2. It is right that the capitalist should be made to risk his capital on the final success of the enterprise, without having any claim upon the debtor in case of failure, (that is, when the debtor performs his part in the enterprise honestly and faithfully;) because, beyond this point, the capital must be risked by somebody, (the capitalist or laborer,) in every enterprise. And inasmuch as profit (in the shape of interest) is as much the object of the capitalist, in furnishing the capital, as (in another shape) it is of the laborer in furnishing labor, it is as much right that he should take the risk of losing his capital, as it is that the laborer should take the risk of losing his labor, (that is, all over and above his subsistence.) The risk is then fairly divided between them; whereas it would not be, if the laborer were to risk both his labor and the capital. If the profit is to be divided in case of profit, the loss ought to be divided in case of loss. It is sufficient to make the enterprise a joint one, if the profit is to be divided in case of profit. And if it be a joint enterprise, it is as much right that the risk of loss should be jointly borne, as that the chance of profit should be jointly enjoyed.
But this joint risk, between the capitalist and laborer, or lender and borrower, as to the final result of an enterprise, in which the labor of the one and the capital of the other are to be jointly employed, for their joint profit, is not only right as between the immediate parties, but it is also right and expedient on general principles of economy—and for this reason, viz., that when both capitalist and laborer are interested in the risks and results of an enterprise, the enterprise will then have the benefit of two heads, instead of one, in judging of its feasibility and probable results, and also in deciding upon the best plan of execution. Injudicious enterprises will then be more likely to be avoided; and less labor and capital will, therefore, be wasted on such enterprises than now are. When a capitalist loans money to a laborer, and knows that he will have a claim on the subsequent earnings of the laborer for any capital that may be sunk in the enterprise, he (the capitalist) does not look, for himself, into the merits of the enterprise as he would if he knew that his ultimate security for his capital depended solely upon the success of the enterprise, instead of depending also upon the subsequent earnings of the laborer.
Chapter III.
Economical Results from the Preceding Propositions
The last four of the preceding propositions assert the following principles, to wit:
1. The right of the parties to contracts to make their own bargains in regard to the rate of interest.
2. The right of free competition in the business of banking.
3. That the legal obligation of a debt, with specific exceptions, is extinguished by the debtor’s making payment to the extent of his means, when the debt becomes due.
4. That the several creditors of the same debtor hold successive liens upon his property, for the full amount of their debts, in the order in which their debts respectively were contracted.
It will hereafter be shown that these several principles are legal ones, founded in natural and constitutional law, that is binding upon all our judicial tribunals, and incapable of being invalidated, or set aside, by any legislative enactments that are within the constitutional power of any of our governments.
It has already been shown, in part, how these principles are adapted to the accomplishment of the following objects, to wit:
1. That of enabling each poor man to obtain, on credit, capital sufficient to employ his own hands upon.
2. That of enabling him to obtain this capital on the most advantageous terms as to interest, and in the most advantageous form for his use.
3. That of enabling him to obtain this capital on credit, without the risk of incurring an arrearage of debt in case of misfortune, or of miscalculation, on his part, as to his ability to pay in full.
4. That of enabling capitalists to loan capital to poor men, and hold the first lien upon it, in the hands of the debtor, for their payment; and without the risk of having the capital so loaned taken and applied, either by the law, or by the debtor, to the payment of debts to other men.
If such be the operation of these principles, it seems to follow, that, if they would not fully, they would yet very nearly accomplish the object of securing to every poor man, who was honest, industrious, and ordinarily skilful, the enjoyment of his right to labor to the best possible advantage, (by enabling him to obtain capital upon which to labor,) and also of his right to the possession of all the fruits of his labor, except what, in the nature of things, must be paid for the use of the capital upon which he labors.
If there can be any doubt as to such being the result of these principles, it can arise only from a doubt whether capitalists would loan their capital to laborers, or poor men, if the principles of law applicable to the loan, were such as have been described. This question, therefore, becomes important, viz., whether capitalists would loan capital to poor men under such circumstances?
The true answer to this question is, that, although they might not do it immediately, they yet would do it speedily—and for the following reasons:
1. It is obvious that, other things being equal, it would be much more safe for capitalists, especially when they loan on personal security, to loan their capital in small sums to a large number of individuals, who were each their own employers, than in large sums to a small number, who employed the labor of others. It would, for instance, be much more safe to loan fifty thousand dollars, in sums of five hundred dollars each, to one hundred men, who should each bestow their own labor upon it, than to loan the whole fifty thousand to one man, who should employ an hundred other laborers in the management of it. Each of the one hundred men would be more likely to repay the whole of his five hundred dollars, than the one man to repay the whole of his fifty thousand dollars. And why? Because a man can manage, with far less risk and waste, and with much more comparative profit, a capital of five hundred dollars, on which he expends his own, and only his own labor, skill, and calculation, than he can a capital of fifty thousand dollars, on which he is obliged to employ the labor of an hundred others, whose skill, industry, and economy he cannot stimulate to the same degree, to which they would be stimulated, when laboring for themselves. Small borrowers are also less likely to squander their loans in extravagant living, and in extravagant, fanciful, and hazardous enterprises, than large borrowers. The command of large borrowed capitals often intoxicates men with the conceit of their superior judgment in the management of property, or with a vain ambition for display, or with dreams of sudden wealth, or with a passion for magnificent schemes—the consequences of all which are told in deep, perhaps ruinous losses to their creditors. On the other hand, a man who borrows merely capital enough to employ his own hands upon, avoids this intoxication entirely. He thinks only of results, and of skill, industry, and frugality, as the means. The small borrower is therefore much more likely, than the large borrower, to be able to repay his loan. He is also much more likely to be willing to repay it. The temptation to fraud in his case is trivial, compared with that in the case of the other.
2. In the case of small loans to a large number of individuals, each individual is not only more likely, for the reasons already given, to repay the loan, than the single individual is in the case of a large loan, but there is this further security, which is of great consideration with capitalists, who loan money, viz., that in cases of misfortune or fraud on the part of a debtor, the loss is small, not ruinous. If the hundredth debtor fail to pay, the ninety-nine are still solvent. The capitalist is not ruined. He loses but one per cent. of his whole capital. But in the case of the large loan, if the debtor fail, the creditor is ruined, or seriously injured—simply