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Dan Kervick

“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 [sic] 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.”

Well, certainly, if debtors were only liable up to the extent of their wealth at the time the debt is due, some loans would still be made, but the amounts creditors would be willing to lend would shrink drastically, an issue Spooner is rather absurdly avoiding in this passage, no? Applied to our contemporary world, say goodbye to most home mortgages, as well as most student loans and a major proportion of consumer lending as well. Most people in the US have negligible amounts of personal wealth.

But this is a policy choice to be made. If we want to live in a world in which people are able to reallocate estimated future income to present purchases - which might include investments in their own “human capital” - we have to take the bad consequences of that choice along with the good.


I read the first thing he's saying to be that you could never borrow more money than what you have as collateral. Is that right? That doesn't seem like a very good idea to me. (It certainly would have made my own life much worse many times.) I suppose it's one of those "common sense" ideas that really don't stand up to any pressure, unless I'm misreading it. I guess I also don't see how modern bankruptcy protection (or perhaps a better version of it)isn't a massively better idea than what's offered here. It looks like someone struggling for a solution, but not coming close to a good one. (It also looks like more of a practical problem than a deeply moral one, but that, too, seems like a confusion on Spooner's part.)

Eric Schliesser

Your interpretation is a reasonable one, Matt. But I don't think it's Spooner's intent to disallow debts based on judgments of "character" and possibility without further collateral. Rather, the point is that even when there is collateral, no more can be taken from a debtor when it's time to repay than it.

Eric Schliesser

See my response to Matt. Moreover, he thinks that the interest rate would increase for those with less collateral or fewer prospects.


Spooner seems to be operating under the idea that the principle and interest on the debt are due in total at the maturation point. But most personal debt today is paid in installments. A couple of points.

A sizable chunk of debt in rich countries today is for things like homes and cars. And if one defaults on these, it is not the case that the lender can retrieve the full value of the loan. They can only repossess the car or house - sometimes at a loss for the lender. Higher interest rates loans paid back in installments allows for the lender to get more of their money back sooner, which will be more of a concern for loans of greater risk.

Another thing higher interest rate installment loans allow for is multiple loans with different maturity dates - which seems unlikely with Spooner's suggestion. Suppose I take out a loan that matures in 10 years for $100K. On Spooner's proposal, I am on the hook for what I have, up to that amount plus interest, at the maturity date. But suppose another lender recognizes this, and offers me the same loan that matures the day before the first loan. I have in effect made the value of the original loan worthless. What higher interest rate installment loans allow for is for existing debt to be factored in to one's ability to pay a new debt.

Eric Schliesser

I don't think Spooner is committed to the idea that interest is only due or delayed until when the principle has to be repaid.

And, yes, Spooner thinks that if you are willing to extend credit you must be willing to suffer a loss, say, because underlying collateral declines in value (and the ability to repay is limited).

Finally, Spooner's proposals are all designed to limit the stacking of consumer/individual debt (in the way you describe--this is becoming increasing problem). The first creditor's rights cannot be displaced by later creditors--and, in his scheme, there is no incentive for a debtor to stack debts.

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