CHAPTER 10 Extracts from “Paper on Lending at Interest”

ections I–III. Reasons for the paper and background. Some months ago a complaint was made to the magistrate at Angoulême against an individual who allegedly had exacted usurious interest rates in credit transactions. This complaint has caused a great deal of consternation as well as further complaints against lenders, and has thrown the whole credit structure of the area into confusion. Because credit has been so widely interrupted, bankruptcies are rapidly increasing. This financial crisis is of such importance, that the Royal Council should be informed. This paper has been written to provide the Council with a resume of events, and a solution to the problem.

In order to appreciate the facts of the case, some background material about the district is provided. Angoulême ought to be a flourishing town, because of its geographical location, but unfortunately scarcity of capital has prevented this. At present, its major commerce is connected with the manufacture of paper, the brandy trade, and some iron works.

The paper trade, in general has steady prices; the opposite applies to that in brandy: this commodity is subject to huge variations in price. These variations lead to very hazardous speculations, which may either procure immense profits, or entail ruinous losses. The enterprises of the iron masters, which supply the navy, require very large and lengthy advances from them, which return to them with profits which are all the more considerable as they return later. To avoid losing the opportunity of a large order, they are forced to obtain money at any price, and they find the greater advantages as, by paying in cash for the ore and the wood, they obtain a very considerable reduction in the price of these raw materials for their enterprises.

IV. Cause of the high interest rate in Angoulême. It is easy to understand that the combination of a trade which is equally susceptible to large risks and large profits, and an area where capitals are in short supply, as found in the town of Angoulême, must have resulted in a fairly high current rate of interest, and generally higher than it is in other places of commerce. Indeed, it is notorious that for a period of about forty years, most of the financial transactions have been made at the rate of 8 or 9 per cent per annum, and sometimes at a rate of 10 per cent, depending on the size of the demand, and the risk involved.

Sections V–X. The details of the legal dispute, and some of its consequences. In this type of commercial situation, bankruptcies are frequent. Two of these bankrupts, in collusion with some friends, fraudulently obtained money by issuing bills on each other, which were endorsed by their friends and discounted with the defendant at a fairly high interest rate. When the bills fell due, the two bankrupts, instead of paying, denounced their creditor to the magistrate for charging usurious interest rates. This action has intimidated other lenders, who are now refusing to discount bills until they are sure of the legal position. This has disrupted the whole credit system of Angoulême.

XI. Disastrous effects of this unrest on the credit and commerce of Angoulême. As expected, the effect of the lawsuits has been the total loss of credit for the whole trade of Angoulême. The license given to the dishonesty of the borrowers has closed the purses of all the lenders, whose wealth, moreover, has been severely shaken by this blow. No expired obligations are renewed, all enterprises come to a halt, the manufacturers are exposed to failure through the impossibility of finding credit in expectation of the return of their funds. At the beginning of this paper I already referred to the large number of bills of exchange which have been protested since these disturbances started.

I have been informed that the merchants who deal in cloth for the consumption of the town, having addressed themselves to Lyon, according to their custom, in order to place their orders, have received the reply that no transactions will be made with people from Angoulême except on cash terms. This disrepute has even affected the subsistence of the people: since the harvest has failed in the province, they need the resources of trade to fill the gap. It would be expected that the town of Angoulême, being situated on a navigable river, would always be abundantly provided, and that her merchants would be eager to set up stores, not only for local provisions, but even for those of part of the province; but the inability of undertaking any form of speculation, which the general disrepute has brought about, makes this expedient worthless.

Sections XII-XIII. It is necessary to put an end to these difficulties, but it is not easy to remedy their causes, because of the prejudices contained in the law concerning interest.

XIV. Defects of our laws on the subject of interest; impossibility of observing them rigorously; disadvantages of the arbitrary limits which have been imposed in practice. I will not mince words. The laws recognized in the courts on the subject of the interest of money are poor; our legislation conforms to the extreme prejudice about usury introduced during the era of ignorance by theologians who understood the meaning of Scripture no better than the principles of natural right. The rigorous observation of these laws would mean the destruction of all commerce; consequently, they are not observed rigorously: they forbid all stipulation of interest without the alienation of capital; they prohibit, as illegal, all interest stipulated at a rate higher than that fixed by the ordinances of the Prince. And it is a well-known fact that there is no commercial centre on earth where the majority of transactions do not depend on the borrowing of money without the alienation of capital, and where interest rates would not be fixed by convention, according to the relative abundance of money on the spot, and the relative certainty of the solvency of the borrower. The rigidity of the law has yielded to the force of circumstances: jurisprudence has had to moderate in practice its theoretical principles, and has openly come to allow borrowing by bill, by discount, and other types of financial transactions between merchants. This will always happen when the law prohibits what the nature of things requires. However, this situation— where laws are not observed, but continue to exist without being repealed, and are even still partly enforced—entails very great disadvantages. On the one hand, the known disregard of the law reduces the respect which citizens should have for everything which carries its authority; on the other hand, the existence of this law maintains a troublesome prejudice, stigmatizes something which is legal in itself, with which society cannot dispense, and which consequently, a large group of citizens should be permitted to do. This class of citizens is degraded by this, and the onset of this degradation in the opinion of the public weakens the restraints imposed by its honor, that valuable support of integrity. The author of Esprit des Lois has aptly stated that: “When the laws prohibit a necessary thing, they only succeed in making dishonest men of those who do it.”

The virtual non-observance of this law has meant that it has become most arbitrary, because there is no certainty as to when it will be invoked. The penalties for transgressions of this law are also most severe and include: compensation to the borrower, banishment; and for the second offence, condemnation to the galleys for life, or banishment for life. In the law, no distinction has been made between usury proper or exorbitant interest rates, and acceptable rates of interest. This makes the law even more arbitrary.

XV. What has happened in Angoulême proves the disadvantages arising from the arbitrariness of the law on interest.

XVI. This makes it imperative that the Government must settle the matter: either by repealing the law altogether, or by making it more specific.

XVII. The reform of the law is a difficult matter. It is therefore necessary to have knowledge of the true facts surrounding interest, in order to combat the prejudice of vested interest in this matter.

XVIII. In order to examine the question in the light of natural right, an extensive discussion is required which will weigh up the evidence for, and against, the taking of interest on loans. I must apologize for setting out this argument at length, since the prejudice surrounding this topic is sufficiently great to warrant such treatment.

XIX. Proof of the legitimacy of lending at interest, based on its absolute necessity for commerce; development of this necessity. First of all, the absolute necessity of lending for the prosperity and the maintenance of commerce is a very strong proof against the principles adopted by dogmatic theologians on the subject of lending at interest, for what man who is reasonable and religious at the same time can presume that Providence has forbidden a thing which is absolutely essential for the prosperity of society? Now, the necessity of lending at interest for commerce, and consequently, for civilized society, is proven from the first by the tolerance which the absolute need of commerce has forced to be given to this type of transaction, in spite of rigid prejudices of both theologians and legal experts. Moreover, this necessity is a self-evident thing. There is no commercial centre on earth where enterprises do not depend on borrowed money; there is not a single merchant perhaps who has not frequently been obliged to have recourse to the purse of others; even the richest in capitals could not be sure of never needing this expedient except by keeping part of their funds idle, and consequently, by diminishing the extent of their enterprises. It is no less obvious that those outside capitals necessary to all merchants can only be confided to them by their owners to the extent that the latter discover an advantage in it capable of compensating them for the deprivation of money which they could have used, and for the risks attached to all commercial enterprises. If the money lent for uncertain enterprises did not yield an interest higher than that on sound mortgages, people would never lend to merchants. If it was prohibited to draw interest from money which had to be returned on a fixed date, all money for which the owners could foresee a need in a certain time, while not needing it currently, would be lost to commerce during this interval. It would be utterly lost to those who have an urgent need for it. The rigorous enforcement of such a prohibition would remove immense sums from the circulation, which are now made available through the certainty of recovering them in case of need, to the mutual advantage of lenders and borrowers; and the lack of them would necessarily make itself felt by the rise in the rate of interest, and by the cessation of a large part of commercial enterprises.

XX. Necessity of leaving the determination of interest in commerce to the agreements of the merchants, and to the operation of the different factors which cause it to vary: indication of these factors. It is thus from absolute necessity, and to maintain confidence and the circulation of money, without which there is no commerce at all, that the lending of money at interest without the alienation of capital, and at a rate higher than the interest (le denier) fixed for Government stock, is sanctioned in commerce. It is essential that money is considered in commerce as a genuine commodity whose price depends on agreement and varies, like that of all other commodities, according to the ratio between offer and demand. Interest being the price of loanable funds, it rises when there are more borrowers than lenders; it falls, on the contrary, when there is more money offered than is demanded for borrowing. It is in this way that the normal rate of interest is established, but this normal rate is not the only rule which is followed, nor should it be followed to fix the rate of interest for individual transactions. The risks which the capital may run in the hands of the borrower, the needs of the latter, and the profit which he hopes to draw from the money which he borrows, are the circumstances which, when combined in different ways, and with the normal rate of interest, will often carry the rate to a higher level than it is in the ordinary course of trade. It is quite obvious that the lender would decide to lend his capital only through the lure of a high profit, and it is no less obvious that the borrower would decide to pay an interest which is all the higher as his needs are more urgent, or as he hopes to draw a greater profit from this money.

XXI. Inequalities in the rate of interest because of the inequality of risks are no more than just. What injustice can there be in this? Can it be expected that an owner of money risk his funds without any compensation?

He can refuse to lend, it is said; undoubtedly, and this is just what proves that, when lending, he can expect the profit to be proportionate to his risks. For, why deprive persons who, when they borrow cannot give security of an assistance they most urgently need? Why deprive them of the means to attempt enterprises from which they hope to get rich?

No law, civil or canon, forces anybody to render them gratuitous assistance; why should civil or canon law prohibit them to procure it at a price which they consent to pay for their own benefit?

XXII. The legitimacy of lending at interest is independent of profit. Scholars have tried to disprove the legitimacy of interest by arguing that the borrower does not always profit from the loan, while the lender always profits from the interest. This argument is invalid.

XXIII. The legitimacy of interest is a direct consequence of the ownership which the lender has in the object he lends. The legitimacy of lending at interest arises from the inviolable right of private property. The owner of an object can do with it what he likes: he can sell it or let it. The buyer or the lessee voluntarily buys or leases it, and the price he pays will be just, as long as neither of the parties is fraudulent.] Property in money is no less absolute than that in furniture, in a piece of cloth, or in a diamond; the owner is no more bound to dispose of it gratuitously; giving it, lending it gratuitously is a laudable action inspired by generosity, sometimes demanded by charity and humanity, but which is never in the nature of strict law. A person may similarly give or lend all sorts of commodities, and he ought to do so in certain cases. Apart from these circumstances, in which charity demands sacrifices to help the unfortunate, money may be sold, and is sold, in fact, when it is placed in an annuity; it is sold for money when money in one place is given in exchange for the receipt of money in another, the type of transaction known as foreign exchange, in which less money is given at one place to receive more of it in another, just as, in a transaction of lending at interest, less money is given at one time in order to receive more at another, because the difference in time, like that in space, causes a real difference in the value of money.

XXIV. The ownership of money entails the right to sell it and the right to draw a rent from it. Since money is sold like any other possession, why should it not be let like any other possession? And since interest is only the rent of money lent for a period of time, why would it not be permissible to receive it? By what strange whim does morality or law forbid a free contract between two parties who both derive advantage therefrom? And can it be doubted that they derive such advantage since they have no other motive to decide them on it? Why would the borrower offer a rent for this money for a period of time, if during this time, the use of this money were not advantageous to him? And, if it is replied that necessity forces him to submit to these terms, is not the gratification of real need a benefit? Is this not the greatest benefit of all? It is similarly necessity which forces man to fetch bread at the baker’s; does the baker have any less right to receive the price of the bread he sells?

XXV. False ideas of the scholastics on the alleged sterility of money; false consequences they have drawn from it. The scholastic theologians, following Aristotle, have argued that money is sterile because money does not yield money. But since only the soil and cattle yield natural fruit, have they not forgotten to include other types of personal property such as jewels, furniture, etc.? Have they not forgotten that for individuals money is equivalent to real objects, and that money in this sense is indispensable to all productive enterprises? Have they also not forgotten that those who use money in their enterprises generally draw a profit from it?

XXVI. Another reason against the legitimacy of interest: the property in money passes to the borrower at the moment of the loan, so that no charge can be made for it. This argument is derived from St. Thomas Aquinas.

XXVII. Refutation of this reasoning. This reasoning is only a web spun of errors and misunderstandings which are easily cleared up.

The first proposition, that, in every contract, none of the parties can, without injustice, exact more than he has given, has a true foundation; but the manner in which it is put forward entails a false meaning, which may lead to misunderstanding. In every exchange of value against value (and every agreement, properly so called, or subject to payment, can be regarded as an exchange of this type), there is an interpretation of the word value, in which the value is always equal on both sides; but this is not at all through a principle of justice, it is because things cannot be otherwise. The exchange, being free on both sides, can only be motivated by the preference of each of the contracting parties for the thing he receives over the thing he gives. This preference presumes that each attributes a greater value to the thing he acquires than to the thing he gives up, relative to his individual use and to the satisfaction of his needs and desires. But this difference in value is equal on both sides; it is this equality which causes the preference to be exactly mutual, and the parties to be in agreement. It follows from this that in the eyes of a third party, the two values exchanged are exactly equal, and that, consequently, in every transaction between men, equal value is always given for equal value. But this value depends solely on the opinion of the two dealers as regards the degree of usefulness of the things exchanged for the satisfaction of their desires or their needs: it does not, in itself, have any reality which may be used as a basis for arguing that one of the parties has wronged the other.

If there are only two dealers, the terms of their contract are entirely arbitrary, and unless one of the two has used duress or fraud, the conditions of the exchange do not concern morality in any way. When there are several traders, as each is interested in not paying more to one for what another agrees to give him at a lower price, a normal value is established, by the comparison of all the offers and demands, which differs from that established in the exchange between two men only in that it is the mean of the different values which would have resulted from the chaffering of the parties in each exchange considered separately. But, this mean or normal value does not acquire any reality apart from the opinion and comparison of mutual needs; it is continually susceptible to variation, and no obligation can be derived from it to give such and such a good for such and such a price. The owner is always free to keep it, and consequently, to determine the price at which he agrees to part with it.

It is quite true that in a brisk trade, carried on by a multitude of hands, each individual buyer and seller has so little influence on the formation of this general opinion and on the current evaluation which results therefrom, that this evaluation may be regarded as an independent phenomenon. In this sense, common practice permits this normal value to be called the true value of the thing; but since this expression, convenient rather than precise, cannot impair in any way the absolute right which ownership confers to the seller over his merchandise and to the buyer over his money, it cannot be concluded that this value may serve as a basis for any moral rule; and it remains strictly true that the conditions of any exchange cannot be unjust except to the extent that duress and fraud have influenced them.

If a young stranger is overcharged in a purchase, the injustice arises from the fact that the trader has taken advantage of his ignorance of the normal value. This transaction is not unjust because the trader has charged more than an “intrinsic value,” since the normal value is not intrinsic in any way. The transaction is unjust because it involved a form of fraud.

The conclusion to be drawn from this explanation is that, in every exchange, in every agreement which is based on two reciprocal terms, injustice can only be based on duress, fraud, dishonesty, the abuse of confidence, and never on an alleged metaphysical inequality between the thing sold and its price.

The second proposition in the reasoning which I am attacking is based once more on the gross misunderstanding and on an assumption which is precisely the one in question. “What the lender demands,” it is said, “over and above the principal, is something he receives in excess of what he has given, since by receiving the principal alone he receives the exact equivalent of what he has given.” It is true that in repaying the principal, the borrower returns exactly the same weight of metal which the lender had given him. But where have our logicians observed that in a loan it is only necessary to consider the weight of the metal lent and repaid, and not the value and the usefulness it has for the lender and the borrower? Where have they observed that to determine this value, it is only necessary to consider the weights of the metal handed over at two different dates, without comparing the difference in usefulness which exists at the date of borrowing between a sum currently owned and an equal sum which is to be received at a distant date? Is not the difference well known, and is not the trivial proverb, a bird in the hand is better than two in the bush, a naive expression of this well-known fact? Now if a sum actually owned is worth more, is more useful, is preferable to the assurance of receiving a similar sum in one or several years’ time, it is not true that the lender receives as much as he gives when he does not stipulate interest, for he gives the money and receives only an assurance. Now, if he receives less, why should this difference not be compensated by the assurance of an increase in the sum proportioned to the delay? This compensation is precisely the rate of interest.

The distinction often made in discussions about the legitimacy of interest between an object hired and consumed during use, and an object which is not consumed during hire, is also invalid. In hiring an object which is not consumed, such as a diamond, usefulness is obtained which must be paid for.

But, it is replied, this usefulness does not have to be paid for, since it is transferred together with the ownership during the period of hire.

Again, an unfortunate misunderstanding. It is true that the borrower becomes the owner of the money considered physically, as a certain quantity of metal. But is he really the owner of the value of the money? Certainly not, since this value is only confided to him for a time, to be repaid on the expiration of the contract. But, without entering into this discussion which amounts to a real quibble about words, what can be concluded from my alleged ownership of the money? Do I not obtain this ownership from the person who has lent me the money? Is it not by his consent that I have obtained it, and have the conditions of this consent not been settled between him and myself? That is so, the use which I make of this money will be the use of my property, the usefulness which it yields me is an accessory to my ownership. All this will be true, but when? When the money is mine, when this ownership has been transferred to me; and when will this be so? When I have bought it, and paid for it. Now, at what price do I buy this ownership? What do I give in exchange? Is it not clear that it is my commitment to return on a certain date a certain sum, whatever it may be? Is it not also quite clear that in order to determine this equivalent in such a way that our gain will be equal on both sides, we must take account of the usefulness which this ownership I will acquire, but which I do not yet have, will yield me, and the usefulness which this ownership could yield to the lender during the time he is deprived of it? If you like, the reasoning of the legal experts will prove that I do not have to pay for the use of a thing when I already have acquired ownership of it; but it does not prove that I could not, when deciding to acquire this ownership, fix the price in consideration of this use which is attached to the ownership. In short, the object still assumes that which is in question, that is, that the money received today and the money which must be repaid in a year’s time are exactly equal. In reasoning in this manner, it is forgotten that it is not the value of the money when it has been repaid that has to be compared with the value of the money when it is lent, but that it is the value of the promise of a sum of money which has to be compared with the value of a sum of money available now. The assumption is that it is the money paid back which is, in a loan contract, the equivalent of the money lent, and this assumption is absurd, for it is at the time of the contract that the respective conditions must be considered, and it is at this time that equality has to be established between them. Now, at the time of lending there certainly only exist a sum of money on the one hand, and a promise on the other. If it is assumed that a thousand francs and a promise of a thousand francs are exactly of the same value, an even more absurd assumption is made; if these two things are equivalent, why do people borrow?

It is very curious that the principle of the equality of values which must be present in agreements is the starting point for the establishment of a theory according to which the whole of the gain is for one of the parties, and none of it for the other. Surely, nothing is more tangible; for, when at the end of a few years, a sum of money is returned to me which I had lent without interest, it is very clear that I have gained nothing and that, after having been deprived of its use and having risked its loss, I have precisely only what I would have had if I had kept it in my coffers during that time. It is just as clear that the borrower has benefited from this money, since he had no other motive for borrowing than this; I would therefore have given something for nothing, I would have been generous; but if, in my generosity, I gave something real, I accordingly could have sold it without being unjust.

It is doing unwarranted honor to sophistries like those attacked, to discuss them at such length, but then, they are backed with the authority of education and of the church.

XXVIII. Examination and refutation of arguments drawn from Scripture against the legitimacy of interest. The mistaken arguments discussed above partly derive from misinterpretations of passages from the Scriptures: namely, the saying of Jesus in Luke, chapter VI, verse 35, and some passages of the Mosaic Law from the Old Testament. These passages are irrelevant to the problem.

XXIX. True origin of the opinions condemning interest. The condemnation of interest arose from the fact that in non-commercial societies, the major class of borrowers was that which borrowed for consumption purposes. In some of these cases, it would have been a charitable act to lend without charging interest. In these societies, the risks of the lender were also greater, which drove interest to exorbitant heights. (In ancient Rome, 12 per cent was considered to be a moderate rate.) Because of high interest rates and the predominance of consumption loans at that time, the Church fathers took such a rigid view of this subject; but this is now completely outdated.

XXX. Lessening of the causes which made lending at interest odious to the nations. The causes, which formerly made lending at interest odious, have ceased to operate with as much force. Since slavery has been abolished among us, insolvency has less cruel consequences; it no longer entails capital punishment or the loss of freedom. Imprisonment (for debt), which we have retained, is in truth a hard and cruel law for the poor; but its harshness has at least been mitigated by many restrictions and limited to a certain type of debt. The suppression of slavery has given an activity to the arts unknown to ancient peoples, among whom each well-to-do individual used to let his slaves manufacture at home nearly everything he needed. Today, the practice of the mechanical arts is an expedient open to every working man. This multitude of works, and the advances they necessarily require, offer profitable employment to money on all sides; the infinitely increasing enterprises of commerce use immense capitals. The poor, who are reduced to absolute misery by their inability to work, find aid in the superfluity of the wealthy and the various charities, which does not appear to have existed among the people of antiquity, and which, indeed, was less necessary there, since in the constitution of societies, the poor, when reduced to the final degree of destitution would naturally fall into slavery. On the other hand, the vastness of the capitals accumulated from century to century by that spirit of thrift which is inseparable from commerce, swollen especially by the abundance of treasure brought from America, has, throughout Europe; caused the rate of interest to fall. All these circumstances together have caused that the borrowing for subsistence by the poor is no more than a fraction of the total of loans; that the majority of loans are made to the rich, or at least to industrious men who hope to obtain large profits from the use of the money they borrow. Consequently, lending at interest inevitably became less odious, since, through commercial activity, it has, on the contrary become a source of profit to the borrower. It has become common in all commercial towns to the extent that the magistrates, and even theologians, have come to tolerate it. The condemnation of lending in itself, or of interest exacted without the alienation of capital, has become a form of speculation left to dogmatic theologians, and in practice, all commercial and financial ventures depend on lending at interest without the alienation of capital.

XXXI. The stigma attached to the name of usurer is now limited to a few types of usury. The name of usurer is now reserved for the small money lender who lends to the poor and unfortunate on a weekly basis, and who charges exorbitant rates of interest.

XXXII. The usurers whose occupation is to lend to the poor are really harmful to society. The usurers who lend to the poor are harmful to society, not because they charge interest, but because they take advantage of the pressing needs of others by charging excessive rates. It is because of this that they should be punished.

XXXIII. The prohibition of usury is not at all the solution to this particular problem.

XXXIV. Consequences of what has been said on the true causes for the disrepute of lending at interest, and on the changes which have occurred in public opinion in this regard. The changes in society discussed above have made the general prohibition of interest archaic practice. Only usury proper must be forbidden.

XXXV. General consequence: no ground for the prohibition of lending at interest.

XXXVI. Interest is the price of money in commerce, and this price must be left to the course of events, to the competition of commerce. If the natural order is adhered to, money must be regarded as a commodity which the owner has the right to sell or let; consequently, the law should not demand the alienation of capital in order to allow the stipulation of interest. There is no more reason for the law to fix the rate of this interest. This rate must be determined, like the price of all things in trade, by the chaffering between the dealers and by the relationship between offer and demand. There is no commodity for which the most enlightened, the most meticulously careful, and the most accurate administration can take the responsibility of balancing all the circumstances which must influence the determination of the price, and of setting one which is disadvantageous to neither the seller nor the buyer. Now, the rate of interest is even more difficult to determine than the price of any other kind of commodity, because this rate depends on even more critical and variable circumstances and considerations; that of the time at which the loan is made, that of the date stipulated for its repayment, and above all, that of the risk or the judgment of the risk which the capital is bound to run. This judgment varies continually: a momentary alarm, the occurrence of some bankruptcies, rumors of war, may spread a general concern, which suddenly makes all monetary transaction dearer. The judgment and the reality of the risk vary even more from one man to another, and increase or diminish in every possible degree; therefore, there ought to be as many variations in the rate of interest. A commodity has the same price for everybody, because everybody pays for it with the same money, and commodities in general use, whose production and consumption naturally adjust to each other, have more or less the same price for a long time. But money on loan does not have the same price, either for all men or at all times, because in lending, money is paid for with a promise only, and because, if the money of all buyers looks the same, the promises of all the borrowers are not the same. To fix the rate of interest by law, is to deprive someone who cannot offer security proportioned to the lowness of the legal rate of the expedient of borrowing; it is, consequently, to make a multitude of commercial enterprises, which cannot be carried out without risking capital, impossible.

XXXVII. The only justification for setting a legal rate is to give judges a rule by which to determine whether a loan is usurious or not. Due to the various circumstances which influence particular loan contracts, and the price charged for them, this is impossible.

XXXVIII. Advantages which will arise for commerce and for society in general from a law which conforms completely to the principles which have been developed here. The trade in money should be free, as all trade ought to be. The result of this freedom would be competition, and the effect of this competition would be a low rate of interest: not only because the shame and risks attached to lending at interest are a surcharge which the borrower always pays, just as the buyer of prohibited commodities always pays for the risks of the smuggler, but even more, because a very large quantity of money which lies idle in chests, would enter the circulation when prejudice, no longer consolidated by the authority of law, would slowly give way to reason. Thrift would become all the stronger in accumulating capitals, when the money trade is an outlet which is always open to money. Today, loans can only be placed in large quantities. An artisan is inconvenienced by his small savings; they are sterile for him until they become large enough to be placed on loan. He must keep them, always exposed to the temptation of dissipating them in taverns. If the trade in money were to acquire the degree of activity which would result from complete freedom and the destruction of prejudice, money merchants would start business, and gather small sums; in the towns and in the country they would collect the savings of the working people, to turn them into capitals and to supply them to commercial centers, just as, from village to village, right up to the heart of Normandy, merchants are seen gathering butter and eggs which are produced there, in order to sell them in Paris. This facility of allowing their savings to bear fruit, open to the people, would be for them a most powerful encouragement to thrift and sobriety, and would offer them the only possible means of preventing the misery into which they are thrown by the smallest mishap, by sickness, or, in any case, by old age.

Sections XXXIX–LIII. Concluding remarks. If this proposed change in the law appears to be too sudden, the change could be more gradually introduced. Some proceedings against usurers, for instance, could still be started. A change in the law however, would prevent occurrences like those described at Angoulême happening in the whole of France, and it would therefore safeguard the needs of trade.

The magistrates, moreover, would not have to admit the charges made at Angoulême. In the new legislation, the type of money lender ought to be immaterial, while a rate of interest greater than 6 per cent should not be taken as an excuse to start criminal proceedings. Unfortunately, the officers of justice at Angoulême do not hold these principles, so that the Intendant and the Contrôleur-général will have to interfere. The Royal Council would probably be the best tribunal to settle the matter. It could appoint a special commission to investigate. However, the following ought in any case to be done. The originators of the trouble at Angoulême should be punished for the disruption to commerce which they caused; and a proposal made by the judges in the case should also be examined. They suggested the appointment of a special officer who would investigate this type of case, and who would be able to fix the proper rate of interest. This type of proposal, as has been fully discussed above, has many disadvantages. Final conclusion: In the opinion of the author, the matter should be taken from the hands of the local judges and placed in the hands of a special commission appointed by the Royal Council.]

Written in Limoges, 27 January, 1770.

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This paper was written in connection with a lawsuit in Angoulême in 1769 between two debtors and their creditor. Because part of the paper deals with particulars of the lawsuit and with moral arguments against canon law on the subject of usury, only those parts of economic interest have been translated in full. The other sections have been condensed; the condensed parts are placed in square brackets.

Extracts from “Letters to the Contrôleur-général on the Grain Trade”

In several letters, Turgot opposes restrictions on the grain trade. He replies to the argument that free trade in grain will help only the proprietors of land, not cultivators of land or consumers. In response, Turgot notes that gains to the proprietors will help cultivators and consumers, since the proprietors will have more money to make purchases, It is not true that free trade will lead to an increase in the price of grain: to the contrary, increased production is likely to lower prices. If it is argued that any gains to cultivators will be passed on to the proprietors, Turgot answers that this will not immediately be the case. In the time that it takes for rents to be readjusted, the cultivators will gain. Turgot reiterates his view that all taxes are ultimately paid by owners of land.