Defence of Usury
by Jeremy Bentham
1787


Defence of Usury; Shewing the Impolity of the Present Legal
Restraints on the Terms of Pecuniary Bargains In a Series of
Letters to a Friend To Which is Added A Letter to Adam Smith,
Esq; LL.D. On the Discouragements opposed by the above Restraints
to the Progress of Inventive Industry
1787

LETTER I.  Introduction
                Crichoff, in White Russia, January 1787

    Among the various species or modifications of liberty, of
which on different occasions we have heard so much in England, I
do not recollect ever seeing any thing yet offered in behalf of
the liberty of making one's own terms in money-bargains. From so
general and universal a neglect, it is an old notion of mine, as
you well know, that this meek and unassuming species of liberty
has been suffering much injustice.
    A fancy has taken me, just now, to trouble you with my
reasons: which, if you think them capable of answering any good
purpose, you may forward to the press: or in the other case, what
will give you less trouble, to the fire.
    In a word, the proposition I have been accustomed to lay down
to myself on this subject is the following one, viz. that no man
of ripe years and of sound mind, acting freely, and with his eyes
open, ought to be hindered, with a view to his advantage, from
making such bargain, in the way of obtaining money, as he thinks
fit: nor, (what is a necessary consequence) any body hindered
from supplying him, upon any terms he thinks proper to accede to.
    This proposition, were it to be received, would level, you
see, at one stroke, all the barriers which law, either statute or
common, have in their united wisdom set up, either against the
crying sin of Usury, or against the hard-named and
little-heard-of practice of Champerty; to which we must also add
a portion of the multifarious, and as little heard-of offence, of
Maintenance.
    On this occasion, were it any individual antagonist I had to
deal with, my part would be a smooth and easy one. "You, who
fetter contracts; you, who lay restraints on the liberty of man,
it is for you" (I should say) "to assign a reason for your doing
so." That contracts in general ought to be observed, is a rule,
the propriety of which, no man was ever yet found wrong-headed
enough to deny: if this case is one of the exceptions (for some
doubtless there are) which the safety and welfare of every
society require should be taken out of that general rule, in this
case. as in all those others, it lies upon him, who alledges the
necessity of the exception, to produce a reason for it.
    This, I say, would be a short and very easy method with an
individual: but, as the world has no mouth of its own to plead
by, no certain attorney by which it can "come and defend this
force and injury," I must even find arguments for it at a
venture, and ransack my own imagination for such phantoms as I
can find to fight with.
    In favour of the restraints opposed to the species of liberty
I contend for, I can imagine but five arguments.
    1. Prevention of usury.
    2. Prevention of prodigality.
    3. Protection of indigence against extortion.
    4. Repression of the temerity of projectors.
    5. Protection of simplicity against imposition. Of all these
in their order.


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

    I will begin with the prevention of usury: because in the
sound of the word usury lies, I take it, the main strength of the
argument: or, to speak strictly, of what is of more importance
than all argument, of the hold which the opinion I am combating
has obtained on the imaginations and passions of mankind.
    Usury is a bad thing, and as such ought to be prevented:
usurers are a bad sort of men, a very bad sort of men, and as
such ought to be punished and suppressed. These are among the
string of propositions which every man finds handed down to him
from his progenitors: which most men are disposed to accede to
without examination, and indeed not unnaturally nor even
unreasonably disposed, for it is impossible the bulk of mankind
should find leisure, had they the ability, to examine into the
grounds of an hundredth part of the rules and maxims, which they
find themselves obliged to act upon. Very good apology this for
John Trot: but a little more inquisitiveness may be required of
legislators.
    You, my friend, by whom the true force of words is so well
understood, have, I am sure, gone before me in perceiving, that
to say usury is a thing to be prevented, is neither more nor less
than begging the matter in question. I know of but two
definitions that can possibly be given of usury: one is, the
taking of a greater interest than the law allows of: this may be
stiled the political or legal definition. The other is the taking
of a greater interest than it is usual for men to give and take:
this may be stiled the moral one: and this, where the law has not
interfered, is plainly enough the only one. It is plain, that in
order for usury to be prohibited by law, a positive description
must have been found for it by law, fixing, or rather
superseding, the moral one. To say then that usury is a thing
that ought to be prevented, is saying neither more nor less, than
that the utmost rate of interest which shall be taken ought to be
fixed; and that fixation enforced by penalties, or such other
means, if any, as may answer the purpose of preventing the breach
of it. A law punishing usury supposes, therefore, a law fixing
the allowed legal rate of interest: and the propriety of the
penal law must depend upon the propriety of the
simply-prohibitive, or, if you please, declaratory one.
    One thing then is plain; that, antecedently to custom growing
from convention, there can be no such thing as usury: for what
rate of interest is there that can naturally be more proper than
another? what natural fixed price can there be for the use of
money more than for the use of any other thing? Were it not then
for custom, usury, considered in a moral view, would not then so
much as admit of a definition: so far from having existence, it
would not so much as be conceivable: nor therefore could the law,
in the definition it took upon itself to give of such offence,
have so much as a guide to steer by. Custom therefore is the sole
basis, which, either the moralist in his rules and precepts, or
the legislator in his injunctions, can have to build upon. But
what basis can be more weak or unwarrantable, as a ground for
coercive measures, than custom resulting from free choice? My
neighbours, being at liberty, have happened to concur among
themselves in dealing at a certain rate of interest. I, who have
money to lend, and Titius, who wants to borrow it of me, would be
glad, the one of us to accept, the other to give, an interest
somewhat higher than theirs: why is the liberty they exercise to
be made a pretence for depriving me and Titius of ours?
    Nor has blind custom, thus made the sole and arbitrary guide,
any thing of steadiness or uniformity in its decisions: it has
varied, from age to age, in the same country: it varies, from
country to country, in the same age: and the legal rate has
varied along with it: and indeed, with regard to times past, it
is from the legal rate, more readily than from any other source,
that we collect the customary. Among the Romans, till the time of
Justinian, we find it as high as 12 per cent: in England, so late
as the time of Hen. VIII, we find it at 10 per cent: succeeding
statutes reduced it to 8, then to 6, and lastly to 5, where it
stands at present. Even at present in Ireland it is at 6 per
cent; and in the West-Indies at 8 per cent; and in Hindostan,
where there is no rate limited by law, the lowest customary rate
is 10 or 12. At Constantinople, in certain cases, as I have been
well informed, thirty per cent is a common rate. Now, of all
these widely different rates, what one is there, that is
intrinsically more proper than another? What is it that evidences
this propriety in each instance? what but the mutual convenience
of the parties, as manifested by their consent? It is convenience
then that has produced whatever there has been of custom in the
matter: What can there then be in custom, to make it a better
guide than the convenience which gave it birth? and what is there
in convenience, that should make it a worse guide in one case
than in another? It would be convenient to me to give 6 per cent
for money: I wish to do so. "No," (says the law) "you shan't." -
Why so? "Because it is not convenient to your neighbour to give
above 5 for it." Can any thing be more absurd than such a reason?
    Much has not been done, I think, by legislators as yet in the
way of fixing the price of other commodities: and, in what little
has been done, the probity of the intention has, I believe, in
general, been rather more unquestionable than the rectitude of
the principle, or the felicity of the result. Putting money out
at interest, is exchanging present money for future: but why a
policy, which, as applied to exchanges in general, would be
generally deemed absurd and mischievous, should be deemed
necessary in the instance of this particular kind of exchange,
mankind are as yet to learn. For him who takes as much as he can
get for the use of any other sort of thing, an house for
instance, there is no particular appellation, nor any mark of
disrepute: nobody is ashamed of doing so, nor is it usual so much
as to profess to do otherwise. Why a man who takes as much as he
can get, be it six, or seven, or eight, or ten per cent for the
use of a sum of money should be called usurer, should be loaded
with an opprobrious name, any more than if he had bought an house
with it, and made a proportionable profit by the house, is more
than I can see.
    Another thing I would also wish to learn, is, why the
legislator should be more anxious to limit the rate of interest
one way, than the other? why he should set his face against the
owners of that species of property more than of any other? why he
should make it his business to prevent their getting more than a
certain price for the use of it, rather than to prevent their
getting less? why, in short, he should not take means for making
it penal to offer less, for example, than 5 per cent as well as
to accept more? let any one that can, find an answer to these
questions; it is more than I can do: I except always the distant
and imperceptible advantage, of sinking the price of goods of all
kinds; and, in that remote way, multiplying the future enjoyments
of individuals. But this was a consideration by far too distant
and refined, to have been the original ground for confining the
limitation to this side.

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

    Having done with sounds, I come gladly to propositions;
which, as far as they are true in point of fact, may deserve the
name of reasons. And first, as to the efficacy of such
restrictive laws with regard to the prevention of Prodigality.
    That prodigality is a bad thing, and that the prevention of
it is a proper object for the legislator to propose to himself,
so long as he confines himself to, what I look upon as, proper
measures, I have no objection to allow, at least for the purpose
of the argument; though, were this the principal question, I
should look upon it as incumbent on me to place in a fair light
the reasons there may be for doubting, how far, with regard to a
person arrived at the age of discretion, third persons may be
competent judges, which of two pains may be of greater force and
value to him, the present pain of restraining his present
desires, or the future contingent pain he may be exposed to
suffer from the want to which the expence of gratifying these
desires may hereafter have reduced him. To prevent our doing
mischief to one another, it is but too necessary to put bridles
into all our mouths: it is necessary to the tranquillity and very
being of society: but that the tacking of leading-strings upon
the backs of grown persons, in order to prevent their doing
themselves a mischief, is not necessary either to the being or
tranquillity of society, however conducive to its well-being, I
think cannot be disputed. Such paternal, or, if you please,
maternal, care, may be a good work, but it certainly is but a
work of supererogation.
    For my own part, I must confess, that so long as such methods
only are employed, as to me appear proper ones, and such there
are, I should not feel myself disinclined to see some measures
taken for the restraining of prodigality: but this I can not look
upon as being of the number. My reasons I will now endeavour to
lay before you.
    In the first place, I take it, that it is neither natural nor
usual for prodigals, as such, to betake themselves to this
method, I mean, that of giving a rate of interest above the
ordinary one, to supply their wants.
    In the first place, no man, I hope you will allow. prodigal
or not prodigal, ever thinks of borrowing money to spend, so long
as he has ready money of his own, or effects which he can turn
into ready money without loss. And this deduction strikes off
what, I suppose, you will look upon as the greatest proportion of
the persons subject, at any given time, to the imputation of
prodigality.
    In the next place, no man, in such a country as Great Britain
at least, has occasion, nor is at all likely, to take up money at
an extraordinary rate of interest, who has security to give,
equal to that upon which money is commonly to be had at the
highest ordinary rate. While so many advertise, as are to be seen
every day advertising, money to be lent at five per cent what
should possess a man, who has any thing to offer that can be
called a security, to give, for example, six per cent is more
than I can conceive.
    You may say, perhaps, that a man who wishes to lend his money
out upon security, wishes to have his interest punctually, and
that without the expence, and hazard, and trouble, and odium of
going to law; and that, on this account, it is better to have a
sober man to deal with than a prodigal. So far I allow you; but
were you to add, that on this account it would be necessary for a
prodigal to offer more than another man, there I should disagree
with you. In the first place, it is not so easy a thing, nor, I
take it, a common thing, for the lender upon security to be able
to judge, or even to form any attempt to judge, whether the
conduct of one who offers to borrow his money is or is not of
such a cast, as to bring him under this description. The
question, prodigal or not prodigal, depends upon two pieces of
information; neither of which, in general, is very easy to come
at: on the one hand, the amount of his means and reasonable
expectations; on the other band, the amount of his expenditure.
The goodness or badness of the security is a question of a very
different nature: upon this head, every man has a known and ready
means of obtaining that sort of information, which is the most
satisfactory the nature of things affords, by going to his
lawyer. It is accordingly, I take it, on their lawyers opinion,
that lenders in general found their determination in these cases,
and not upon any calculations they may have formed, concerning
the receipt and expenditure of the borrower. But even supposing a
man's disposition to prodigality to be ever so well known, there
are always enough to be found, to whom such a disposition would
be rather an inducement than an objection, so long as they were
satisfied with the security. Every body knows the advantage to be
made in case of mortgage, by foreclosing or forcing a sale: and
that this advantage it not uncommonly looked out for, will, I
believe, hardly be doubted by any one, who has had any occasion
to observe the course of business in the court of Chancery.
    In short, so long as a prodigal has any thing to pledge, or
to dispose of, whether in possession, or even in reversion,
whether of a certain or even of a contingent nature, I see not,
how he can receive the smallest benefit, from any laws that are,
or can be made to fix the rate of interest. For, suppose the law
to be efficacious as far as it goes, and that the prodigal can
find none of those monsters called usurers to deal with him, does
he lie quiet? No such thing: he goes on and gets the money he
wants, by selling his interest instead of borrowing. He goes on,
I say: for if he has prudence enough to stop him any where, he is
not that sort of man, whom it can be worth while for the law to
attempt stopping by such means. It is plain enough then, that to
a prodigal thus circumstanced, the law cannot be of any service;
on the contrary, it may, and in many cases must, be of disservice
to him, by denying him the option of a resource, which, how
disadvantageous soever, could not well have proved more so, but
would naturally have proved less so, than those which it leaves
still open to him. But of this hereafter.
    I now come to the only remaining class of prodigals, viz.
those who have nothing that can be called a security to offer.
These, I should think, are not more likely to get money upon an
extraordinary rate of interest, than an ordinary one. Persons who
either feel, or find reasons for pretending to feel, a friendship
for the borrower, can not take of him more than the ordinary rate
of interest: persons, who have no such motive for lending him,
will not lend him at all. If they know him for what he is, that
will prevent them of course: and even though they should know
nothing of him by any other circumstance, the very circumstance
of his not being able to find a friend to trust him at the
highest ordinary rate, will be sufficient reason to a stranger
for looking upon him as a man, who, in the judgment of his
friends, is not likely to pay.
    The way that prodigals run into debt, after they have spent
their substance, is, I take it, by borrowing of their friends and
acquaintance, at ordinary interest, or more commonly at no
interest, small sums, such as each man may be content to lose, or
be ashamed to ask real security for; and as prodigals have
generally an extensive acquaintance (extensive acquaintance being
at once the cause and effect of prodigality), the sum total of
the money a man may thus find means to squander, may be
considerable, tho' each sum borrowed may, relatively to the
circumstances of the lender, have been inconsiderable. This I
take to be the race which prodigals, who have spent their all,
run at present, under the present system of restraining laws: and
this, and no other, I take it, would be the race they would run,
were those laws out of the way.
    Another consideration there is, I think, which will compleat
your conviction, if it was not compleat before, of the inefficacy
of these laws, as to the putting any sort of restraint upon
prodigality. This is, that there is another set of people from
whom prodigals get what they want, and always will get it, so
long as credit lasts, in spite of all laws against high interest;
and, should they find it necessary, at an expence more than equal
to an excess of interest they might otherwise have to give. I
mean the tradesmen who deal in the goods they want. Every body
knows it is much easier to get goods than money. People trust
goods upon much slenderer security than they do money: it is very
natural they should do so: ordinary profit of trade upon the
whole capital employed in a man's trade, even after the expence
of warehouse-rent, journeymen's wages, and other such general
charges are taken into the account, and set against it, is at
least equal to double interest; say 10 per cent. Ordinary profit
upon any particular parcel of goods must therefore be a great
deal more, say at least triple interest, 15 per cent: in the way
of trading, then, a man can afford to be at least three times as
adventurous, as he can in the way of lending, and with equal
prudence. So long, then, as a man is looked upon as one who will
pay, he can much easier get the goods he wants, than he could the
money to buy them with, though he were content to give for it
twice, or even thrice the ordinary rate of interest.
    Supposing any body, for the sake of extraordinary gain, to be
willing to run the risk of supplying him, although they did not
look upon his personal security to be equal to that of another
man, and for the sake of the extraordinary profit to run the
extraordinary risk; in the trader, in short in every sort of
trader whom he was accustomed to deal with in his solvent days,
he sees a person who may accept of any rate of profit, without
the smallest danger from any laws that are, or can be made
against usury. How idle, then, to think of stopping a man from
making six, or seven, or eight per cent interest, when, if he
chuses to run a risk proportionable, he may in this way make
thirty or forty per cent or any rate you please. And as to the
prodigal, if he cannot get what he wants upon these terms, what
chance is there of his getting it upon any terms, supposing the
laws against usury to be away? This then is another way, in
which, instead of serving; it injures him, by narrowing his
option, and driving him from a market which might have proved
less disadvantageous, to a more disadvantageous one.
    As far as prodigality, then, is concerned, I must confess, I
cannot see the use of stopping the current of expenditure in this
way at the fosset, when there are so many unpreventable ways of
letting it run out of the bung-hole.
    Whether any harm is done to society, upon the whole, by
letting so much money drop at once out of the pockets of the
prodigal, who would have gone on wasting it, into the till of the
frugal tradesman, who will lay it up, is not worth the enquiry
for the present purpose: what is plain is, that, so far as the
saving the prodigal from paying at an extraordinary rate for what
he gets to spend, is the object of the law, that object is not at
all promoted, by fixing the rate of interest upon money borrowed.
On the contrary, if the law has any effect, it runs counter to
that object: since, were he to borrow, it would only be, in as
far as he could borrow at a rate inferior to that at which
otherwise he would be obliged to buy. Preventing his borrowing at
an extra-rate, may have the effect of increasing his distress,
but cannot have the effect of lessening it: allowing his
borrowing at such a rate, might have the effect of lessening his
distress, but could not have the effect of increasing it.
    To put a stop to prodigality, if indeed it be worth while, I
know but of one effectual course that can be taken, in addition
to the incompleat and insufficient courses at present
practicable. and that is, to put the convicted prodigal under an
interdict, as was practised formerly among the Romans, and is
still practised among the French, and other nations who have
taken the Roman law for the ground-work of their own. But to
discuss the expediency, or sketch out the details of such an
institution. belongs not to the present purpose.

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

    Besides prodigals, there are three other classes of persons,
and but three, for whose security I can conceive these
restrictive laws to have been designed. I mean the indigent, the
rashly enterprizing, and the simple: those whose pecuniary
necessities may dispose them to give an interest above the
ordinary rate. rather than not have it, and those who, from
rashness, may be disposed to venture upon giving such a rate, or
from carelessness combined with ignorance, may be disposed to
acquiesce in it.
    In speaking of these three different classes of persons, I
must beg leave to consider one of them at a time: and
accordingly, in speaking of the indigent, I must consider
indigence in the first place as untinctured with simplicity. On
this occasion. I may suppose, and ought to suppose, no particular
defect in a man's judgment, or his temper, that should mislead
him, more than the ordinary run of men. He knows what is his
interest as well as they do, and is as well disposed and able to
pursue it as they are.
    I have already intimated, what I think is undeniable. that
there are no one or two or other limited number of rates of
interest, that can be equally suited to the unlimited number of
situations, in respect of the degree of exigency, in which a man
is liable to find himself: insomuch that to the situation of a
man, who by the use of money can make for example 11 per cent,
six per cent is as well adapted, as 5 per cent is to the
situation of him who can make but 10; to that of him who can make
12 per cent seven and so on. So, in the case of his wanting it to
save himself from a loss, (which is that which is most likely to
be in view under the name of exigency) if that loss would amount
to 11 per cent 6 per cent is as well adapted to his situation, as
5 per cent would be to the situation of him, who had but a loss
amounting to ten per cent to save himself from by the like means.
And in any case. though. in proportion to the amount of the loss,
the rate of interest were even so great, as that the clear saving
should not amount to more than one per cent or any fraction per
cent yet so long as it amounted to any thing, he would be just so
much the better for borrowing, even on such comparatively
disadvantageous terms. If, instead of gain, we put any other kind
of benefit or advantage -- if: instead of loss. we put any other
kind of mischief or inconvenience, of equal value, the result
will be the same.
    A man is in one of these situations, suppose, in which it
would be for his advantage to borrow. But his circumstances are
such, that it would not be worth any body's while to lend him, at
the highest rate which it is proposed the law should allow; in
short, he cannot get it at that rate. If he thought he could get
it at that rate, most surely he would not give a higher: he may
he trusted for that: for by the supposition he has nothing
defective in his understanding. But the fact is, he cannot get it
at that lower rate. At a higher rate, however he could get it:
and at that rate, though higher, it would be worth his while to
get it: so he judges, who has nothing to hinder him from judging
right; who has every motive and every means for forming a right
judgment; who has every motive and every means for informing
himself of the circumstances, upon which rectitude of judgment,
in the case in question, depends. The legislator, who knows
nothing, nor can know any thing, of any one of all these
circumstances, who knows nothing at all about the matter, comes
and says to him -- "It signifies nothing; you shall not have the
money: for it would be doing you a mischief to let you borrow it
upon such terms." -- And this out of prudence and
loving-kindness! -- There may be worse cruelty. but can there be
greater folly?
    The folly of those who persist, as is supposed, without
reason, in not taking advice, has been much expatiated upon. But
the folly of those who persist, without reason, in forcing their
advice upon others, has been but little dwelt upon, though it is,
perhaps, the more frequent, and the more flagrant of the two. It
is not often that one man is a better judge for another, than
that other is for himself, even in Cases where the adviser will
take the trouble to make himself master of as many of the
materials for judging, as are within the reach of the person to
be advised. But the legislator is not, can not be, in the
possession of any one of these materials. -- What private, can be
equal to such public folly?
    I should now speak of the enterprizing class of borrowers:
those. who, when characterized by a single term, are
distinguished by the unfavourable appellation of projectors: but
in what I shall have to say of them, Dr Smith, I begin to
foresee, will bear so material a part, that when I come to enter
upon that subject, I think to take my leave of you, and address
myself to him.

LETTER V Reasons for Restraint.-Protection of Simplicity.

    I come, lastly, to the case of the simple. Here, in the first
place, I think I am by this time entitled to observe, that no
simplicity, short of absolute idiotism, can cause the individual
to make a more groundless judgment, than the legislator, who, in
the circumstances above stated, should pretend to confine him to
any given rate of interest, would have made for him.
    Another consideration, equally conclusive, is, that were the
legislator's judgment ever so much superior to the individual's,
how weak soever that may be, the exertion of it on this occasion
can never be any otherwise than useless, so long as there are so
many similar occasions, as there ever must be, where the
simplicity of the individual is equally likely to make him a
sufferer, and on which the legislator cannot interpose with
effect, nor has ever so much as thought of interposing.
    Buying goods with money, or upon credit, is the business of
everyday. borrowing money is the business, only, of some
particular exigency, which, in comparison, can occur but seldom.
Regulating the prices of goods in general would be an endless
task, and no legislator has ever been weak enough to think of
attempting it. And supposing he were to regulate the prices, what
would that signify for the protection of simplicity, unless he
were to regulate also the quantum of what each man should buy?
Such quantum is indeed regulated, or rather means are taken to
prevent buying altogether; but in what cases? In those only where
the weakness is adjudged to have arrived at such a pitch, as to
render a man utterly unqualified for the management of his
affairs: in short, when it has arrived at the length of idiocy.
    But in what degree soever a man's weakness may expose him to
imposition, he stands much more exposed to it, in the way of
buying goods, than in the way of borrowing money. To be informed,
beforehand, of the ordinary prices of all the sorts of things, a
man may have occasion to buy, may be a task of considerable
variety and extent. To be informed of the ordinary rate of
interest, is to be informed of one single fact, too interesting
not to have attracted attention, and too simple to have escaped
the memory. A few per cent enhancement upon the price of goods,
is a matter that may easily enough pass unheeded; but a single
per cent beyond the ordinary interest of money, is a stride more
conspicuous and startling, than many per cent upon the price of
any kind of goods.
    Even in regard to subjects, which, by their importance would,
if any, justify a regulation of their price, such as for instance
land, I question whether there ever was an instance where,
without some such ground as, on the one side fraud, or
suppression of facts necessary to form a judgment of the value,
or at least ignorance of such facts, on the other, a bargain was
rescinded, merely because a man had sold too cheap, or bought too
dear. Were I to take a fancy to give a hundred years purchase
instead of thirty, for a piece of land, rather than not have it,
I don't think there is any court in England, or indeed any where
else, that would interpose to hinder me, much less to punish the
seller with the loss of three times the purchase money, as in the
case of usury. Yet when I had got my piece of land, and paid my
money, repentance, were the law ever so well disposed to assist
me, might be unavailing: for the seller might have spent the
money, or gone off with it. But, in the case of borrowing money,
it is the borrower always, who, according to the indefinite, or
short term for which money is lent, is on the safe side: any
imprudence he may have committed with regard to the rate of
interest, may be corrected at any time: if I find I have given
too high an interest to one man. I have no more to do than to
borrow of another at a lower rate, and pay off the first: if I
CannOt find any body to lend me at a lower, there cannot be a
more certain proof that the first was not in reality too high.
But of this hereafter.

LETTER VI Mischiefs of the anti-usurious laws.

    In the preceding letters, I have examined all the modes I can
think of, in which the restraints, imposed by the laws against
usury, can have been fancied to be of service.
    I hope it appears by this time, that there are no ways in
which those laws can do any good. But there are several, in which
they can not but do mischief.
    The first, I shall mention, is that of precluding so many
people, altogether, from the getting the money they stand in need
of, to answer their respective exigencies. Think what a distress
it would produce, were the liberty of borrowing denied to every
body: denied to those who have such security to offer, as renders
the rate of interest, they have to offer, a sufficient
inducement, for a man who has money, to trust them with it. Just
that same sort of distress is produced, by denying that liberty
to so many people, whose security, though, if they were permitted
to add something to that rate, it would be sufficient, is
rendered insufficient by their being denied that liberty. Why the
misfortune, of not being possessed of that arbitrarily exacted
degree of security, should be made a ground for subjecting a man
to a hardship, which is not imposed on those who are free from
that misfortune, is more than I can see. To discriminate the
former class from the latter, I can see hut this one
circumstance, viz. that their necessity is greater. This it is by
the very supposition: for were it not, they could not be, what
they are supposed to be, willing to give more to be relieved from
it. In this point of view then, the sole tendency of the law is,
to heap distress upon distress.
    A second mischief is, that of rendering the terms so much the
worse, to a multitude of those, whose circumstances exempt them
from being precluded altogether from getting the money they have
occasion for. In this case, the mischief, though necessarily less
intense than in the other, is much more palpable and conspicuous,
Those who cannot borrow may get what they want, so long as they
have any thing to sell. But while, out of loving-kindness, or
whatsoever other motive, the law precludes a man from borrowing,
upon terms which he deems too disadvantageous, it does not
preclude him from selling, upon any terms, howsoever
disadvantageous. Every body knows that forced sales are attended
with a loss: and, to this loss, what would be deemed a most
extravagant interest bears in general no proportion. When a man's
moveables are taken in execution, they are, I believe, pretty
well sold, if, after all expences paid, the produce amounts to
two thirds of what it would cost to replace them. In this way the
providence and loving-kindness of the law costs him 33 per cent
and no more, supposing, what is seldom the case, that no more of
the effects are taken than what is barely necessary to make up
the money due. If, in her negligence and weakness, she were to
suffer him to offer 11 per cent per annum for forbearance, it
would be three years before be paid what he is charged with, in
the first instance, by her wisdom.
    Such being the kindness done by the law to the owner of
moveables, let us see how it fares with him who has an interest
in immoveables. Before the late war, 30 years purchase for land
might be reckoned, I think it is pretty well agreed, a medium
price. During the distress produced by the war, lands, which it
was necessary should be sold, were sold at 20, 18, nay, I
believe, in some instances, even so low as 15 years purchase. If
I do not misrecollect, I remember instances of lands put up to
public auction, for which nobody bid so high as fifteen. In many
instances, villas, which had been bought before the war, or at
the beginning of it, and, in the interval, had been improved
rather than impaired, sold for less than half, or even the
quarter, of what they had been bought for. I dare not here for my
part pretend to be exact: but on this passage, were it worth
their notice, Mr Skinner, or Mr Christie, could furnish very
instructive notes. Twenty years purchase, instead of thirty, I
may be allowed to take, at least for illustration. An estate then
of £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.