_The_ INJUSTICE, ABSURDITY, _and_ BAD POLICY _of_ LAWS _against_ USURY.
Usury, in the primitiv sense of the word, signifies any compensation
given for the use of money; but in modern legal acceptation, it iz the
taking an exorbitant sum for the use of money; or a sum beyond what iz
permitted by law. The municipal laws of different states and kingdoms
hav fixed different rates of interest; so that what iz usury in one
country or state, iz legal interest in another. The propriety of such
laws iz here called in question.
1. It iz presumed that such laws are _unjust_. Money iz a species of
commercial property, in which a man haz az complete ownership, az in any
other chattel interest. He haz therefore the same _natural_ right to
exercise every act of ownership upon money, az upon any other personal
estate; and it iz contended, he ought to hav the same _civil_ and
_political_ right. He ought to hav the same right to trade with money az
with goods; to sell, to loan and exchange it to any advantage whatever,
provided there iz no fraud in the business, and the minds of the parties
meet in the contracts. The legislature haz no right to interfere with
private contracts, and say that a man shall make no more than a certain
profit per cent on the sale of hiz goods, or limit the rent of hiz house
to the annual sum of forty pounds. This position iz admitted for self
evident, az it respects every thing but money; and it must extend to
money also, unless it can be proved that the privilege of using money in
trade or otherwise without restraint, and making what profit a man iz
able by fair contract, with gold and silver, az well az with houses and
lands, will produce some great public inconvenience, which will warrant
the state in laying the use of such gold and silver under certain
restrictions.[141]
[141] In a conversation I had at Dr. Franklin's on this
subject, the doctor admitted the principle, and remarked,
that a man who haz 1000l. in cash, can loan it for six per
cent. profit only; but he may bild a house with it, and if
the demand for houses iz sufficient, he may rent hiz house
for fifteen per cent. on the value. This iz a fair state of
the argument, and I challenge my antagonists to giv a good
reezon for the distinction which the laws make in the two
cases; or why a man should hav an unrestrained right to take
any sum he can get for the use of hiz house, and yet hiz
right to make profit by the loan of money, be abridged by
law.
The only reezon commonly given for limiting the interest of money by
law, iz, that monied men will otherwise take advantage of the distresses
of the poor and needy, to extort from them exorbitant interest. Admit
the proposition in its utmost latitude, and it furnishes no argument in
favor of the restraint, _because the restraint iz no remedy for the
evil_. On the other hand, it generally increases the evil; for when the
law forbids a man to take more than six per cent. for the use of hiz
money, it, at the same time, leevs him the right of withholding hiz
money from hiz distressed nabor, and actually lays before him the
strongest motivs for withholding it. The law tuches the pride of a man,
by restraining what he deems an unalienable right, and this
consideration, added to a certainty of employing hiz money to greater
advantage, impels the man to turn a deef eer to hiz nabors calamities,
when he would be otherwise disposed to afford relief. The law therefore,
so far from furnishing a remedy, actually doubles the evil.
To proov this assertion more cleerly, let me call the attention of my
reeders to facts within their knowlege. Every man knows that there are
persons in every state, who, thro imprudence, idleness or misfortune,
become involved, and unable to pay their dets when du. Theze persons
seldom make provision for discharging their dets, till they are pressed
by their creditors. When they are urged by just demands or legal
process, they are under a necessity of raising money immediately: But
money iz scarce; it iz in a few men's hands, who will not pay the full
valu of lands or personal estate. The poor detor iz then obliged to sell
hiz farm or hiz cattle, or both, at private sale or at auction, for any
price they will fetch, which iz commonly but a small part of the valu.
Now, if the detor could hav borrowed a sum of money, at ten, fifteen, or
even twenty per cent. he might hav been a gainer by the loan; for by
being prohibited by law from borrowing money, at a high interest, he haz
been obliged to sacrifice twenty, perhaps fifty or a hundred per cent.
Laws against usury do not help such men; on the contrary they oppress
them. Could such men get money even at twenty per cent. they would often
be benefited by the loan; they might save their estates and avoid misery
and ruin. A prohibition of high interest only compels the distressed to
seek releef by sacrificing property in a way not guarded against by law.
Nay, I beg leev to assert that such laws are the very meens of
producing, supporting and enriching a host of oppressors in every state
in America. There are a few men, in every state, who are what iz called
_beforehand_; theze men will not loan money at legal interest, for this
very good reezon, they _can do better with it_, az they say; and no man
can blame another for making the most profitable use of hiz money. Theze
men therefore keep their money, till their distressed nabor iz forced by
det to sell hiz farm; then iz the time to lay out their money; they get
the farm at their own price, which iz generally less than half its valu.
In most states, lands are sold at auction, where they are sacrificed;
and the poor owner haz all the charges of a legal suit to pay, az wel az
the det; and the land sold for a small part of its valu. This iz the
common practice, authorized by law; so that laws against usury only
_create_ an evil in one way, by endevoring to _prevent it_ in another.
The evil and hardships of this law, of selling real estate on execution,
hav been so great, az to giv rise to a different mode of satisfying
executions in Connecticut. In this state, a man's person and estate are
both liable for det; but if the personal estate iz insufficient, the
creditor haz hiz election, ether to confine the dettor in prison, or
take hiz lands. But the law, which iz so far in favor of the creditor,
here steps in to prevent a sacrifice of the real property at public
sale; and ordains that the creditor shall take it at a value, which
shall be apprized by three indifferent freeholders. This law does
injustice to the creditor; for it interferes with the contract, and
obliges him to take that for pay which he did not engage to receev. But
it favors the dettor, in a state where money iz scarce and cannot be
eezily raized on an emergency. So far one law, by doing injustice to
creditors, corrects some of the ill effects of the law against high
interest in Connecticut; but the remedy iz partial, for men in distress
for money, generally sell their estates at private sale, for one half
their valu; and a few monied men and rich farmers are constantly taking
advantage of their nabors calamities, to enrich themselves. Such men
make more than fifty per cent. per ann. on their money by theze
speculations, and no law can wholly prevent them. Now laws against usury
create this very evil: They drive money from a country; they create a
necessity for it; and then a few welthy men enrich themselves, not by
loaning at fifteen or twenty per cent. but by purchasing lands at half
price, which are sold to keep men from jail, who, if they could hav got
money for a few months, at twenty per cent. might hav sold their estates
to advantage, or otherwise paid their dets. In general then we may
obzerv, when a man iz reduced to the necessity of asking money at twenty
per cent., hiz situation iz such that it iz better to giv that interest,
than to risk a sale of property on a sudden to raize the money. Laws
against usury do not save such men; it iz idle to suppose it; on the
contrary, they multiply instances of oppression, az all America can
witness.
But the argument, if good, proovs too much. If legislators hav a right
to fix the profit on money at interest, to prevent exorbitant demands
from injuring the necessitous, wil not the same reezon warrant a
restriction on the profits of every commodity in market? If my rulers
hav a right to say, my annual profit on money loaned, shal be but six
per cent. hav they not a right to say the advance on my wheet shal be
but six per cent.? Where iz the difference? A poor man may indeed be
distressed by a demand of high interest, and so he may by the high price
of flour; and I beg leev to say, that distresses from the last cause are
infinitely the most numerous, and the most deserving of legislativ
remedies. It wil perhaps be said that the price of bred, in all cities,
iz fixed by law--tru; but if the price of wheet iz not likewise fixed,
there are times of scarcity when the law must vary the price, or the
baker must be ruined, and the poor be destitute of bred. In an extensiv
fertile country, like America, such cases may not happen frequently; but
the actual existence of the fact proovs that such laws rather _follow_
the state of the market, than _regulate_ it. And indeed it iz a
question, whether in this country, the citizens of our large towns would
not be supplied with bred at a cheeper rate, without any regulations at
all.
2. But the _absurdity_ and _bad policy_ of laws against usury, are so
obvious, that it iz surprizing scarcely an attempt haz been made to
abolish them in any country. Such laws are absurd and impolitic, because
they actually and always produce and multiply the distresses they are
designed to remedy. It iz impossible it should be otherwise: The very
laws of nature and commerce require that such restraints should
necessarily counteract their own design. It iz necessary that
commodities should be sometimes plenty and sometimes scarce; and it iz
equally necessary that money, the representativ of all commodities,
should be liable to the same fluctuations. In the commercial world,
money and commodities wil always flow to that country, where they are
most wanted and wil command the most profit. The consequence iz that a
high price soon produces a low price, and vice versa.
Let us apply the principle to the present question. When money can bear
its own profit, its profit or the interest arising on loans, wil be in
proportion to the profit made in commercial transactions. If a man can
make _twelv per cent._ on hiz stock, in any kind of trade or
speculation, he wil not convert that stock into cash, and loan it at
_six per cent._ While therefore commerce or speculation wil afford a man
greater profits, than the law affords him on hiz loans of cash, he wil
hav no money to lend. The consequence iz, while the law fixes the rate
of interest lower than the annual profits of other business, a country
wil be destitute of money.
This iz precisely the case in America. Our remittances to Europe and the
East Indies require considerable sums in specie to be exported; and the
merchant wil not import specie, except to facilitate the purchase of hiz
cargoes in America. He will not import it for the purpose of loaning,
because hiz stock in trade affords a better profit. The few landholders
who hav a little cash abuv their annual expenditures, wil not loan it;
for they can make twelv, fifteen, eighteen per cent. on their money by
the purchase of certificates, and more on the purchase of lands. There
are therefore no motivs, no inducements, for the welthy citizens to loan
money, and consequently when a man iz distressed to make a payment, he
iz compelled to sacrifice property to perhaps five times the valu of the
det; because the law will not permit hiz nabor to take twelv or fifteen
per cent. per ann. for the loan of money, a few months; when he haz the
money, and would gladly releev hiz frend, if he could receev an adequate
compensation.
Thus laws against usury drive cash from a country. They really and
continually create a scarcity of an article, and then restrain men from
raizing the price, in proportion to that scarcity. They create
distresses of the poor, and at the same time, create an impossibility of
releef. Were money left, like all kinds of commodities, to command its
own price in market; whenever its price should rize abuv the usual cleer
profit of other business, men would import specie, or turn their stock
into cash, and loan it on good security; for no man would submit to the
drudgery of business, if he could make money az fast by lying stil, with
hiz money at interest. Had money been permitted to bear its own price
according to the demand for it in America since the war, it would hav
been kept in the country, or introduced til the rate of interest had
fallen, even below the legal standard. Limit the profit on any article
of life, and set the price so low that peeple can make more by deeling
in other articles, and the articles so fixed wil become scarce and deer.
Were the legislatures of the several states to say that our traders
should make but one per cent. on salt, they would not bring cargoes of
it to the country. It would be az scarce az money iz now. Let the price
of wheet be fixed at half a dollar a bushel, and in two years we should
not hav a bushel in market. It iz the same case with money. The low
profits on the use of money, expel it from the country, and none can be
obtained at the legal price. Let the interest rize to any sum which can
be obtained, and in two years, it would be az eezy to borrow money at a
low interest, az it iz now difficult to command it at any price. The
laws of nature wil continue to opperate, in spite of the feeble
opposition of human power.
Another consideration demands our notice. The laws against usury
increase the distresses of the needy, by enhancing the risk, and
consequently the insurance on loans.[142] It iz fruitless to attempt to
prevent loans of money. When men are pressed for money, they can always
find persons to supply them, upon _some_ terms. But az a loan of money
at a higher rate of interest than iz allowed by law, exposes the lender
to a loss of the money, and a fine or forfiture besides, hiz demand for
the use of hiz money wil rize in proportion to that risk. This haz
always been one of the most pernicious effects of such laws. So that the
law, not only creates a scarcity in the first instance, but actually
raizes the demand of interest much abuv the natural demand required by
that scarcity. In short, insted of releeving the detter, it multiplies
hiz distresses four fold.
[142] See Blackstone on this subject, Com. Vol. II. 455,
where the author's reezoning holds good, whether against
fixing the value of horse hire or money lent. All exorbitant
demands are unjust _in foro conscientiæ_; but what right haz
a legislature to fix the price of money loaned, and not of
house-rent?
Besides, such laws, like all national restrictions on trade, tend to
make men dishonest, in particular things, and thus weeken the powers of
the moral faculty. There are ten thousand ways of evading such laws, and
slight evasions gradually produce a habit of violating law, and harden
the mind against the feer of its penalties. Indeed, such laws tend to
undermine that confidence which iz the basis of social intercourse. Laws
which encourage _informations_, should be enacted with caution. Such are
laws against usury. A man haz often the strongest temptation to be a
treecherous rascal, by inducing hiz frend to loan him money, on illegal
interest, and then betraying him. This species of villany waz lately
carried so far in Massachusetts, az to induce the legislature to repeel
a clauze of their law against usury. And a man of morality must shudder,
while he reeds the legal prosecutions and adjudications in England upon
their statutes of usury.
The absurdity of attempting to _fix the valu of money_ iz another
objection to it of no small consequence. The valu of it depends wholly
on the quantity in circulation and the demand. In this respect it
resembles all other articles of trade; and who ever thought of fixing
the price of goods by law?[143] It iz almost impossible for a
legislature to ascertain exactly the valu of money at any one time; and
utterly impossible to say that the valu when ascertained, shall continu
the same for six months. Nay, two slates adjoining eech other may
estimate the use of money very differently at the same period. In New
York the legal interest iz seven per cent. in New England but six. A man
may therefore do that legally in one state, which in the others would
expoze him to a severe penalty.
[143] The legislatures of several states during the late war,
were rash enough to make the attempt; and the success of the
scheme waz just equal to the wisdom that planned it.
In ancient Rome, the interest waz twelv per cent. The emperor Justinian
reduced it to four, but allowed higher interest to be taken of
merchants, on account of the risk. In Holland, when Grotius wrote, the
common interest waz eight per cent.; but twelv to merchants. In England,
the statute 37th, Henry VIII, confined interest to _ten_ per cent. By
the 21st James I, it waz reduced to eight; by the 12th Charles II, to
six; and by 12th Ann, to five, the present legal interest in that
country.[144]
[144] Blackstone Vol. II. 462.
Postlethwaite remarks very justly that theze laws hav not ascertained
the real valu or interest of money; for when the legal interest haz been
six per cent. the real interest haz sometimes been four; and when the
legal interest haz been five, the real interest haz sometimes been
seven. Indeed the interest of money depends on such a combination of
circumstances, az the scarcity of money, the demand in market, and the
hazard, that an attempt to find and fix a permanent rate, iz one of the
most visionary schemes that a public body can undertake. To proov the
impossibility of such a scheme, I would only mention the continual
practice of violating laws against usury; which would not be the case,
if the real valu of money had been ascertained and fixed.[145] If
legislatures had found the tru valu of the use of money, there would hav
been fewer violations of their laws: If they hav, in any case, fixed a
rate of interest lower than the real valu, they hav violated the rights
of their subjects. This iz a serious consideration; and perhaps in no
instance are the laws of England and America more strongly marked with
the traces of ancient prejudice and barbarity, than in the prohibition
which prevents a man from using hiz _money_ az he pleezes, while he may
demand any sum whatever for the use of hiz other property.
[145] What are marine insurances, bottomry, loans at
respondentia and annuities for life, but exceptions to the
general law against usury? The necessity of higher interest
than common iz pleeded for theze exceptions. Very good; but
they proov the absurdity of attempting to fix that, which the
laws of nature and commerce require should be fluctuating.
Such laws are partial and iniquitous.
The only power, I conceev, a legislature haz to determin what interest
shall arize on the use of money, or property, iz where the parties hav
not determined it by agreement. Thus when a man haz taken up goods upon
credit, or where, by any other legal meens, a man becomes possessed of
anothers money or estate, without a specific stipulation for interest,
the law very properly steps in and ascertains the sum which the detter
shall pay for the use of that money. But to make a law that a man shall
not take but six per cent. for the use of money, when the borrower iz
willing to giv more, and the lender cannot part with hiz money at that
rate of interest, iz a daring violation of private rights, an injury
often to both parties, and productiv of innumerable embarrassments to
commerce.
We are told that such laws are necessary to guard men from the
oppression of the rich. What an error! Waz a monied man ever compelled
to assist a distressed nabor, by the forfitures incurred by such laws?
Iz not hiz money hiz own? Wil he lend it all, if it should not be for
hiz benefit? Besides, cannot a man in necessity alienate hiz property
for one fourth of its valu? Are not such bona fide contracts made every
day to raize money to answer a temporary purpose? Nay, hav not the laws
of all commercial states authorized _sales by auction_, where any man
may part with hiz property for a fourth of its valu? Iz there any remedy
in law against such a sacrifice of a man's estate? Wherein then consists
the security of laws against usury? In the name of common sense and
common equity, let legislators be consistent. If men are improvident,
lazy and careless, a loss of property wil be their punishment, and no
mezures of government wil prevent it.
To what then shall we ascribe the severe laws against high interest,
which hav been and stil are existing in most commercial countries? I
presume the cause may be easily assigned. The Jewish prohibition, not
to take interest, except of strangers, first gave rise to douts in the
minds of our pious christian forefathers, with respect to the legality
of any interest at all. This produced, in the dark ages, severe
ecclesiastical laws against taking any thing for the use of money; and
theze laws originated a general prejudice against it, thro the Christian
world.
In the twelfth and thirteenth centuries, commerce began to revive; but
az there waz but little money, and trade waz lucrativ, because in few
hands, money bore a very high interest. In some parts of Europe, the
interest waz forty per cent. Even with this interest, certain Italian
traders could make an annual profit, and therefore it waz for their
benefit to giv it. It however rendered them very unpopular.[146]
[146] Robertsons Charles V. Vol. I. 280.
The Jews, for their infidelity, had been considered by the Christians az
outcasts on earth. Severe laws were enacted against them in almost every
country; depriving them of the rights of citizens, and forbidding them
to hold real estates. Proscribed and insulted, the poor Jews were
compelled to turn their _hand against every man_ in their own defence.
They commenced strolling traders and bankers, and by theze meens
commanded a large share of the money in every kingdom.
With this command of cash, the Jews very justly compensated themselves
for the injuries they suffered from the tyrannical laws which existed
against them. They loaned money at the highest rate of interest they
could obtain. Hence the general karacter of the Jews, and the prejudice
against them that survives to this enlightened period.
It iz very probable, that before the discovery of the American mines,
money waz so scarce in Europe, that a few brokers in eech kingdom might
engross such a share, az to hav it in their power to oppress peeple.
This waz evidently the case in England, about the reign of Edward I, and
the parliament thought proper to interfere and restrain the evil. Laws
against usury were doutless necessary and useful at that time. But
since the world haz been filled with gold and silver from South America,
and nations hav opened an intercourse with eech other, there never can
be a want of specie, where a country can supply produce enough to
exchange for it. It haz become a mere fluid in the commercial world; and
in order to obtain a supply, in a country abounding with produce and
manufactures, the legislature haz nothing to do, but let it bear its own
price; let it command its own valu, ether at interest, or in exchange
for commodities.
Laws against usury therefore I consider az originating ether in the
necessity of the times, which long ago ceesed, or in a bigotted
prejudice against the Jews, which waz az barbarous formerly, az it iz
now infamous. Laws restraining the interest of money I now consider, in
the same light, az I do laws against freedom of conscience. And were it
not for the force of habit, I should az soon expect to see a modern
legislature ordering a pious sectary to the stake for hiz principles, az
to see them gravely passing a law, to limit the profit on the use of hiz
money. And unless the legislatures of this enlightened age should repeel
such laws, and place money on a footing with other property, they will
be considered az accessory to a direct violation of the deerest rights
of men, and will be answerable for more frauds, perjuries, treechery and
expensiv litigations, than proceed from any other single cause in
society. I am so firmly persuaded of the truth of theze principles, that
I venture to predict, the opinions of men will be changed in less than
half a century, and posterity will wonder that their forefathers could
think of maintaining a position so absurd and contradictory, az that men
hav no right to make more than six per cent. on the _loan of money_,
while they hav an indefeezable right to make unlimited profit on their
money in any other manner. They will vew laws against usury in the same
light that we do the inquisition in Spain, the execution of gypsies and
witches in the last century, or thoze laws of England which make 100l.
annual income necessary to qualify a man for killing a partridge, while
they allow _forty shillings_ only to qualify him for electing a knight
of the shire.