection. It is not only not necessary that they

should have had, but it is natural enough that they should not

have had, any such judge: since in most cases the advantage to be

expected from the project depends upon the exclusive property in

it, and consequently upon the concealment of the principle.

Think, on the other hand, how different is the lot of that

enterprize which depends upon the good opinion of another man,

that other, a man possessed of the wealth which the projector

wants, and before whom necessity forces him to appear in the

character of a suppliant at least: happy if, in the imagination

of his judge, he adds not to that degrading character, that of a

visionary enthusiast or an impostor! At any rate, there are, in

this case, two wits, set to sift into the merits of the project,

for one, which was employed upon that same task in the other

case: and of these two there is one, whose prejudices are

certainly not most likely to be on the favourable side. True it

is, that in the jumble of occurrences, an over-sanguine projector

may stumble upon a patron as over-sanguine as himself; and the

wishes may bribe the judgment of the one, as they did of the

other. The opposite case, however, you will allow, I think, to be

by much the more natural. Whatever a man's wishes may be for the

success of an enterprize not yet his own, his fears are likely to

be still stronger. That same pretty generally implanted principle

of vanity and self-conceit, which disposes most of us to

over-value each of us his own conceptions, disposes us, in a

proportionable degree, to undervalue those of other men.

Is it worth adding, though it be undeniably true, that could

it even be proved, by ever so uncontrovertible evidence, that,

from the beginning of time to the present day, there never was a

project that did not terminate in the ruin of its author, not

even from such a fact as this could the legislator derive any

sufficient warrant, so much as for wishing to see the spirit of

projects in any degree repressed? The discouraging motto, Sic vos

non vobis, may be matter of serious consideration to the

individual, but what is it to the legislator? What general, let

him attack with ever so superior an army, but knows that

hundreds, or perhaps thousands, must perish at the first onset?

Shall he, for that consideration alone, lie inactive in his

lines? "Every man for himself -- but God," adds the proverb (and it

might have added the general, and the legislator, and all other

public servants), "for us all." Those sacrifices of individual to

general welfare, which, on so many occasions, are made by third

persons against men's wills, shall the parties themselves be

restrained from making, when they do it of their own choice? To

tie men neck and heels, and throw them into the gulphs I have

been speaking of, is altogether out of the question: but if at

every gulph a Curtius stands mounted and caparisoned, ready to

take the leap, is it for the legislator, in a fit of old-womanish

tenderness, to pull him away? laying even public interest out of

the question, and considering nothing but the feelings of the

individuals immediately concerned, a legislator would scarcely do

so, who knew the value of hope, "the most precious gift of

heaven."

Consider, Sir, that it is not with the invention-lottery

(that great branch of the project-lottery, for the sake of which

I am defending the whole, and must continue so to do until you or

somebody else can shew me how to defend it on better terms), it

is not I say with the invention-lottery, as with the

mine-lottery, the privateering-lottery, and so many other

lotteries, which you speak of, and in no. instance, I think, very

much to their advantage. In these lines, success does not, as in

this, arise out of the embers of ill success, and thence

propagate itself, by a happy contagion, perhaps to all eternity.

let Titius have found a mine, it is not the more easy, but by so

much the less easy, for Sempronius to find one too: let Titius

have made a capture, it is not the more easy, but by so much the

less easy, for Sempronius to do the like. But let Titius have

found out a new dye, more brilliant or more durable than those in

use, let him have invented a new and more convenient machine, or

a new and more profitable mode of husbandry, a thousand dyers,

ten thousand mechanics, a hundred thousand husbandmen, may repeat

and multiply his success: and then, what is it to the public,

though the fortune of Titius, or of his usurer. should have sunk

under the experiment?

Birmingham and Sheffield are pitched upon by you as examples,

the one of a projecting town, the other of an unprojecting

one.(31*) Can you forgive my saying, I rather wonder that this

comparison of your own chosing, did not suggest some suspicions

of the justice of the conceptions you had taken up, to the

disadvantage of projectors. Sheffield is an old oak: Birmingham,

but a mushroom. What if we should find the mushroom still vaster

and more vigorous than the oak? Not but the one as well as the

other, at what time soever planted, must equally have been

planted by projectors: for though Tubal Cain himself were to be

brought post from Armenia to plant Sheffield, Tubal Cain himself

was as arrant a projector in his day, as ever Sir Thomas Lombe

was, or Bishop Blaise: but Birmingham, it seems, claims in common

parlance the title of a projecting town, to the exclusion of the

other, because, being but of yesterday, the spirit of project

smells fresher and stronger there than elsewhere.

When the odious sound of the word projector no longer tingles

in your ears, the race of men thus stigmatized do not always find

you their enemy. Projects, even under the name of "dangerous and

expensive experiments," are represented as not unfit to be

encouraged, even though monopoly be the means: and the monopoly

is defended in that instance, by its similarity to other

instances in which the like means are employed to the like

purpose.

"When a company of merchants undertake at their own risk and

expence to establish a new trade, with some remote and barbarous

nation, it may not be unreasonable" (you observe) "to incorporate

them into a joint-stock company, and to grant them, in case of

their success, a monopoly of the trade for a certain number of

years. It is the easiest and most natural way, in which the state

can recompense them, for hazarding a dangerous and expensive

experiment, of which the public is afterwards to reap the

benefit. A temporary monopoly of this kind may be vindicated,

upon the same principles, upon which a like monopoly of a new

machine is granted to its inventor, and that of a new book to its

author."

Private respect must not stop me from embracing this occasion

of giving a warning, which is so much needed by mankind. If so

original and independent a spirit has not been always able to

save itself from being drawn aside by the fascination of sounds,

into the paths of vulgar prejudice, how strict a watch ought not

men of common mould to set over their judgments, to save

themselves from being led astray by similar delusions?

I have sometimes been tempted to think, that were it in the

power of laws to put words under proscription, as it is to put

men, the cause of inventive industry might perhaps derive

scarcely less assistance from a bill of attainder against the

words project and Projectors, than it has derived from the act

authorizing the grant of patents. I should add, however, for a

time: for even then the envy, and vanity, and wounded pride, of

the uningenious herd, would sooner or later infuse their venom

into some other word, and set it up as a new tyrant, to hover,

like its predecessor, over the birth of infant genius, and crush

it in its cradle.

Will not you accuse me of pushing malice beyond all bounds,

if I bring down against you so numerous and respectable a body of

men, as the members of the Society for the Encouragement of Arts?

I do not, must not, care: for you command too much respect to

have any claim to mercy. At least you will not accuse me of

spiriting up against you barbarian enemies, and devoting you to

the vengeance of Cherokees and Chicasaws.

Of that popular institution, the very professed and capital

object is the encouragement of projects, and the propagating of

that obnoxious breed, the crushing of which you commend as a fit

exercise for the arm of power. But if it be right to crush the

acting malefactors, it would be downright inconsistency not to

crush, at the same time, or rather not to begin with crushing,

these their hirers and abettors. Thank then their inadvertence,

or their generosity, or their prudence, if their beadle has not

yet received orders to burn in ceremony, as a libel on the

society, a book that does honour to the age.

After having had the boldness to accuse so great a master of

having fallen unawares into an error, may I take the still

farther liberty, of setting conjecture to work to account for it?

Scarce any man, perhaps no man, can push the work of creation, in

any line, to such a pitch of compleatness, as to have gone

through the task of examining with his own eyes into the grounds

of every position, without exception, which he has had occasion

to employ. You heard the public voice, strengthened by that of

law, proclaiming all round you, that usury was a sad thing, and

usurers a wicked and pernicious set of men: you heard from one at

least of those quarters, that projectors were either a foolish

and contemptible race, or a knavish and destructive one: hurried

away by the throng, and taking very naturally for granted, that

what every body said must have some ground for it, you have

joined the cry, and added your suffrage to the rest. Possibly

too, among the crowd of projectors which the lottery of

occurrences happened to present to your observation, the

prejudicial sort may have borne such a proportion to the

beneficial, or shewn themselves in so much stronger colours, as

to have given the popular notion a firmer hold in your judgment,

than it would have had, had the contrary proportion happened to

present itself to your notice. To allow no more weight to

examples that fall close under our eyes, than to those which have

fallen at ever so great a distance -- to suffer the judgment on

no occasion to indulge itself in the licence of a too hasty and

extensive generalisation -- not to give any proposition footing

there, rill after all such defalcations have been made, as are

necessary to reduce it within the limits of rigid truth -- these

are laws, the compleat observance whereof forms the ultimate, and

hitherto, perhaps for ever, ideal term of human wisdom.

You have defended against unmerited obloquy two classes of

men, the one innocent at least, the other highly useful; the

spreaders of English arts in foreign climes,(32*) and those whose

industry exerts itself in distributing that necessary commodity

which is called by the way of eminence the staff of life. May I

flatter myself with having succeeded at last in my endeavours, to

recommend to the same powerful protection, two other highly

useful and equally persecuted sets of men, usurers and

projectors. -- Yes -- I will, for the moment at least, indulge so

flattering an idea: and, in pursuance of it, leaving usurers, for

whom I have said enough already, I will consider myself as joined

now with you in the same commission, and thinking with you of the

best means of relieving the projector from the load of

discouragement laid on him by these laws, in so far as the

pressure of them falls particularly upon him. In my own view of

the matter, indeed, no temperament, no middle course, is either

necessary or proper: the only perfectly effectual, is the only

perfectly proper remedy, -- a spunge. But, as nothing is more

common with mankind, than to give opposite receptions, to

conclusions flowing with equal necessity from the same principle,

let us accommodate our views to that contingency. According to

this idea, the object, as far as confined to the present case,

should be, to provide, in favour of projectors only, a

dispensation from the rigour of the anti-usurious laws: such, for

instance, as is enjoyed by persons engaged in the carrying trade,

in virtue of the indulgence given to loans made on the footing of

respondentia or bottomry. As to abuse, I see not why the danger

of it should be greater in this case than in those. Whether a sum

of money be embarked, or not embarked, in such or such a new

manufacture on land, should not, in its own nature, be a fact

much more difficult to ascertain, than whether it be embarked, or

not embarked, in such or such a trading adventure by sea: and, in

the one case as in the other, the payment of the interest, as

well as the repayment of the principal, might be made to depend

upon the success of the adventure. To confine the indulgence to

new undertakings, the having obtained a patent for some

invention, and the continuance of the term of the patent, might

be made conditions of the allowance given to the bargain: to this

might be added affidavits, expressive of the intended

application, and bonds, with sureties, conditioned for the

performance of the intention so declared; to be registered in one

of the patent-offices or elsewhere. After this, affidavits once a

year, or oftener, during the subsistence of the contract,

declaring what has been done in execution of it.

If the leading-string is not yet thought tight enough, boards

of controul might be instituted to draw it tighter. Then opens a

scene of vexation and intrigue: waste of time consumed in

courting the favour of the members of the board: waste of time,

in opening their understandings, clenched perhaps by ignorance,

at any rate by disdain, and self-sufficiency, and vanity, and

pride: the favour (for pride will make it a favour) granted to

skill in the arts of self-recommendation and cabal, devoid of

inventive merit, and refused to naked merit unadorned by practice

in those arts: waste of time on the part of the persons

themselves engaged in this impertinent inquiry: waste of

somebody's money in paying them for this waste of time. All these

may be necessary evils, where the money to be bestowed is public

money: how idle where it is the party's own! I will not plague

you, nor myself, with enquiring of whom shall be composed this

board of nurses to grown gentlemen: were it only to cut the

matter short, one might name at once the committees of the

Society of Arts. There you have a body of men ready trained in

the conduct of enquiries, which resemble that in question, in

every circumstance, but that which renders it ridiculous: the

members or representatives of this democratic body would be as

likely, I take it, to discharge such a trust with fidelity and

skill, as any aristocracy that could be substituted in their

room.

Crichoff,

in White Russia,

March 1787.

To Dr Smith

A little tract of mine, in the latter part of which I took

the liberty of making use of your name, (the Defence of Usury),

having been some time out of print, I am about publishing a new

edition of it. I am now therefore at a period at which, if I have

done you or any body any injustice, I shall have the opportunity,

and assuredly I do not want the inclination, to repair it: or if

in any other respect I have fallen into an error, I could give

myself and the public the benefit of its being set right. I have

been Battered with the intelligence that, upon the whole, your

sentiments with respect to the points of difference are at

present the same as mine: but as the intimation did not come

directly from you, nor has the communication of it received the

sanction of your authority, I shall not without that action give

any hint, honourable as it would be to me, and great as the

service is which it could not but render to my cause.

I have been favoured with the communication from Dr Reid of

Glasgow of an inedited paper of his on the same subject, written a

good many years ago. He declares himself now fully of my opinion

on the question of expediency, and had gone a considerable length

towards it at that time. The only ground on which he differs from

me, is that of the origination of the prejudice, of which his

paper gives, as might be expected, an account more ecclesiastical

than mine. Anxious to do my cause as much service as it is

capable of receiving, I write to him now, to endeavour to

persuade him to give his paper to the world, or if he looks upon

so much of it as concerns the question of utility [as] superseded

by mine, that he will either communicate the historical part --

that part which he prefers to mine -- to some general repository

for short publications, or allow me the honour of forwarding it

to the world in company with mine. The account that has been

given by the Marquis de Condorcet of the sentiments of Turgot on

the same subject, is already every body's without leave: I shall

accordingly annex, by way of appendix to my new edition, the

original as well as a translation of that short passage. I am the

more anxious to collect all the force I can muster, in as far as

I find from the printed debates, as well as from private

intelligence, that the project of reducing the rate of interest

in Ireland is not yet given up: though this perseverance is

hardly reconciliable with the account I receive from the same

quarter, of the impression made in that country by the Defence of

Usury. Yet the subjecting the rate of interest to a further

reduction by a new law, is a much more mischievous and less

defensible measure than the continuing of the restraint upon the

old footing: and adds to the mischief of the old established

regimen others of a new and much more serious nature. It would be

a tax upon the owners of money, much heavier than ever was levied

upon the proprietors of land: with this circumstance to

distinguish it from all other taxes, that, instead of being

brought into the treasury for the public service, it is made a

present of to the collectors, in expectation of the good they are

to do the nation by the spending of it. If this be good thrift,

in the name of consistency and equality let them impose a land

Tax to the same amount, and dispose of the produce in the same

manner. What makes my anxiety the greater, is the uncertainty

whether this project of plunder without profit may not be still

hovering over this island. Last year it was roundly and

positively asserted in the Irish House of Commons, as if upon

personal knowledge, to he determined upon in the Cabinet here:

and the Administration being appealed to, though they of course

would not acknowledge, would no contradict it. Its suspension

hitherto may have resulted from nothing more than a doubt whether

the nation were yet ripe, according to the Irish phrase, for this

mode of enrichment: as if there were a time at which a nation

were riper for plunder and waste than at another. I am truly

sorry I can not find time to make one effort more for the express

purpose of stemming the torrent of delusion in that channel. The

straw I have planted has done something: what might not be hoped

for, if your oak-stick were linked with it?

As the world judges, one upon examination and nine hundred

and ninety-nine upon trust, the declaration of your opinion upon

any point of legislation would be worth, I won't pretend to say

how many votes: but the declaration of your opinion in favour of

a side to which conviction and candour had brought you over from

the opposite one, would be worth at least twice or thrice as

many: under such circumstances, the authority of the converter

would tell for little in comparison of that of the proselyte,

especially such a proselyte. We should have the Irish Chancellor

of the Exchequer abjuring his annual motion in the face of the

House, and Lord Hawkesbury who, it has been said, is Mr Pitt's

tutor in this wise business, quietly and silently putting his

papers and calculations into the fire.

If, then, you agree with me in looking upon this as a most

pernicious measure, you would, like me, be glad to see it put an

end to, and for that purpose the acknowledgement of your opinion

on a subject which you have made so much and so honourably your

own, is an expedient to the use of which, I should hope, you

would not see any objection: the less as you would hardly, I

suppose, let another edition of your great work go abroad with

opinions in it that were yours no longer. If, then, you think

proper to honour me with your allowance for that purpose, then

and not otherwise I will make it known to the public, in such

words as you give me, that you no longer look upon the rate of

interest as fit subject for restraint: and then, thanks to you

and Turgot and Dr Reid, the Defence of Usury may be pronounced,

in its outworks at least, a strong-hold.

PREFACE TO THE SECOND EDITION

When the first edition of these letters was published, I was

still in the distant country from which they were written. It is

about two years, since that impression was exhausted: it is about

a year and a half since this reimpression was compleated, the

publication having been retarded till now by causes not worth

mentioning. The alterations made in this second edition are few,

and those merely verbal and of no importance. In this interval,

had I heard of any objection, total or partial, I would have

either admitted the force of it, or answered it: but I have not

been able to meet with any. I have scarce heard of a reader who

has not acknowledged himself convinced. The practical conclusion

is the repealing of the laws against usury, together with those

others that are here pointed out as depending on the same

principle. That matters are at all the nearer to such a measure

since the publication of this work than they were before, is more

than I can pretend to have any ground for supposing: for in great

political questions, wide indeed is the distance between

conviction and practice. An intelligent Frenchman, of whom I have

not been able to learn enough to distinguish him more

particularly, published a few months since a translation he had

made for his own amusement, a considerable time before the

commencement of the Revolution, he says, not long after the work

found its way to France. He kept back the translation, thinking

the country not ripe for it. The general slaughter that has been

made of all sorts of prejudices in that country may now, he

thinks, have opened the way for it. But if its turning to any

account in practice depends upon the overthrow of prejudice, who

shall calculate the period, at which any good can be expected

from it here?

It is to the attempt made in Ireland to effect a fresh forced

reduction of the legal rate of interest in that country, that the

reimpression there published must naturally have been indebted

for a circulation proportionably more extensive than here.

Between that measure and the laws condemned by this

investigation, the connection is close and evident. Had the

reduction so proposed been naturally productive of the advantage

expected from it, and at the same time not attended with any

additional hardship or other inconvenience superior to that

advantage, such a reduction would then have had no other

objections to combat than the objections, decisive as they are

represented in this work, which apply to the original fixation.

According to my conception of the matter, however, that advantage

is altogether illusory; the measure is attended with hardships

much more than sufficient to outweigh the advantage, were it

real, and of these, several are distinct from, and superadded to,

those which result from the impropriety of ever having fixed any

rate at all. Had I divined the politico-economical advantage

proposed from this ulterior and fresh reduction, I should have

set it down among the reasons capable of being alledged in

support of the original fixation: for the advantage, if it were

one, of the proposed future reduction, must proportionably have

resulted from the precedent ones. The fact is, I must confess,

that in the situation I was then in, sequestered not less from

political converse than from books, this supposed advantage had

equally escaped my recollection and my imagination as applicable

to the original fixation, though recollection had represented it

as capable of having been supposed to result from successive

reductions. From newspapers I had learnt thus much, that in

England a fresh reduction had lately been proposed, as tending

some how or other to the benefit of trade: but the sound of the

word trade being all I was able to collect, what that benefit

was, or how it was to be brought about, was more than I could

conceive. To apply it to the immediate subject I was treating of,

it was necessary I should have some conception of the force of

it: and unfortunately I was unable to perceive any force or

meaning in it at all. It had equally escaped Dr Smith: for his

reasons in support of the limitation of the rate of interest are

confined to the discouragement of prodigals and projectors: of

any supposed benefit to trade that was to follow from it in any

other way, he betrays not the smallest suspicion: and blindness

may be confessed without much shame, where eyes like Dr Smith's

have failed to see. I little suspected, I must confess, that so

many intelligent and ingenious men would so compleatly have

mistaken a consequence for a cause. Instructed by the debates of

the Irish Parliament. I now understand clearly what benefit was

expected from it, but how that benefit was to flow from it is as

much a mystery to me as ever. I will however avail myself now of

that intelligence. By way of postscript, I have accordingly given

a very short, but what appeared to me compleat, answer to the

argument afforded by that supposed benefit to my system: and

being thereby engaged to touch upon the measure of an ulterior

reduction by which this supposed advantage was brought to view, I

have stated such other considerations a appear to combat the

propriety of that ulterior reduction, though not all of them

applicable to the continuing of the rate at its present level.

As little can I pretend to say, whether a project of the same

nature bas received any check from it in England. Infallibility

is among the appendages of power: and if it be a dream, it is one

of those which do not own themselves as such, and from which men

are seldom thankful for being awaked. Several circumstances

render probable that a project of this sort was not very long ago

entertained: a positive assertion to that effect made in the

Irish Parliament received no contradiction. Of late, nothing has

been heard of it. The notion perhaps may be, that the country is

not yet ripe for it. My notion is that no country ever was, or

ever can be.

I do not pretend here to exhaust the subject, or to urge all

that can be urged against the measure: nor to trace out to the

last link the whole chain of its consequences. Such an

undertaking would require more paper perhaps than it is worth, at

any rate more time than at present I can spare. All I pretend to

is to give what shall be sufficient to demonstrate its impolicy

and injustice.

The propositions here given as conclusions from the decisive

principle are, most of them, maintained by Dr Smith. The

proposition here given as a principle itself is also laid down in

the same admirable work: but without emphasis, and for any direct

use that has been made of it, it might as well have not been

there. Wide is the difference between a full view of a principle

and a side glance. The principle which forms the basis of Locke's

Essay is to be found, in so many words, in Aristotle: yet what

was the world the better for it while it was in the hands of

Aristotle, till Locke put it out to use? This same principle is

also to be found, stated still more pointedly, in Lord

Sheffield's elaborate and useful work. Yet what came of it? The

whole work is full of advice as repugnant to that principle as it

is to the doctrines of Dr Smith's book: that very book which his

Lordship quotes in those terms of respect which is its due, for

the sake of stating almost the only doctrine in which the

authority is in his favour, passing by the whole of what is

against him, that is almost the whole contents of the book, as if

they had not been there.

Colonies. Dr. Smith observes that, by the expence they have

produced instead of revenue, they have been always hitherto worth

so much less than nothing, and by the expence of wars waged for

them, a hundred and so many millions less than nothing. What is

his practical inference? that they should be given up? no: but

that either they should be given up, or made to yield a revenue,

which is impossible. The idea of giving them up is started -- but

how? as the extremity of misfortune, the horrors of which should

drive us into schemes for making them yield a revenue, as the

only alternative common sense admitts of. We are to give them up:

how? with the same emotions of regret, with which a man who found

a necessity of retrenching, would lay down his equipage. The

separation would be a misfortune not to us only, but to them. Why

to them? because nothing but our superior wisdom and virtue could

prevent their falling together by the ears. The event has not

been favourable to this prophecy. Among these rebels, every thing

breathes content and unanimity. Ill will there never has been:

and the last spark of so much as a difference of opinion,

patience has now finally extinguished. In the principal of our

still loyal colonies, whose petitions for these six years we have

not been able to find time to listen to, the discontent is as

notorious as it is just. May it be effectual!

POSTSCRIPT

SHORT OBSERVATIONS ON THE INJUSTICE AND IMPOLICY OF FORCED

REDUCTIONS OF THE RATE OF INTEREST

Since the writing of the preceding Letters, I have heard of

some other advantages supposed to result from the limitation of

the rate of interest which, I must confess, had not then occurred

to me as resulting from the restraints thus laid on the liberty

of contracting.

These are

1. Encreasing the sum of national wealth.

2. Enabling the state to take and to keep money at interest

upon more advantageous terms than it could otherwise, and thus

diminishing the sum of the public burthens which are the

deductions from national wealth, encreasing therefore in this

negative way the clear sum of national wealth upon the whole.

Examine into these supposed advantages, you will find them

both altogether illusory, and that, did they not only exist, but

exist in the utmost degree that was ever attributed to them, they

could not be obtained but at the expence of inconveniences much

more considerable.

The first of them does not exist in point of fact: such a

limitation has scarce any perceptible tendency in any way

whatever to add to the mass of national wealth, and it tends in a

variety of ways to diminish it.

As to the second, neither does that exist in the shape of an

advantage. The public may or may not hold money of individuals at

interest upon more advantageous terms, but from this circumstance

the mass of national wealth is not rendered a jot more

considerable than it would be otherwise.

At no time, therefore, does the nation, collectively

considered, derive any advantage from this limitation: and as

often as any fresh imitation is applied whereby the restraint is

drawn tighter, the nation suffers the inconvenience of an unequal

and very heavy tax. without reaping the advantages that it does

from other taxes.

First supposed advantage -- Encreasing in a direct way the mass

of national wealth in the hands of individuals.

This advantage, I say, will not be found to result in any

degree from this measure.

Every accession made to the national stock of wealth, is the

result of labour employed by the help of capital, the result of

preceding labour.

No accession to wealth in any hands, public or private, can

take place but in one or other of two ways: 1. By the

augmentation of the mass of capital employed in giving motion to

industry: 2. By a more advantageous application of the existing

stock of capital, its application in a more advantageous manner.

That the measure in question can contribute in the latter of

these two modes to the encrease of wealth, has never been, nor

ever will be supposed.

On the other hand I have already shewn

that it has a contrary effect. Every more advantageous mode than

was before known of applying a part of the quantity of capital in

hand is, previously to trial and success, a Project: and the

effect of this limitation in discouraging projects has already

been displayed.

2. It has no particular tendency to encrease the quantity of

capital.

It has, it is true, a tendency to modify in a certain manner

the distribution of wealth among the different sharers: it is

only in proportion as it has this tendency, that this or any

other regulation relative to property can have any effect at all.

It must also be admitted that, if in any degree it tends to

augment the quantity of wealth employed in the shape of capital,

with reference to, and at the expence of, that part which is

employed in the shape of unproductive consumption and

expenditure, it must in proportion operate in augmentation of the

mass of capital employed as capital in the production of wealth,

and thence of the growing stock of national wealth.

Whoever saves money, as the phrase is, adds proportionably to

the general mass of capital.

There is scarce any description of people that does not

include some individuals that save money: but some descriptions

are likely to include more such frugal individuals than others.

If the tendency of the measure in question be to throw or to keep

money in the hands of persons of particular descriptions in

preference to others, and those descriptions are more likely to

be of a frugal cast upon the whole than the descriptions of

people at whose expence it is thus disposed of, the measure

possesses in so far a tendency to produce the intended effect.

But no such particular tendency is discoverable in it.

The persons on whom it operates, belong to one or other of

two classes, borrowers and lenders: its property is to favour the

former at the expence of the latter. If of borrowers in general

it could be said that they were more frugal than lenders, a

favour shewn to borrowers as such would be a help given to

frugality.

But no such proposition thus taken in the lump can be

received as true. Neither reason nor so much as prejudice plead

in favour of it. Ask prejudice, the answer will be that, in

comparison of borrowers, lenders are not only frugal, but frugal

to such a degree as to be. avaricious. The supposition of their

proneness to avarice is the very thing that excites prejudice

against them, and disposes the bulk of mankind to favour all

regulations, the tendency of which is to lay them under a

disadvantage. It is because they are hoarders that they are to be

discouraged -- to what end? -- in order to encourage hoarding.

Such is the consistency of blind and vulgar prejudice, hitherto

in so many important points the arbiter of the destiny of

nations.

Setting prejudice aside, and taking reason for our guide, it

is impossible to say whether the cause of frugality be

prejudiced or served by the favour thus shewn to borrowers,

untill it be specified for what purpose a man means to borrow.

When a man borrows, it is either to spend or to accumulate.

So far as it favours the dissipating class of borrowers, the

measure directly counteracts this its proposed object: it adds,

as far as it operates, to the amount of what they are enabled to

employ in dissipation.

It is not incumbent on those who take the side I take, to go

about to prove a negative, viz. that in the class of borrowers

there is not likely to be more frugality than in the class of

lenders. It is incumbent on those who take the side I combat, to

establish the opposite affirmative proposition. Every restraint

on liberty is so far an evil: and it lies on him who proposes any

such restraint, to shew the greater good by which this evil is

counterbalanced. This has never been attempted: nor, howsoever it

may have been tacitly taken for granted, has it in any instance

been directly and explicitly affirmed. Propositions diametrically

opposite are both received with open arms, to justify the

propensity to injure and oppress the class of lenders. At one

time lenders are to be pinched, because borrowers are more likely

to be spendthrifts than hoarders: at another time, because they

are more likely to be hoarders than spendthrifts.

Persons concerned in bargains of this kind may be

distinguished into three classes: possessors of capital who risk

to lend it, i.e. money lenders; dissipating borrowers; and

accumulating borrowers. The restraint in question favours the two

latter classes at the expence of the former. That in as far as it

favours dissipating borrowers, it counteracts its avowed purpose,

is manifest at any rate: does it promote that purpose in as far

as it favours accumulating borrowers? This can not so clearly be

averred. It does so only in as far as the accumulating borrowers

are greater accumulators than the persons of whom they borrow.

Take an instance. The money that is borrowed by accumulators

engaged in trade, of whom is it borrowed principally? of persons

who spend all their income? No, but of other accumulators -- of

other persons as great accumulators as themselves: of shopkeepers

or wholesale dealers in the way of goods ordered on credit: or of

bankers or merchants in the way of discount. And thus far,

therefore, it is evident that accumulation is not more favoured

by the restraint in one way, than it is checked in the other.

In another way the restraint in question counteracts this

part of its object in a more manifest and conspicuous manner:

viz. by lessening the quantity of borrowed capital employed in

accumulation.

The world can augment its capital only in one way: viz. by

parsimony. A nation may augment its capital, as an individual may

augment his capital, in either of two ways: by saving, or by

borrowing. By borrowing capital for the purpose of accumulation,

is it likely to add to the stock of national wealth? Yes: if the

value of what is thereby produced is greater than the value of

what is paid for interest: in that case the clear amount of the

accumulation, the clear gain to the nation, is to the amount of

the difference. But this it may always be reckoned, and that on

two different accounts which concurr in encreasing the advantage:

1. In the first place, the general rate of mercantile profit is

greater every where than the rate of interest: it is in general

at least double: 2. In the next place, in manufactures(33*) the

rate of profit encreases with the encrease of capital by the

advantages derivable from the division of labour, and the making

the same quantity of machinery and warehouse room and even labour

in some cases serve for a larger quantity of work than would have

been necessary for a smaller.

It has already been shewn in the body of the work that the

quantity of good success in all branches of industry taken

together is much superior to the quantity of ill success: and

this it is not less likely to be in the instances where a man

aids his original by borrowed capital than in others. If a man

engaged in industry did not expect to get more by the money he

borrows than he pays for it, he would not borrow it: and it has

been shewn that such expectations are much more frequently

realised than frustrated. To seek to restrain industrious men

from borrowing money under the apprehension of its not answering

to them would be an additional instance, but an instance not more

flagrant than those which are perpetually exhibited, of the

ignorance and folly, and blindness, and vanity, and presumption,

and despotism that hitherto have been endemial among legislators.

Look into pamphlets and debates, you will find people

disposed to quarrel with outlandish money, because it is

outlandish, at least for the purpose of the argument. The popular

notion that ill-gotten money does not thrive, howsoever hacknied

by superstition, has not only a much better effect, but even a

more rational ground.

Two ill effects are attributed to outlandish money:

1st. That the interest paid for it is so much money sent out

of the country. But were not the interest sent out of the

country, the profit would not come into it. And profit, we have

seen, ought to be estimated at more than double the value of the

interest. The force of this argument depends upon the forgetting

altogether the chapter of profit: and supposing that the money

thus sent out of the country, is sent out for nothing. It is an

argument that applies against selling any thing to foreigners: or

indeed to any body on any terms.

What are the particular courses taken by such imported money,

whether for example it being laid out in the public funds or lent

out to individuals, makes no sort of difference. If the money

laid out by the Dutch in the English funds, that is, lent to the

English government, had not been so disposed of, English money to

the same amount must have lain there: there would therefore have

been so much less English money to be applied in the support of

English industry, in the encrease of the sum of the national

wealth of England.(34*)

2dly. That money borrowed of foreigners will be perpetually

liable to be recalled.

To render this an objection, two circumstances must concur.

1. The foreign money must be more liable to be recalled than

home money.

2. When recalled, the prejudice resulting from the recall

must be likely to be greater than all the advantage reaped before

the recall.

Neither of these propositions has ever been attempted to be

proved: nor does either seem likely to be true.

1. It may happen to any lender to recall his money: but this

is not more likely to happen to a man of one country than of

another. You may put cases where an Englishman who has lend his

money in Ireland(35*) may be disposed to recall that money: but

it is just as easy to put cases in which an Irishman who has lent

his money in Ireland may be disposed to do the same thing. An

Irishman who is upon the spot is more likely to look for, to spy

out, and to improve such opportunities, than an Englishman who is

at a distance, and who, if he lends his money in such a way, is

more likely to have lent it with views of permanence, and as a

means of providing himself for life, without farther sollicitude,

a settled income.

2. If there were any reason to apprehend that the time when

the foreign lender may call in his money would be more

inconvenient to the lender than the time when a home lender might

call in his, the danger of recall might sooner afford an

objection to the importation of foreign capital. But no such

reason can be assigned. The disposition of the foreign lender to

call in his money will not be governed by the consideration of

the inconvenience to the borrower, but by the consideration of

his own convenience. But that convenience is not the more likely

to clash with the convenience of the borrower on account of the

lender's being a foreigner: not more likely to do so than that of

a lender at home. We have seen that on one account it is less

likely: because a foreign lender is less likely to be tempted by

opportunities of occasional profit to clasp and change his

security than a native. It is also on another account: a lender

at home is more in the way of being acquainted with the

circumstances and exigencies of his borrower.. more in the way of

having quarrels with him: of watching opportunities of

distressing him in a time of need, either for the sake of hurting

him, or for the sake of making a profit of his distress.

Whatever may, by accident, be the disadvantage resulting to A

or B in this way from a recall of a foreign capital, a capital

thus imported will, so long as it continues unrecalled, be

productive to the nation that has imported it, of a clear revenue

to the amount just stated. If the use of a million for ten years

would have been worth £600,000, the use of the same million for

one year will have been £60,000. Recall it when you will, it will

have had its value from the time of its importation to the time

of its recall. To furnish an argument against the import, the

inconvenience likely to result from the recall must be not only

very considerable, but superior to the whole amount of the

benefit reaped previously to the recall.

DEVELOPMENT OF THE PRINCIPLE "NO MORE TRADE THAN CAPITAL", OR

"CAPITAL LIMITS TRADE".

1. No branch of productive industry can be carried on without

the help of a certain quantity of capital previously accumulated.

2. The whole quantity of productive industry each individual

can carry on, is limited by the quantity he has of his own, or is

able to borrow of other individuals. The whole quantity of

productive industry a nation can carry on, is limited by the

quantity of capital it has of its own, or can borrow from other

nations. The whole quantity of productive industry the world can

carry on, is limited by the capital it has of its own, till it

can find another world to borrow of.

3. Credit need not be taken separately into the account:

since credit is but capital borrowed, and the quantity that can

be borrowed is limited by the quantity possessed.

4. The quantity of capital limiting the quantity of

productive industry, limits in the same proportion the possible

quantity, and amount in value, of the produce of that industry,

and thence of whatever part of it is capable of becoming the

subject of trade. The quantity of capital sets the limit to the

quantity of wealth: it likewise sets the limit to the quantity of

trade.

5. Therefore no regulations nor any efforts whatsoever,

either on the part of subjects or governors, can raise the

quantity of wealth produced during a given period to an amount

beyond what the productive powers of the quantity of capital in

hand at the commencement of that period are capable of producing.

6. A given quantity of capital may enable the employer to

produce a greater quantity of wealth when employed in one way

than when employed in another. Let the number of possible ways of

employing capital be any number whatever, suppose a thousand: if

a minister could make out that one certain mode would be more

productive than any one of the remaining 999, he would have

reason for wishing that a certain portion of the national capital

should be applied to that branch, in preference to all

others.(36*) But he would have no sufficient reason for so much

as wishing it, till he had made out that superiority with respect

to all the 999.(37*) And though he had made it out ever so clear,

he could have no warrantable ground for employing coercive

measures to induce any one to engage in this most advantageous of

all branches. For the more evident its superiority, the more

certain it is that, as soon as that superiority was made evident

to them, men would betake themselves to that superior branch of

their own accord, without being either hired or forced to do so.

7. Vanity and weakness can alone give him a plea which would

be sufficient to his own conscience, to warrant his employing

force(38*) to such a purpose. And whichever plea such a

persuasion might afford to his own conscience, it is a plea that

could never be valid in the eyes of any other men. To every

bystander the refusal of the persons concerned to engage in the

business without being thus compelled or hired, would be a

stronger reason for looking upon it as not being an advantageous

one, than any it could ever be possible for him to give on the

other side.

PRACTICAL CONSEQUENCES OF THE PRINCIPLE "NO MORE TRADE THAN

CAPITAL" WITH RESPECT TO COLONIAL GOVERNMENT, ECONOMY AND PEACE

What is it that would be the loss, suppose it to amount to

any thing, that a nation would sustain by the giving up of any

colony? The difference between the profit to be made by the

employing in that trade so much capital as would be employed in

it were the colony kept, and the profit that would be made by the

employment of the same capital in any other way, suppose in the

improvement of land. The loss is nothing, if the same capital

employed in the improvement of land would be more productive: and

it would be more productive by the amount of so much as would go

to form the annual rent: for deducting that rent, capital

employed in the improvement of land produces as much as if

employed in any other way. If the loss were any thing, would it

then amount to the whole difference between the profit upon that

trade, and the profit upon the next most profitable one? no: but

only to the difference between so much of that difference as

would be produced if the colony were retained in subjection, and

so much as would be produced if the colony were declared free.

The value of a colony to the mother country, according to the

common mode of computation, is equal to the sum total of imports

from that colony and exports to it put together.

From this statement, if the foregoing observation be just,

the following deductions will come to be made.

1. The whole value of the exports to the colony.

2. So much of the imports as is balanced by the exports.

3. Such a portion of the above remainder as answers to so

much of the trade as would be equally carried on, were the colony

independent.

4. So much of that reduced profit as would be made, were the

same capital employed in any other trade or branch of industry

lost by the independence of the colony.

5. But the same capital, if employed in agriculture. would

have produced a rent over and above the ordinary profits of

capital: which rent, according to a general and undisputed

computation, may be stated at a sum equal to the amount of those

profits. Thence arises a further deduction, viz. the loss to the

nation caused by employing the capital in the trade to the

colony, in preference to the improvement of land, and thence upon

the supposition that the continuance of the trade depended upon

the keeping the colony in subjection.

The other mischiefs resulting from the keeping of a colony in

subjection, are:

1. The expence of its establishment, civil and military.

2. The contingent expence of wars and other coercive measures

for keeping it in subjection.

3. The contingent expence of wars for the defence of it

against foreign powers.

4. The force, military and naval, constantly kept on foot

under the apprehension of such wars.

5. The occasional danger to political liberty from the force

thus kept up.

6. The contingent expence of wars produced by alliances

contracted for the purpose of supporting wars that may be brought

on by the defence of it.

7. The corruptive effects of the influence resulting from the

patronage of the establishment, civil and military.

8. The damage that must be done to the national stock of

intelligence by the false views of the national interest, which

must be kept up in order to prevent the nation from opening their

eyes and insisting upon the enfranchisement of the colony.

9. The sacrifice that must be made of the real interest of

the colony to this imaginary interest of the mother-country. It

is for the purpose of governing it badly, and for no other, that

you wish to get or keep a colony. Govern it well, it is of no use

to you.

To govern its inhabitants as well as they would govern

themselves, you must choose to govern them those only whom they

would themselves choose, you must sacrifice none of their

interests to your own, you must bestow as much time and attention

to their interests as they would themselves, in a word, you must

take those very measures and no others, which they themselves

would take. But would this be governing? And what would it be

worth to you, if it were?

After all, it would be impossible for you to govern them so

well as they would themselves, on account of the distance.

10. The bad government resulting to the mother-country from

the complication, the indistinct views of things, and the

consumption of time occasioned by this load of distant

dependencies.

AGRICULTURE NOT DEPENDENT ON MANUFACTURES

The most advantageous employment for the community that can

be made of capital is agriculture, because there the idle

landlord shares in equal proportion with the labouring farmer.

This can not be extended ad infinitum, to the exclusion of

other employments of capital. It can be extended no farther than

so far as the farmer finds his profit equal to the profit of

stock in other employments of capital, which he would cease to do

if this business were to be overstocked.

What follows? -- that as soon as this branch of business

became so far stocked as to be less productive than others,

capital would cease to be applied to it; capital, instead of

being applied to this business, would be applied to some other,

i.e. manufactures.

There would therefore be no occasion for employing artificial

means to draw it to manufactures: it would go there of its own

accord.

It is therefore not true to say that manufactures are

necessary to agriculture, and that manufactures must first be

encreased before agriculture can be encreased.

On the contrary, it is true to say that agriculture is

necessary to manufactures, and that agriculture must first be

encreased before manufactures can be encreased.

Men must exist, before they can begin to work: raw materials

of manufacture must exist before they can be worked.

What makes the mistake is this. It is true that, when

manufactures have encreased within the reach of an intercourse

with cultivators, agriculture can be carried on in various

respects to more advantage.

Manufactures as well as agriculture afford by parsimony and

storing a capital: and when a capital is laid up from

manufactures, any part of it may as well be applied to

agriculture as to any thing else. When applied to agriculture,

the improvement of land enables a given quantity of land and

labour to produce a greater quantity of produce.

Each profits by the overflowings of the capital saved out of

the other. But this does not make it necessary, but unnecessary,

to take capital by force from either, in order to bestow it upon

the other.

Could capital be drawn from the clouds, like manna, by

praying, there would be no use in bestowing it upon one branch of

industry in preference to another: for so much of this miraculous

capital as was thrown into any channel, so much natural would be

kept from flowing into it.

Agriculture without manufactures, contributes most to

population: agriculture with manufactures to wealth. Agriculture

without manufactures makes men more numerous, and less wealthy:

agriculture with manufactures makes men more wealthy, and

consequently less numerous.

The relative quantity of capital will encrease, and

consequently the rate of interest fall, where thesaurisation goes

on faster than population: and vice versa.

When men have got more food than they want, they will be able

and willing to give part of it for finer cloaths and finer

furniture.

But this does not make it necessary to set men to work to

make finer cloaths and furniture, in order to induce others to

produce food.

The consumption of some sorts of corn in particular ways is

limited, while the number of consumers is limited. When a man has

as much bread as he can eat, he will not give any thing for any

more. But this is not the case with other sorts of corn, or with

the same sort of corn employed in another way.

In England, the lowest wages of labour will always find a man

more bread than he can eat: therefore considerably more wheat

than is produced at present, would, if not exported, not find

purchasers. But the lowest wages of labour, nor wages much above

the lowest, will not find a man as much strong beer as he can

drink, nor even as he can drink without hurting himself.

Therefore, even independently of exportation. there is no danger

of the nation's being overstocked with such of the productions of

agriculture as are fit for making beer.

Apply this to oats for horses, hay for horses and cows.

There is no fear of there being at the same time more cream

produced than every body who has any thing to give for it is able

to eat, more fruit of all sorts, more poultry, more saddle

horses, more coach-horses.

With bread-corn it is possible that a market may be

overstocked: but with such luxuries, and with all these luxuries

put together, it is impossible that the market should be

overstocked. And agriculture is just as capable of producing

these articles as bread-corn.

Agriculture then will always find a sufficient market for

itself: it is impossible it should ever fail to do so.

Therefore, for the purpose of a market, it can never stand in

need of manufactures. And it has been shewn that it can not stand

in need of manufactures for the purpose of laying up capital.

Therefore it can not stand in need of manufactures for any

purpose.

Quere: when capital is plenty, what is the correlative that

is comparatively scarce?

Hands adult and in actual readiness to work.

When capital is plenty, interest will be low, and real price

of labour high.

When capital is scarce, interest will be high, and the price

(real) of labour low, unless kept up by an unnatural occasional

demand such as that by war.

What keeps down the quantity, and thence the value of capital

is procreation, which multiplies little children who occasion

expence before they can produce profit.

These children as they grow up, encrease the number of

labourers -- thence they 1. keep down the price of labour, and 2.

lessen the ratio of capital to hands.

The same causes that promote accumulation, promote

procreation.

If accumulation goes on faster than procreation, capital will

proportionably encrease, and the rate of interest proportionably

sink.

NOTES:

1. See Introduction to the Principles of Morals and Legislation,

4to. 1789. Ch. 14: On the proportion between punishments and

offences.

2. B. ii, c. 10, vol. ii, p. 45, edit. 8vo. 1784.

3. B. ii, ch. 30.

4. interest.

5. usury.

6. hazard run.

7. felt by the loan.

8. usury.

9. interest for the money lent.

10. it for the present.

11. losing it entirely.

12. lenders.

13. rate of general interest.

14. money.

15. specie.

16. circulating.

17. exchange.

18. money.

19. banker.

20. cash in his own shop.

21. lenders.

22. the rate of the national interest.

23. circulating cash.

24. interest.

25. lenders.

26. lending.

27. Edit. 1784, 8vo. p. 177.

28. B. II, ch. iii, edit. 8vo, 1784, vol. ii. p. 20.

29. B. II, ch. iii, vol. ii, p. 27, edit, 8vo, 1784.

30. B. iv, ch. 2, vol. ii, p. 182, edit. 8vo.

31. B. I, ch. 2, vol. i, p. 176. edit. 8vo, 1784.

32. B. IV, ch. 8, vol. ii, p. 514, et alibi, edit. 8vo. 1784.

33. I say in manufactures: for it is otherwise in buying and

selling. See Smith.

34. The quantity of money belonging to the Dutch and other

foreigners in the English funds, has been reckoned at thirty

millions: if this be just, the annual clear gain to Great Britain

from this importation of foreign capital (reckoning interest in

the funds at 4 per cent and profit upon stock at 8 per cent) is

£2,400,000.

35. What Holland is to England in this respect, England is to

Ireland: except that the uneasiness with regard to the supposed

profit to the lender and loss to the borrower, are still more

unreasonable.

36. To wit more and more, the addition of capital not ceasing

till the superiority of profit ceased.

37. Opportunity of collecting the particular information,

necessary time for reflecting on it, interest in forming a right

judgment, in all these particulars he falls infinitely short of

the persons themselves whom he would wish to see thus employed.

38. Bounties and prohibitions, it is to be observed, are equally

coercive. The only difference is, that the coercion is applied in

the one case to one set of people; in the other to another. No

bounty that does not necessitate a proportionable tax and to tax

is to coerce. Monopolies and othe prohibitions are even the

milder and least bad expedient of the two if nobody in particular

suffers by them, as is the case, for instance, where the trade

prohibited is as yet untried.

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