The principal drawback upon this security is this, viz., that the laborer and his family must have their subsistence out of the proceeds of their labor—in other words, from the sale of the shoes manufactured. The amount of this drawback will depend upon the number, health, economy, and industry of the debtor’s family. In the case of a young man, just setting out in life, with a wife, and without children, the necessary cost of a frugal subsistence, such as a prudent and reasonable person would be satisfied with, (at least until he had accumulated capital enough of his own to employ his own hands upon,) would probably not consume even one half the value that would be added to the capital by his labor. In the case of larger families, a large proportion of this value would be consumed. But in few or none, unless it were in case of sickness, would it be so nearly consumed as to impair the creditor’s security. This is evident from the fact that laborers now support their families simply upon the wages they receive for their labor, although their wages do not amount to more than one half, two thirds, or three fourths of the value, which their labor adds to the capital on which they are employed, (the rest going into the pockets of their employers.) If, then, they were to have—as, when they were their own employers, they would have—the whole of the value that should be added to the capital by their labor, they could not only subsist as well as they do now, but have considerably more than enough beside to repay the capital borrowed, with interest—because the capital borrowed will itself be sufficient to repay the loan and interest, if but six, seven, eight, nine, or ten per cent., (according as the rate of interest may be,) shall be added to its value by the laborer. Any laborer, having ordinary capacities, could add this amount of value to two, three, or five hundred dollars capital, and still have nine tenths of the whole value or proceeds of his labor left, with which to subsist himself and family. And these nine tenths of the whole value or proceeds of his labor, (when he had two, three, or five hundred dollars capital to work with,) would unquestionably amount to much more than he would receive as wages, when he sold his labor to an employer.
The other drawbacks on the security mentioned, (in addition to the subsistence of the laborer and his family,) are the risks of the health and life of the borrower, and the risk of accidents by fire, &c. These risks, on the aggregate of loans, would be small, and would be guarded against by creditors, by small additional rates of interest, (if usury laws were abolished,) by life insurance, and by insurance on the capital against fire. The costs of guarding against all these risks would amount to no more than a small addition to the rate of interest on the capital, and, being thus provided for, would interpose no serious impediment to the loan of capital to poor men.
One principal, if not insuperable obstacle, in the way of loaning capital to poor men, in the present state of things, is that the creditor has no legal security that the debtor will not contract other debts afterwards, and that the capital, which he has loaned to him, will not be applied, either by the debtor himself, or by the insolvent laws, to the payment of these debts to other men. This obstacle would be entirely removed by the adoption of the principle of the prior right of the prior creditor.
2. Another result of this principle would be the general distribution of credit. A capitalist, about to loan money, would be very cautious of loaning to a person already in debt for capital borrowed of others—lest the capital loaned by himself should become indistinguishably mixed with that borrowed of the prior creditors, and be devoted, in whole or in part, to the payment of such prior creditor’s claims. He would, therefore, seek for borrowers who were free of debt, that he might at least hold a secure lieu upon the capital, which he himself should loan to them. The principle would thus obviously prevent the accumulation of large credits in the hands of single individuals. And by preventing large accumulations of credit in the hands of single individuals, it would promote the distribution of the same aggregate amount of credit, in smaller parcels, among a larger number of individuals. And the same aggregate amount of credits, that now exist in the community, if properly distributed, would probably put into the hands of nearly or quite every laborer in the country an amount of capital sufficient for him to employ his own hands upon.
This principle of the prior right of the prior creditor would be no obstacle to banking, nor to a banker’s paying a second note while a prior one was still in circulation—because a banker’s notes are payable on demand, and are due immediately on their being issued. If, therefore, the holder do not present them when due, (that is, if he do not present them immediately on their being issued,) such omission is a voluntary waiver, on his part, of his right to priority of payment, and allows the banker to pay his notes in the order in which they are presented for payment. The same principle would apply to all other debts that were not demanded when due.
Again; although this principle, of the prior right of the prior creditor, would be an obstacle in the way of a debtor’s getting a second credit, (unless of the same creditor,) before a prior one had become due, it would be no such obstacle after the former one had become due, even though he should have been unable to pay the first credit in full—because, at the maturity of the first credit, he would—if the principle of “Proposition 6” be correct—cancel it by paying to the extent of his means, which would leave him thenceforth a free man.
The result of the two principles stated in propositions 6 and 7, viz., 1, that a debt is binding upon a debtor only to the extent of his means; and, 2, that a prior creditor has a prior lien on his debtor’s property, would be to induce capitalists individually to seek out separate laborers, of capacity, industry, and integrity, who were free of debt, and furnish them respectively with what capital their business should require; and thus save borrowers from the necessity of getting credit, as they do now, in petty parcels, of several different persons. That such would be the result is obvious—because, 1, a capitalist would prefer, as a general rule, not to become the second creditor of a debtor; and, 2, as capitalists would not wish to become the second creditor of a debtor, it would be indispensable, as a general rule, that the first creditor should advance capital enough to enable the debtor to prosecute his business advantageously, else he might lose a part of what he should loan him. The debtor, having a right to cancel his debt, by paying to the extent of his means, would do so whenever the creditor should refuse to furnish sufficient capital to enable him to prosecute his business profitably. And the creditor, when he should see that his debtor was using capital advantageously, would choose to advance to him whatever might be necessary, because such advance would be a profitable investment of his capital. On the other hand, whenever he should find that his debtor was not using capital advantageously, he would withhold any further advances, and, at the maturity of the credit given, close the connexion with as little loss, if any, as possible, by accepting payment to the extent of the debtor’s means, in full discharge of the debt.
The operation of these principles, therefore, would be the establishment of a sort of partnership relation between the capitalist and laborer, or lender and borrower—the former furnishing capital, the latter labor. Out of the joint proceeds of this capital and labor, the laborer would first take enough for an economical subsistence while performing the labor—as it would be necessary that he should, in order that he might perform it. On all the remaining proceeds the capitalist would hold a lien for the amount of capital loaned, and also for such an amount of the increased value given to it by the labor, (say six, seven, eight, nine, or ten per cent.,) as should have been agreed on between them, under the name of interest.
This quasi partnership between the capitalist and laborer, by which the latter is made sure of his subsistence while laboring, and by which the capitalist is made to risk his capital on the final success of the enterprise, without any claim upon the debtor in case of failure, is the true relation between capital