The Online Library of Liberty

A project of Liberty Fund, Inc.

• Shorter Works of Lysander Spooner, Volume I
• The Deist’s Immortality, and an Essay On Man’s Accountability For His Belief.
• The Deist’s Immortality.
• An Essay, On Man’s Accountability For His Belief.
• Worcester Republican.—extra.
• The Deist’s Reply.
• Chapter I.: The Early Spread of Christianity.
• Chapter II.: The Nature and Character of Jesus.
• Chapter III.: The Alleged Miracles of Jesus.
• Chapter IV.: The Prophecies.
• Chapter V.: The Resurrection.
• Supreme Court of United States, January Term, 1839. } Spooner Vs. M’connell, Et, Al.
• Constitutional Law.
• Chap. I.: The Unconstitutionality of All State Laws Restraining Private Banking and the Rates of Interest.
• Chap. II.: What Bank Charters Are Unconstitutional.
• Chap. III.: What Bank Charters Are Constitutional.
• Chap. IV.: The Power of Congress Over the Currency.
• Errata.
• Poverty: Its Illegal Causes and Legal Cure. Part First.
• Chapter I.: Illegal Causes of Poverty.
• Chapter II.: Economical Propositions.
• Chapter III.: Economical Results From the Preceding Propositions
• Chapter IV.: Social, Moral, Intellectual, and Political Results From the Preceding Propositions.
• Chapter V.: The Legal Nature of Debt.
• Chapter VI.: The Legal Nature of Debt.—( Continued. )
• Who Caused the Reduction of Postage? Ought He to Be Paid?
• Illegality of the Trial of John W. Webster.
• A New System Paper of Paper Currency.
• Part First
• Note.
• Chapter I.: Outline of the System.
• Chapter II.: Advantages of the System.
• Chapter III.: Security of the System.
• Chapter IV.: Practicability of the System.
• Chapter V.: Legality of the System.
• Part Second.
• Articles of Association of a Mortgage Stock Banking Company.

CHAPTER III.

ECONOMICAL RESULTS FROM THE PRECEDING PROPOSITIONS

The last four of the preceding propositions assert the following principles, to wit:

1. The right of the parties to contracts to make their own bargains in regard to the rate of interest.

2. The right of free competition in the business of banking.

3. That the legal obligation of a debt, with specific exceptions, is extinguished by the debtor’s making payment to the extent of his means, when the debt becomes due.

4. That the several creditors of the same debtor hold successive liens upon his property, for the full amount of their debts, in the order in which their debts respectively were contracted.

It will hereafter be shown that these several principles are legal ones, founded in natural and constitutional law, that is binding upon all our judicial tribunals, and incapable of being invalidated, or set aside, by any legislative enactments that are within the constitutional power of any of our governments.

It has already been shown, in part, how these principles are adapted to the accomplishment of the following objects, to wit:

1. That of enabling each poor man to obtain, on credit, capital sufficient to employ his own hands upon.

2. That of enabling him to obtain this capital on the most advantageous terms as to interest, and in the most advantageous form for his use.

3. That of enabling him to obtain this capital on credit, without the risk of incurring an arrearage of debt in case of misfortune, or of miscalculation, on his part, as to his ability to pay in full.

4. That of enabling capitalists to loan capital to poor men, and hold the first lien upon it, in the hands of the debtor, for their payment; and without the risk of having the capital so loaned taken and applied, either by the law, or by the debtor, to the payment of debts to other men.

If such be the operation of these principles, it seems to follow, that, if they would not fully, they would yet very nearly accomplish the object of securing to every poor man, who was honest, industrious, and ordinarily skilful, the enjoyment of his right to labor to the best possible advantage, (by enabling him to obtain capital upon which to labor,) and also of his right to the possession of all the fruits of his labor, except what, in the nature of things, must be paid for the use of the capital upon which he labors.

If there can be any doubt as to such being the result of these principles, it can arise only from a doubt whether capitalists would loan their capital to laborers, or poor men, if the principles of law applicable to the loan, were such as have been described. This question, therefore, becomes important, viz., whether capitalists would loan capital to poor men under such circumstances?

The true answer to this question is, that, although they might not do it immediately, they yet would do it speedily—and for the following reasons:

1. It is obvious that, other things being equal, it would be much more safe for capitalists, especially when they loan on personal security, to loan their capital in small sums to a large number of individuals, who were each their own employers, than in large sums to a small number, who employed the labor of others. It would, for instance, be much more safe to loan fifty thousand dollars, in sums of five hundred dollars each, to one hundred men, who should each bestow their own labor upon it, than to loan the whole fifty thousand to one man, who should employ an hundred other laborers in the management of it. Each of the one hundred men would be more likely to repay the whole of his five hundred dollars, than the one man to repay the whole of his fifty thousand dollars. And why? Because a man can manage, with far less risk and waste, and with much more comparative profit, a capital of five hundred dollars, on which he expends his own, and only his own labor, skill, and calculation, than he can a capital of fifty thousand dollars, on which he is obliged to employ the labor of an hundred others, whose skill, industry, and economy he cannot stimulate to the same degree, to which they would be stimulated, when laboring for themselves. Small borrowers are also less likely to squander their loans in extravagant living, and in extravagant, fanciful, and hazardous enterprises, than large borrowers. The command of large borrowed capitals often intoxicates men with the conceit of their superior judgment in the management of property, or with a vain ambition for display, or with dreams of sudden wealth, or with a passion for magnificent schemes—the consequences of all which are told in deep, perhaps ruinous losses to their creditors. On the other hand, a man who borrows merely capital enough to employ his own hands upon, avoids this intoxication entirely. He thinks only of results, and of skill, industry, and frugality, as the means. The small borrower is therefore much more likely, than the large borrower, to be able to repay his loan. He is also much more likely to be willing to repay it. The temptation to fraud in his case is trivial, compared with that in the case of the other.

2. In the case of small loans to a large number of individuals, each individual is not only more likely, for the reasons already given, to repay the loan, than the single individual is in the case of a large loan, but there is this further security, which is of great consideration with capitalists, who loan money, viz., that in cases of misfortune or fraud on the part of a debtor, the loss is small, not ruinous. If the hundredth debtor fail to pay, the ninety-nine are still solvent. The capitalist is not ruined. He loses but one per cent. of his whole capital. But in the case of the large loan, if the debtor fail, the creditor is ruined, or seriously injured—simply because he has embarked a large freight in one ship.

Capitalists understand these principles, as we see in the case of insurance companies, which act uniformly on the policy of taking a large number of small risks, in preference to a few large ones.

3. There is still another consideration in favor of small loans to a large number of individuals, who are their own employers, over large loans to a small number, who employ the labor of others. It is this. The labor of individuals, who labor for themselves alone, being, for the reasons already given, much more productive, economical, and profitable, than the labor of hirelings, individuals could afford to pay a higher rate of interest—much higher if it were necessary—for the little capital that each man needs to employ his own hands upon, than they can for capital on which to employ the labor of hirelings.

The higher self-respect also, which a man feels, and the higher social position he enjoys, when he is master of his own industry, than when he labors for another, would induce him, if it were necessary, to pay even such a rate of interest for capital as would cut down the not profits of his labor to the same amount that he would receive as a laborer for wages.

The inevitable result of these principles would be that the class of employers, who now stand between the capitalist and laborer, and, by means of usury laws, sponge money from the former, and labor from the latter, and put the plunder into their own pockets, would be forced aside; and the capitalist and laborer would come together, face to face, and make such bargains with each other, as that the whole proceeds of their joint capital and labor would be divided between themselves, instead of being bestowed, in part, as now, as a gratuity, upon an intermediate intruder. The capitalist would not only get all he now gets as interest, and the laborer all he now gets as wages, but they would also divide between themselves that sum which now goes into the pockets of the employer. What portion of this latter sum would go to the laborer, and what to the capitalist, would depend upon the circumstances and bargains in each particular case. The probability is that for the first few years after these principles went into operation, capitalists would ask and obtain a pretty high rate of interest. The competition among laborers, in their bids for capital, would produce this effect. But as the general safety of the system should be tested, and as laborers should gradually make accumulations, which would serve as some security for loans, and as the business of banking should be increased, the rate of interest would gradually decline, until—probably within ten or twenty years—capital would go begging for borrowers, and the current rate of interest would probably not exceed three or four per cent. And all the proceeds of labor and capital, over and above this interest, would go into the pockets of the laborer.

There obviously would be little or no risk in loaning capital to the generality of laborers, if the lender could hold the first lien upon the capital loaned; for industry, guided by ordinary skill and judgment in the application of labor, is almost certain to add more value to the capital employed than is necessary for the comfortable subsistence of the laborer. The cases, where it would fail of doing this, are few, and even in those few cases the deficiency would be very small. The principal risk, then, in loaning to a poor man, would be the risk of his death, and of loss in winding up his affairs. But this risk could be guarded against by the debtor’s keeping his life insured. The cost of keeping his life insured for an amount equal to the capital he hired, would not ordinarily be more than one, or at most two per cent. upon that capital. And he would thus accomplish the double purpose of giving his creditors a guaranty for their loans in case of his death, and of securing something for the support of his family.

The risk of loss to the creditor, from the death of his debtor, is now made altogether greater than it otherwise would be, by those laws that give to a deceased debtor’s family, (at the discretion of a Probate Judge,) the whole, or a part, of the effects in his hands, in preference to applying them to the payment of his debts. Such laws are as injurious towards debtors, as a class, as they are unjust towards creditors. They virtually forbid capitalists to loan capital to a poor man, under penalty of being compelled to contribute the amount of such loans to the support of his family, in case of his decease. Such absurd and dishonest legislation defeats the very object it professes to have in view. Instead of its accomplishing the purpose of compelling creditors to support the families of poor men, it only serves, as a general rule, to deter capitalists from becoming the creditors of poor men at all. Thus the laws not only fail of providing for a poor man’s family after his death, but they contribute largely to make it impossible for him, while living, to borrow capital upon which to labor, and thus to make any accumulations of his own for their support.

There is no justice, or even appearance of justice, in such laws. If A have loaned capital to B, and taken a note for it, he, in equity, holds a lien upon that property for his debt. It is unreasonable to expect him to loan his capital to a poor man on any other condition. And there is no more reason why he should be compelled to support the debtor’s family, by losing his lion, in case of the debtor’s decease, than there is why any other particular individual should be compelled by law to support them by gifts from his own pocket. If, under these circumstances, a debtor die, leaving his family destitute, they must depend, for their support, upon their own labor, and the assistance of relatives and friends, or upon such provision as the public make, by general taxation, for the support of all who have no other means of subsistence. There is no justice in compelling those few individuals, who may have befriended, or loaned capital to the debtor, in his lifetime, to assume the burden of supporting his family after his death, by giving up to them their lien on the capital they have loaned him. If a poor man wish to provide for his family, in case of his death, he should keep his life insured. He will thus provide for his family, and his creditors too.

One object of these laws is to throw upon the creditors of a deceased person a burden, that might otherwise fall upon the public at large. But their effect is to create ten times as much pauperism as they prevent—because they deter capitalists from loaning capital to poor men, and thus prevent the latter from making such accumulations, in their lifetimes, as they otherwise might, for the support of their families after their death.

It will be shown, in a subsequent chapter, that all legislation, of the kind mentioned, which destroys a creditor’s lien on the effects of his debtor, in order to give them to the debtor’s family, is unconstitutional and void.

If the risk of loss to the creditor, by the death of the debtor, were obviated in the manner now suggested, and if the prior creditor held a prior lien upon the property of his debtor, there would be little or no danger in loaning capital to poor men, in amounts sufficient to employ their own hands respectively.

The risk of the debtor’s success in business would be small—as small as the risk of success can be in any business in which capital is hazarded—because the business, in which each debtor would employ his borrowed capital, would be such as both himself and his creditor should have approved—inasmuch as the creditor would not of course loan his capital to a poor man, unless he should have first ascertained the business in which it was to be employed, and satisfied himself that it was a safe one. The business, therefore, in which each debtor would employ his borrowed capital, would be such as commended itself, (in its prospects of profit,) to the judgments of both debtor and creditor. Such business would ordinarily be more safe than that, in the planning of which the judgment of only one person had been consulted.

The risks from fire, theft, sickness of the debtor and his family, and other extraordinary misfortunes, would be no greater than those to which property is always liable, and would be guarded against by the creditor by the rate of interest.

The only remaining risk, to the creditor, is that of the frugality and industry of the debtor.

There are undoubtedly persons, who, if they could borrow money, would be idle and prodigal so long as it lasted, with little regard either to the rights of their creditors, or to their own subsequent interests. But such persons are very few, and their prodigal habits generally become so publicly known that capitalists would be in very little danger of loaning money to them through ignorance of their characters.

But the mass of men, when they have, in their hands, the means of bettering their condition, are zealous to do it; and if they could borrow capital, on which to bestow their labor, and could have all the fruits of their labor except what they should pay as interest, they would almost universally exert themselves, both by industry and frugality, to make such accumulations as would place themselves beyond the reach either of poverty, or of dependence upon loans from others. And where such exertions were made, they would be successful, with but few exceptions; and those few exceptions would generally be the result only of some such unusual misfortune as property and business are always liable to. In few or no cases would any considerable portion of the loan be sunk by mismanagement, or erroneous judgment, on the part of the debtor—for as loans would usually be made for no longer than three or six months each, there would not be opportunity for much waste of capital, unless by mismanagement that was so gross as to be culpable, or by misfortunes of rare and extraordinary character. In all other cases, then, capitalists would either obtain the whole of their loans with interest, or at least the greater part of their loans. The probability is, that in the aggregate of loans, the whole amount of losses would not be one fifth, or even one tenth as great as capitalists suffer under the present system. The system, as a system—at least during the first few years of its operation—would be altogether better for capitalists than the present one—for the losses would be less, and the rates of interest higher. Competition on the part of borrowers would produce this result.

But it is to be understood that this state of things—this competition among borrowers, arising from poverty on the part of so large a portion of the community as are now poor—could continue but a short time. Most of them—particularly those in the full vigor of life—would at once begin to realize more from their labor than would be necessary for their subsistence, and the payment of their interest. The work of accumulation would be at once begun; and they would speedily be in possession of sufficient acquisitions of their own to serve as security against all reasonable risks in their business; and such persons would then be able to borrow money at lower rates of interest than at first. In a very few years they would have made such accumulations as would be sufficient to employ their own hands, independent of loans from others. In a few years more they would themselves have small amounts to loan to others. The tendency of the system would be to individual accumulations by the mass of the people. The number of borrowers would decrease; the rate of interest would decline, until finally it would probably be no more than three or four per cent., and capital would have to go in search of borrowers at that.

The manifest tendency of the system would be to give to each man separately the use of sufficient capital to employ his own hands upon; to give him the use of this capital at the lowest possible rate of interest, that is consistent with free competition among borrowers; and to give him the entire fruits of his labor, except what he pays as interest. What more, consistently with the rights of property, can be done to distribute wealth justly among those who earn it, or to equalize the pecuniary condition of mankind?

The result of the system would be, that the future accumulations of society, instead of being held, as now, in large estates, by a few individuals, while the many were in poverty, would be distributed in small estates among the mass of the people. The large estates already acquired by single individuals, would, in two or three generations, at most, become entirely scattered. Afterwards we should see no such inequalities in the pecuniary conditions of men as now exist. There would probably never be any very large estates accumulated on the one hand, nor would there be any general poverty on the other. Some few incompetent or improvident individuals might always be poor; but there would be no such general poverty as now prevails among those who were honest, industrious, and frugal.

The aggregate accumulations of society would probably be greater than they are now—for then every man being dependent upon his own labor for his subsistence, all would of necessity labor, instead of a part only as now. Men laboring for themselves would also labor with more skill and energy, and practise more economy in the use of capital, than when laboring for others. There would be less capital squandered in luxury and display, and in extravagant and fanciful schemes, than now, because few or none would ever have fortunes large enough to enable them to indulge in ostentation and prodigality. The consequence, so far as these causes alone were concerned, would therefore probably be, that the aggregate accumulations of society would be greater than they now are. But it is of little moment whether they would be greater or less. Distribution is of infinitely more consequence than accumulation. Our present accumulations are quite large enough, if not altogether too large, unless they can be more equally distributed. The luxury, the vices, the power, and the oppressions of the overgrown rich, and of those who are becoming such at the expense of other men’s rights, are probably much greater evils than the simple poverty of the poor would be, if it were the result of natural and necessary causes.

But the power of the one great agent of accumulation—labor-saving machinery—would be greatly increased, under the system proposed, beyond what it is, or ever can be under the present system. And why? Simply because the extreme, neither of poverty, nor of wealth, is favorable to invention. The man, who has much wealth, is either too much engrossed by the care of it, or too much sunk in the luxurious indulgencies it affords, to have either time or inclination left for such mental exertions as are required for mechanical invention. On the other hand, the man, whose extreme poverty leaves him no respite from manual toil, and affords him no accumulations beyond his daily bread, has no opportunity to cultivate any mechanical genius with which nature may have endowed him, or to mature and realize any mechanical conceptions that may visit his mind—because to do so would require leisure, subsistence, and some little capital with which to make experiments. Thus the two extremes of society contribute nothing to the list of mechanical inventions. Neither the serfs nor the nobles of Russia, neither the slaves nor the slaveholders of America, neither the nobility nor the starving portion of the population of England and Ireland, make labor-saving inventions. On the other hand, in New England, where wealth is more equally distributed than perhaps in any other portion of the world, more labor-saving inventions are probably made than by any other people of equal number on the globe. And if the wealth of New England were distributed still more equally among the population, and if men labored more for themselves respectively, and less for others for wages, the number of valuable inventions would undoubtedly be still greater—because, if the wealth were more equally distributed, few or none would be so rich as to have their inventive powers smothered or stupefied by luxury, or overwhelmed by the care of their wealth; and, on the other hand, few or none would be so destitute as to have their powers fettered by poverty. But all, or nearly all, would be precisely in those moderate circumstances, that would at once stimulate their minds to the greatest activity, and also afford them leisure and capital for experiments. The practice of each man’s laboring for himself, instead of laboring for another for wages—which practice would be greatly promoted by a greater equality of wealth—would also contribute to the increase of labor-saving inventions—because when a man is laboring for himself, and is to have all the proceeds of his labor, he applies his mind, with his hands, much more than when he is laboring for another. And this habitual use of men’s minds, along with their hands, in labor, would undoubtedly give birth to multitudes of inventions that would otherwise never be made.

When we consider the almost incalculable amount of labor that is performed by labor-saving machinery, and the incalculable wealth it produces—how many times greater this labor and wealth are than those performed and produced by mere manual toil, we can hardly avoid forming some conception of the importance of labor-saving inventions to the wealth and comfort of man, and of the importance of such a distribution of wealth as will most tend to increase the number of such inventions in future. Without these inventions, we should be little else than savages. It is these inventions that give us our comfortable, neat, and even elegant dwellings, and our comfortable, beautiful, and abundant clothing. They also give us abundant food, both by improving the implements with which we cultivate the soil, and by supplying our other wants (than food) so easily as to leave us abundant time to cultivate the soil. They also give us numerous and easy roads, and easy and elegant carriages. They give us the rail-road car and the steamboat. The labor-saving printing press gives us those abundant means of knowledge, which prevail in civilized over savage life.

Although the surplus accumulations, made by labor-saving machinery, over and above consumption, are now held mostly by a few hands, yet it is not the fault of the inventions themselves that it is so; but of the causes that have heretofore been pointed out as obstructing the general distribution of wealth. So far as actual consumption is concerned, the benefits of labor-saving inventions are distributed as equally among rich and poor, as are the benefits of manual labor. It is to labor-saving machinery that the poor, no less than the rich, are indebted for their present comfortable dwellings, abundant clothing, abundant food, good roads, good carriages, and such means of knowledge as the printing press affords them. It is to labor-saving inventions that we are all of us mainly indebted that we are not now savages, living in wigwams, clothed with the skins of beasts, and comparatively destitute of knowledge. All, then, are interested in the increase of these inventions, and in such an equalization of wealth, as, (in the manner already suggested,) will most promote their increase.

One such invention as Fulton’s adds more to the wealth of the world than the mere manual labor of a whole generation. Yet how many Fultons, in the past ages of the world, have had their genius smothered by luxury, or starved by want; and how has poverty been entailed upon the world in consequence. Who can conceive what would have been the present wealth of the world, but for the want of opportunity, on the part of inventors, to enrich it by the productions of their genius? But war, and monopoly, (which is but a species of war,) have ever been employed in killing and starving mankind; when, with peace and equality of privileges, the labors of inventors would have made the earth one universal garden, and given, in profusion, to what then would have been its countless population, knowledge, comfort, and plenty.

The mind of man is fertile of invention almost beyond conception. All it needs is stimulus and opportunity to develope itself. And since every invention, made by a single individual, enures to the benefit of mankind at large, mankind at large are interested in placing each individual in such a pecuniary condition as that his mind will receive the proper stimulus, and enjoy the proper opportunity. And that condition is one neither of poverty, nor riches; but of moderate competency—such as will neither enervate him by luxury, nor disable him by destitution; but which will at once give him an opportunity to labor, (both mentally and physically,) and stimulate him by offering him all the fruits of his labor.