It would probably be a moderate estimate to suppose that the poor suffer an average loss—including the losses on price, quality, and adaptation to their wants—of fifteen or twenty per cent. on all their purchases, over what they would pay under a system of free credit currency. Supposing their purchases to be from two to four hundred dollars a year, their losses, at the rate mentioned, would be from thirty to eighty dollars annually—an amount sufficient, if lost, to keep them poor; or, if saved, to give them a competency.
Proposition 6. All credit should be based upon what a man has, and not upon what he has not. A debt should be a lien only upon the property that a man has before and when the debt becomes due; and not upon his earnings after the debt is due. If, therefore, a man be able to pay a debt when it becomes due, he should pay it in full; if unable to pay it in full, he should pay to the extent of his ability; and that payment should be the end of that transaction. The debt should be no lien upon his future acquisitions.
The only exceptions to this rule should be, 1, where the debtor, previous to the debts becoming due, has dishonestly squandered or misapplied the means, which he should have retained for the payment of his debt; and, 2, where he has omitted to do something, which he was plainly bound to do, towards putting himself in a condition to pay. But if he have been honest and faithful in the performance of everything, that, on his part, he was bound to do, the debt should be binding only to the extent of his ability at the time the debt should become due. And this, it will be seen hereafter, in the chapters on the legal nature of debt, is the whole legal obligation of a debt in any case; and, in the case of most debts, it is also the whole moral obligation.
Under the operation of this principle, nearly all debts would be settled at once on their becoming due; and be then settled finally and forever. The creditor would then know what he had got, and would have no occasion to spend any further time, thought, or money, in harassing the debtor by attempts to get more. And the debtor, on his part, would know that he was a free man; and would at once engage in the best employment he could find, without being liable to be disturbed or obstructed by his former creditor, in the prosecution of it. Thus creditor and debtor would be likely thenceforth to be more useful, both to themselves and society, under this arrangement, than under the opposite one, which makes the creditor the enemy of the debtor, and incites him to an expensive, cruel, perpetual, destructive and generally profitless war upon him, his family, and his and their industry.
It may be supposed by some, that credit would not be given, if the legal obligation of debts were limited in this manner. But men would as lief give credit on this principle, as on any other, if they were to understand, when the contract was made, that such was its legal effect; and if they were also to be at liberty to make their own bargains in regard to the rate of interest—for they would then charge an additional interest sufficient to cover the additional risk, if any, that they might suppose to result from this principle. And it would be far better for debtors to pay a slight additional interest, and have the benefit of this principle, than to make their contracts under all the liabilities of the opposite one. The payment of a slight additional interest would be equivalent to paying a slight premium for being insured against the calamity of an arrearage of debt and perpetual poverty, in case of any miscalculation or misfortune on their part.
But the probability is, that the risk to creditors would be no greater, not even so great, under the operation of this principle, as it is without it—and for these reasons.
1. This principle would bring about a general practice of short credits, and prompt settlements; which, for a variety of reasons, too obvious to need enumeration, are altogether safer and better for both debtors and creditors.
2. The debtor, under this principle, has a much stronger motive than he has under the opposite one, to the practice of honesty, industry, and frugality, and—if unable to pay the whole of his debt—to the payment of the most that it is in his power to pay, when the debt becomes due. For he knows that he can thus not only cancel his debt, at its maturity, and be free from it forever, but save his character and credit also. But under the principle of perpetual liability, whenever a man finds that he has made an error in his calculations, and that it will be impossible for him to pay his debt in full, that no exertion on his part can save him from an arrearage of debt, he is apt to think and feel that he is ruined, not only in his present fortune, but in his future credit and prospects. He therefore becomes disheartened, and perhaps idle, prodigal, and dishonest—saying to himself, “I may as well die for a large sum as a small one.” So far as this feeling operates upon the debtor—and that it will operate to a greater or less extent upon all debtors is inevitable—the creditor suffers a corresponding per centage of loss on his debt—a loss that, under the opposite principle, would have been saved.
But when a debtor contracts a debt with the knowledge that, at its maturity, all that can be required of him by his creditor, will be, that he shall have practised integrity, industry, and frugality, and that he shall make such payment as the practice of these virtues may have enabled him to make, and that, under these circumstances, not only his debt will be cancelled, but his character and credit saved, he has the stimulus of all these motives operating upon him during the whole period from the time the debt is contracted, until it becomes due. And when a man is governed by these motives, during the whole period mentioned, he will almost uniformly be able to pay, at their maturity, all such debts as were prudently contracted; unless he meet with some unusually hard fortune. And even in the case of hard fortune, he would still be able generally to pay the greater part of his debt; for it is not often, if ever, that a man, in the short interval between the time of contracting a debt, and the time the same debt becomes due, meets with such heavy misfortunes as to swallow up everything in his hands.
3. If this principle of law were acted upon, we should have no insolvent or bankrupt laws, as now, discharging men from their contracts arbitrarily, without regarding whether they have been honest or dishonest, prudent or profligate, frugal or extravagant, fortunate or unfortunate. Under the present system, insolvent and bankrupt laws are indispensable to save honest debtors from hopeless and perpetual poverty and want. Yet as these laws apply to large numbers of debts, instead of a single one, it is impossible that they should make such discriminations between the honest and dishonest, the frugal and the extravagant, the fortunate and the unfortunate debtor, as would be made in the case of a single debt, debtor, and creditor. The consequence is, that under the present system, creditors have, and can have, little other security for the honesty of their debtors, than what the principles and interests of the latter may afford. But under the other system, the debtor would be held liable, on each debt, to the scrutiny of his creditor; and would fail of a release from his liability, if dishonesty, profligacy, or extravagance were proved against him.
Which of these two systems affords the best securities to creditors, it hardly needs further argument to demonstrate.
4. Under the present system, debtors, under certain circumstances, are almost compelled, by the necessities of their condition, to wrong their creditors. For instance—a debtor, before his debt becomes due, finds that it will be out of his power to pay the whole of his debt at the time it becomes due. He knows that this arrearage will be a burden upon his future acquisitions, and that, if he suffer it to become known, it will also be an obstacle to his obtaining such further credit as may be necessary for the successful prosecution of his industry. But his debt not being yet due, and his insolvency not having yet come to light, he has still a credit in the community. He avails himself of this credit in the desperate hope to retrieve his fortune, and save his credit; or, if this cannot be, with the intention of putting as far off as possible the evil day of