Financial Legislation and its Limitations. yi 



long run, depressions in trade and their accompanying low prices, 

 by exerting a stimulating efifect upon the supply of gold, tend 

 ultimately to restore prices to the higher level ; and this influence 

 is to be thanked for the general rule that that supply is, and 

 always has been, in the main, adequate to the needs of the 

 reserves. 



The social process of equalizing future with present is ob- 

 jective. The conduct of the "economic man" is representative 

 of what is generally taking place: it is a fact that debtors at 

 large make their contracts, not with reference to the return of 

 an equal quantity of goods, but with an eye single to a value 

 surplus commonly called profit. They are at liberty to stipulate 

 for an equal value, accounted to principal or to principal and 

 interest. The ordinary way of making usurious bank loans is for 

 the debtor to acknowledge a larger principal than the one that 

 he receives. But actual (commodity) usury may exist in the 

 absence of any interest. If the money to be returned in the 

 future will have a greater purchasing power, the restitution of a 

 smaller principal than that received might be perfectly "just"; 

 or a rise of the market rate of interest during the life of a 

 private debt may cause the creditor finally to lose a part of his 

 (commodity) principal. 



§ 8. Is legislation desirable to effect justice between creditor 

 and debtor? Is it true that continual injustice is done because 

 the general level of prices fluctuates? It has sufiiciently appeared 

 that a large latitude exists within which debtor and creditor may 

 make mutual arrangements. At the same time, a certain pressure 

 may be exerted, sometimes to the advantage of one party and 

 sometimes to that of the other, in the making of the bargain. It 

 is popularly assumed, indeed, that the pressure is always from 

 the side of the creditor, but that is not so. In times of expan- 

 sion, contrary to popular prepossession, it is the creditor who is 

 seeking to loan his money ; the coercion is then directed toward 

 him from the boi rower, who exacts a low rate of interest and 

 pockets the benefit that comes from the rise in prices or what 

 other profits may attend the borrowing of money in the time of 

 active speculation. 



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