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would be unwilling to pay this high interest; so that a great part of the capital of the country would be kept out of the hands most likely to make a profitable and advantageous use of it, and thrown into those which were most likely to waste and destroy it. This doctrine, notwithstanding its wisdom, has not been adopted by later writers; and the French translator of Adam Smith's work, whom I mentioned before, has combated it with the energy and force proceeding from the consciousness of defending a truth useful and profitable to his country. “In every case,” says that French writer, “ in “ which the parties concerned have themselves stipu“ lated the interest, it is absurd or unjust in the law to “ pretend to interfere with their agreement: to competition alone it belongs to fix the rate of interest, just as it ought to fix the rate of wages and profits, or the price of commodities. When the parties concerned deviate from the market-price of interest, they probably have been induced to it by peculiar circumstances which the vigilance of private interest is better able to appreciate than the most enlightened magistrate.”* This opinion has prevailed over that of Adam Smith; and for the last five-and-twenty years mone
of the best writers on political economy have professed any other.
* Abrégé Elémentaire de l’Economie Politique, par le Sénateur Germain Garnier. Paris, 1796. Chap. iv. isection 3, § 4.
But governments have paid little attention to the opinions of philosophers, and seem to cling still faster to a legal rate of interest. Whether they are afraid of the check which this innovation might give to circulation, or whether experience has taught them that the wants of debtors would exceed the means of creditors, and made them apprehensive that, in this struggle, the rate of interest might rise above the limits which national prosperity allows; or whether they suppose that the law will restrain and regulate private interest, and change the relations established by the nature of things, it is certain that the rate of interest is every-where fixed by law; whence it is clear that theory and practice are at variance.
There are, however, few absolute principles in political economy, as I observed once before; they are continually modified by circumstances, and all that ean be desired from an enlightened government is, that it should shorten the duration of modifications, and accelerate as much as possible the return to fixed rules and good principles.
But though he opposes a legal rate of interest, the author just quoted thinks it ought to be fixed by law, whenever it has not been stipulated by the contracting parties. He says: “ The rate of interest must be “ fixed by law, whenever it adjudges interest to the “ creditor by way of indemnity in cases where none “ had been stipulated by the parties. And this rate “ being fixed to supply the stipulation of the parties, “ it follows that it ought to be according to the market“ rate of interest, as being the rate which the parties “ must be presumed to have adopted, if they had “ stipulated any interest.” + This modification of the principle which deprecates a legal rate of interest, appears neither reasonable nor well founded. If the interest be an indemnity due to the lender for his having deprived himself of the commodity which he has lent, this indemnity, when it has not been stipulated by the parties, ought, like all other indemnities, to be complete, and restore to the creditor whatever he loses by being deprived of his commodity. Should the interest be fixed by law below the market-rate of interest; should it be legally fixed at five per cent. when it is worth six per cent., it is evident that the creditor loses one per cent, and does not receive the indemnity to which he is entitled; the debtor is favoured and benefited by his want of good faith or punctuality. In this case, as well as in the loan of any other object than money, the care of fixing the indemnity due to the lender, on account of his having been deprived of his commodity, must be left to the magistrate. It ought not to be regulated by law, because it exceeds the functions and is without the pale of legislation. The law ought to regulate it only when circumstances require its interference to remedy the deficiency of stipulations by the parties. Except in those extraordinary cases, the law ought no more to fix the rate of interest, when there is no
* Abrégé Elémentaire de l' Economie Politique, par le Sénateur Germain Garnier. Paris, 1796. Chap. iv. article iv. section 3, § 4.
agreement between the parties, than it ought to restrict or limit their agreement: the principle is the same in both cases, and ought not to be differently applied. But is the lending of capital at interest profitable or detrimental to national wealth : When a loan takes place merely because the lender does not wish to employ his capitals himself, and the borrower applies it to pay a labour productive of a revenue, there is no doubt that this employment of capital is as profitable as if the owner himself applied it to pay a labour productive of a profit. The difficulty is only when the loan is applied to immediate consumption without any re-production. In that case, we must distinguish between a loan to a private individual and a loan to the public. The former cannot have any very disastrous effects, because the number of prodigals and spendthrifts is never very extensive, and their prodigalities and dissipations can have but little or no influence on the total sum of the produce of labour. The public loan is the only one that is of importance, because it has an essential influence on the wealth and power of states. Governments are induced to open public loans whenever the ordinary revenue is insufficient for the extraordinary expences which imperious circumstances demand. Public loans must therefore be considered as an extraordinary resource; and the only question proper to be examined in this case is, whether this resource is more or less prejudicial than any other that might be employed.
Nations have only three ways and means to provide for extraordinary expences —to sell the national demesnes, if tiere be any ; to levy contributions proportioned to the wants of government; and to have recourse to voluntary loans. To sell the public demesnes would at this time yield a very feeble resource in great states, and in others it would be precarious and afford but a slow, uncertain, remote, and consequently inefficient assistance. To raise the public contributions, and proportion them to the wants of the state, is not always practicable; they could only be levied at the expence of capital destined to maintain labour productive of a revenue; consequently they would cause its diminution, and perhaps interrupt this labour and occasion incalculable losses to re-production. Extraordinary contributions might besides experience a resistance which would augment the expences of government, obstruct its operations and paralyse its energy. And should they even not encounter any resistance or meet with any difficulty, they could not provide for immediate wants, because they could only be levied slowly and gradually : consequently extraordinary contributions would afford but a slow, uncertain, and inefficient assistance. Public loans are free from any of these inconveniences; the want is supplied as soon as it is felt. When the capitals which they procure to the state, have no useful employment or destination, they are no-wise injurious to labour and re-production ; both continue in the same state; and if they suffer any injury from this way of employing capital, it is only P