Of all the frauds, by which labor is cheated out of its earnings by legislation, and of all the monopolies established by legislation, probably no one is more purely tyrannical in its character, or more destructive at once of the natural right of individuals to make their own contracts, and of the just distribution of wealth, than that monopoly of the right of borrowing money, which forbids the mass of men to obtain capital, on which to bestow their labor, and thus compels them to sell their labor at a price far below the amount of its actual products.
The law, that allows all men, without distinction, to borrow capital, provided they can borrow it at six per cent. interest, is, in the equality of its operation, like a law that should allow every man perfect freedom to profess and enjoy his own peculiar religion, provided his peculiar religion was the particular and only one that was allowed by the State to be professed and enjoyed by any one.
A statute, that should forbid one man to borrow, at any rate of interest whatever, more capital than he could manage by his own labor alone, would not be tolerated, for the reason that it would be an infringement of men’s natural rights to borrow all they could; yet it would not be half so unequal or pernicious, nor so unjust an infringement of individual rights, nor probably so destructive of the equal distribution of wealth, as are the usury laws, which allow one man to borrow enough to employ a hundred laborers upon, while they forbid the hundred laborers to borrow each enough to employ his own hands upon.
What a change would be wrought upon the face of society, if each adult male laborer, who is now obliged to sell his labor, were to receive, during the prime of his life, eighty-five dollars annually of the fruits of his labor more than he does now; and if all older and younger persons, and females, who are now obliged to sell their labor, were also to receive a similar greater proportion of the fruits of their labor. Yet if the supposition before made be correct, what prevents such a result? If the abolition of the usury laws alone would not accomplish it, the abolition of these and the other tyrannical and unconstitutional restraints upon the freedom of industry, and men’s rights of contract, hereafter to be pointed out, would, I think, certainly accomplish it, at least in the case of all honest, industrious, and ordinarily skillful laborers.
Proposition 5. The laborer not only wants capital, on which to bestow his labor, but he wants to obtain this capital at the lowest rate of interest, at which, in the nature of things, he can obtain it. That he may obtain it at the lowest possible rate of interest, it is necessary that free banking be allowed.
The correctness of this proposition will be seen, when it is considered what banking really is. Banking is loaning one’s credit, (for circulation as currency,) instead of loaning money.
If a man can afford to loan money for six per cent. interest, he can certainly afford to loan his credit for three. And why? Because whatever profit a man makes by loaning his credit, is clear gain. It costs him nothing; for he still enjoys the use of the houses, lands, or other property, on which his credit is based, in the same manner as if he had not loaned the credit based upon them. But the income, which a man derives from the loan of money itself, is obtained only by the sacrifice, or at the expense of the crops, rents, or other incomes, which he might derive from the lands, houses, or other property, which his money would purchase. If, therefore, a man can afford, for six per cent. interest on his money, to give up all the crops, rents, and other incomes, which he might obtain from the lands, houses, or other property, which his money would purchase, it is plain that for three per cent. he could afford to loan his credit, which costs him nothing but the risk and trouble attendant upon the loan, (which risk and trouble, by the way, are not materially, and, in general, perhaps no greater, than in the loan of money.)
It can hardly be said that there is any profit in loaning money itself; for the interest obtained is generally no more than a fair price or equivalent for the crops, rents, or other incomes, which the property that might be purchased with the money, would yield. But in the loan of credit, there is an actual profit of the whole amount that is received as interest, after paying the trouble and risk of banking.
It is clear, therefore, that if money can be loaned, as it now is, for six per cent. interest, credit could be loaned at two, three, or four per cent.
Since, then, all banking profit is a net profit without cost, and not, like the interest on money, an equivalent for the crops, rents, and other incomes of property, that the lender might have retained and enjoyed; and as the materials for banking credit are abundant, and almost superabundant, it is obvious that if free competition in banking were allowed, the rate of interest on banking credit would be brought very low, and bank loans would be within the reach of everybody whose business and character should make him a reasonably safe person to loan to. Probably every such person could borrow, at six per cent., capital enough to employ his own hands upon; and many would doubtless be able to borrow it for five, four, or even three per cent.
Suppose such were the result, and suppose five hundred dollars capital to be enough to employ each man’s labor, the only difference between the annual income of a man, who should own his capital, and of one who should borrow his, would be barely the interest paid by the latter—that is, fifteen, twenty, twenty-five, or thirty dollars, according as he should pay three, four, five, or six per cent. interest. What a change would be rapidly wrought in the condition of mankind by a system that should supply all the destitute with the use of capital on such terms as these.
If free banking were allowed, the loanable credit could not be monopolized by a few borrowers, as the loanable money now is. The materials for banking credit are so immense, so nearly illimitable indeed, and exist in such a variety of shapes, and are distributed among so many proprietors, that it would be impossible to concentrate them, as money is now concentrated, in the hands, or bring them under the control of a few corporations, or confine the loans based upon them to a few favorite individuals.1
Banking credit is the best kind of credit for the borrower—and for these reasons.
1. It is obtained at the lowest possible rate of interest.
2. It then enables the borrower to buy, at cash prices, whatever he wishes to buy.
3. Circulating like money itself, and divisible like money itself into small amounts, it enables the borrower to buy his commodities, or materials, in such quantities, of such qualities, and of such persons as it will be most for his interest to buy them—instead of his being compelled, as he is when he buys his commodities on credit, to buy them in such quantities, of such qualities, and of such persons, as it may chance that he can buy them on credit.
So great are the necessities of the poor for materials upon which to bestow their labor, and for the necessaries of life, such as food, clothing and fuel; and so great are the difficulties in the way of getting cash to make their purchases with, that they are compelled to make most of their purchases on credit; to make them of persons who do not wish to give them credit, and who will not give them credit, except at extravagant prices; and also often to buy commodities not the best adapted to their wants. In making their purchases under these circumstances, they not only suffer serious losses in the kinds and qualities of the commodities purchased, but they are also obliged to pay five, ten, fifteen, or twenty per cent. more for them, than they would have to pay if they had cash to buy with. Probably also the retailer