Front Page Titles (by Subject) LETTER III.: Reasons for Restraint.—Prevention of Prodigality. - Defence of Usury
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LETTER III.: Reasons for Restraint.—Prevention of Prodigality. - Jeremy Bentham, Defence of Usury 
Defence of Usury; shewing the Impolicy of the Present Legal Restraints on the Terms of Pecuniary Bargains; in 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; and to which is also added, A Protest against Law-Taxes (London: Payne and Foss, 1818).
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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 hand, 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 is 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, though 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 at 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.