Proposition 2. In order that each man may have the fruits of his own labor, it is important, as a general rule, that each man should be his own employer, or work directly for himself, and not for another for wages; because, in the latter case, a part of the fruits of his labor go to his employer, instead of coming to himself.
Proposition 3. That each man may be his own employer, it is necessary that he have materials, or capital, upon which to bestow his labor.
Proposition 4. If a man have not capital of his own, upon which to bestow his labor, it is necessary that he be allowed to obtain it on credit. And in order that he may be able to obtain it on credit, it is necessary that he be allowed to contract for such a rate of interest as will induce a man, having surplus capital, to loan it to him; for the capitalist cannot, consistently with natural law, be compelled to loan his capital against his will. All legislative restraints upon the rate of interest, are, therefore, nothing less than arbitrary and tyrannical restraints upon a man’s natural capacity and natural right to hire capital, upon which to bestow his labor. And, of consequence, they are nothing less than arbitrary and tyrannical restrictions upon the exercise of his right to obtain all the fruits, that he honestly can obtain, from his labor.
The rate of interest, which the capitalist will demand, will depend upon a variety of circumstances, and especially upon the risk of loss attendant upon the loan—in other words, upon the character of the security offered by the borrower for the payment of the loan. This security and consequent risk will differ in the cases of different individuals. The legislation, therefore, that prescribes a fixed rate of interest, beyond which no contracts may go—especially if that limit be, as it usually is, the lowest at which capitalists will loan money on the most approved security—in effect deprives all those, who cannot offer the most approved security, of their right of hiring capital at all.
The great mass of those, who, by reason of not having the most approved security to offer, cannot borrow capital at all at six per cent., could yet, without difficulty, borrow enough to employ their own hands upon, (say from two to ten hundred dollars,) on the credit of their skill, industry, integrity, and ability, and of the value which their labor would add to the capital borrowed, if they were allowed to contract for seven, eight, nine, or ten per cent. interest—enough to pay for the risk of life, health, losses by fire, theft, robbery, &c.; which risks it is perfectly right that the capitalist should be guarded against by an additional rate of interest.
The effect of usury laws, then, is to give a monopoly of the right of borrowing money, to those few, who can offer the most approved security. A man offering the most approved security, can obtain money at six per cent.; while another, whose security is not so acceptable, but who, nevertheless, could obtain money as readily at seven, eight, or nine per cent., as the other does at six, cannot now obtain it at all, simply because he is forbidden to contract for such a rate of interest as would, in the average of loans, compensate capitalists for the additional risk or inconvenience attendant upon the only kind of security he has to offer.
The consequence is that the loanable capital of society is monopolized almost entirely by those few, those very few, who wish to borrow, and can offer the most approved security; while the mass of those, who have not capital of their own, but who, if left free to make their own contracts, would be able to obtain a portion sufficient to employ their own hands upon, are now, for the want of capital on which to bestow their labor, compelled to sell their labor to those who have, by means of the usury laws, monopolized the capital. And they are compelled to sell their labor at such a price as will enable the employer to make a large profit upon their labor; or, in other words, enable him to put into his own pocket an important portion of the fruits of their labor. All this is the effect of the usury laws. The same laws that enable him to monopolize the loanable capital, enable him also to monopolize the labor of those who cannot borrow capital on which to bestow their labor.
To illustrate the operation of this principle, let us suppose that a capital of five hundred dollars is necessary to employ the labor of one man; that, under the usury laws, A, owing to the approved character of the security he has to offer, can borrow, and does borrow, at six per cent. interest, five hundred dollars capital more than he wants to employ his own hands upon; that B is a poor man, who cannot borrow capital at six per cent., and, therefore, owing to the prohibition of the usury laws, cannot borrow it at all; that he is consequently compelled to sell his labor to A, who has borrowed the necessary capital to employ his labor; that A buys B’s labor for a year, and, after paying his wages, and the interest on the five hundred dollars on which he has employed B to labor, he (A) realizes one hundred dollars profit.
This probably is not an extravagant supposition; for it is probable that employers, who borrow their capital at six per cent., and manage their business judiciously, do generally realize at least an hundred dollars profit from the labor of each adult male laborer they employ.
Now it is plain that if B had been allowed to borrow, and had borrowed, (as he probably could have done,) this same five hundred dollars capital at nine per cent., and had then employed his own hands upon it, he could have put into his own pocket eighty-five dollars more of the fruits of his labor than he did when laboring for A for wages—for he could have had all the fruits of his labor, (that is, the amount both of his wages and the profits made by A,) with but this abatement, viz., that he must have paid three per cent. more interest for his capital than was paid by A. This three per cent. interest, on five hundred dollars, would be fifteen dollars—which, deducted from the hundred dollars that went into A’s pocket as profit, leaves eighty-five dollars to go into B’s own pocket, over and above the amount he received as wages when laboring for A.
This supposition illustrates fairly the operation of usury laws, in depriving the mass of men of the fruits of their labor. These laws give a monopoly of the loanable capital to a few individuals. These individuals, having a monopoly of capital, are able to take advantage of the necessities of all those who have not capital of their own, and are forbidden to borrow any, on which to labor. They thus compel them to sell their labor at a price that will give their employer a large slice out of the products of their labor. The laws themselves are the contrivances, not of the retired rich men, who have capital to loan—for they, of course, wish to carry their money to the largest and freest market—but of those few “enterprising” “business men,” as they are called, who, in and out of legislatures, are more influential than either the rich or the poor; who control the legislation of the country, and who, by means of usury laws, can sponge money from those who are richer, and labor from those who are poorer than themselves—and thus make fortunes. And they are almost the only men who do make fortunes—for almost all fortunes are made out of the capital and labor of other men than those who realize them. Indeed, large fortunes could rarely be made at all by one individual, except by his sponging capital and labor from others. And the usury laws are the means by which he does it.
The reason given for usury laws is, that they protect the poor from the extortions of the rich. But this reason is a false one—for there is no more extortion in loaning capital to the best bidder, than in selling a horse, or renting a house to the best bidder. The true and fair price of capital, as of everything else, is that price which it will bring in fair and open market. And those who falsely pretend to be interested to prevent the rich extorting money from the poor,