Cyclopædia of Political Science, Political Economy, and the Political History of the United States

Edited by: Lalor, John J.
(?-1899)
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First Pub. Date
1881
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New York: Maynard, Merrill, and Co.
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1899
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Includes articles by Frédéric Bastiat, Gustave de Molinari, Henry George, J. B. Say, Francis A. Walker, and more.
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INTEREST

II.192.1

INTEREST is the product, the increase (incrementum), the return (reditus) from capital. When interest represents the sum paid at fixed periods by the borrower to the loaner of capital, it retains its generic name, or takes the more special designation of rent or income. The price charged by the proprietor for the use of land leased by him, is rent. The term income is more particularly applied to the product of capital employed in commerce, agriculture or manufactures. In brief, interest signifies equally the profit the capitalist derives from the direct employment of his capital, and the return he receives for granting its use to others for a certain length of time.

II.192.2

—No difficulty can arise with respect to the profits of a capitalist who employs his own capital: the interest on capital is in this case blended with the product of his labor. If a field be cultivated, or a workshop used by its owner, he has to render no account to any one. The operation is in a certain sense a domestic one, giving rise to nothing requiring regulation. Whether the capital employed by its possessor returns 5 per cent. or 20 per cent., whether it is productive or unproductive, concerns only the producer—pertains only to the proprietor. Nothing in relation to it comes within the province of legislation, which only extends to matters which affect relations among men. But the moment the owner of capital so far relinquishes its use as to lease it, if it be immovable property, or to loan it at interest, if it be movable property, a contract is formed between the one who delivers and the one who receives. From this contract arise rights and obligations for each of the contracting parties, which it is for the law to determine for the advantage of both parties; and consequences also arise from it which it is the mission of political economy to observe, in order to deduce from them, as much for the benefit of individuals as of society, the lessons of experience.

II.192.3

—I. LOANS AT INTEREST. Is it permissible to loan at interest? Can one legitimately derive a product from his capital, a revenue from his money? On this question, which no longer seems to be one, the world, until toward the latter part of the last century, was divided. Loans at interest had in their favor the constant practice of peoples, especially of those noted for their progress in wealth, commerce and industry; on the other side were the oracles of religion and the doctors of the law. Now that theology has become more humane on this point, and jurisprudence has relaxed its rigor, socialism has taken up the thesis of the abolition of interest. The sophism has only changed defenders. Instead of justifying this interference with capital on the ground of charity or in consequence of unenlightened views in regard to morality, appeal is now made to envy and the anarchical passions.

II.192.4

—The (so-called) laws of Moses recognized the legitimacy of loaning at interest, for it was only prohibited the Jews in their relations with their own countrymen, who were considered as members of the same family; and credit transactions with foreigners, as well as commercial ones, were wholly free. The laws of Solon, made for an essentially commercial people, placed no restriction or limit on the employment of money. At Rome, the severity of the legislation on this subject only provoked disobedience. Capital, which was persecuted, became exacting in proportion to the risks to which it was exposed. Nowhere was theory more strangely in contradiction with practice. Cato, who compared usury (i.e., interest) to assassination, was himself an avaricious and pitiless usurer; and the stern Brutus loaned at 48 per cent. per annum.

II.192.5

—In the middle ages the civil and religious authorities were in accord in prohibiting loans at interest. This interdiction, already written in the capitularies of Aix la Chapelle, in 789, was perpetuated in French law until the revolution of 1789. But, during this long millenium, the observance of the legal precept was purely nominal. To evade it, recourse was had to subtleties without number. First the bill of exchange, and afterward the establishment of annuities, furnished the most simple and usual means. Later, people came to tolerate loans by note, discount, and every species of money negotiation between tradesmen. Sovereigns themselves needed to borrow, and were obliged to submit to the conditions of money-lenders. Everywhere the force of circumstances overcame the obstacle of antiquated and anti-social legislation.

II.192.6

—The prejudice against loans at interest may be traced back to the time of Aristotle, and has its source in his writings. The following are the terms in which the Greek philosopher teaches the too-well-known doctrine of the sterility of money: "The acquisition of wealth being double, that is to say, at once commercial and domestic, the latter necessary and rightfully esteemed, the former not less justly despised as not being natural and not resulting from the sale of commodities, it is quite right to execrate usury, because it is a mode of acquisition born of money itself and not giving it the destination for which it was created. Money should serve only for exchange, and the interest of it increases it, as its Greek name sufficiently indicates. Here the fathers are absolutely like the children: interest is money which is the issue of money, and of all acquisitions, it is that most contrary to nature." The anathema pronounced by Aristotle against trade in money, extends, as may be seen, to every kind of commercial operation. He did not comprehend, though living in the midst of people pre-eminently commercial, the utility of the rôle commerce plays in society. He did not see that to bring nations into contact with each other, to open the ways to markets, to place products within the reach of consumers, was to give them value, was, in a certain sense, to produce them.

II.192.7

—In a treatise aimed against loans at interest, another Greek moralist, Plutarch, exclaims: "What! you are men, you have feet, hands, and a voice, and you say you do not know how to get a living! The ants neither borrow nor lend; yet they have not hands, or arts, or reason; but they live by their labor, because they are content with things necessary. If people were willing to be content with things necessary, there would be no more usurers than there are centaurs." Plutarch here alludes to the rich who expended money in excess of their income, and who ruined themselves by loans contracted to give free indulgence to passing fancies; but, even in those times, the debauchees and prodigals were not the only ones who borrowed. There were already industries which needed capital, and traders who had recourse to interest loans, or loans for a share in the profits to bring their operations to an end or to extend them. The treasures accumulated by saving acquired by commerce, or obtained by victory, were not always dissipated in luxury and in pleasures; they sometimes served to stimulate production and to develop wealth. Money was at that time an instrument of labor. The capitalists who loaned it for that use, rendered service to borrowers and to society. They had consequently a right to receive pay for this service. Plutarch, on account of his preoccupation with the abuses of loans at interest, failed to perceive their good results.

II.192.8

—The fathers of the church who treated this question, only copied Aristotle and Plutarch. "The lenders," said St. Basil, "enrich themselves by the poverty of others; they derive advantage from the hunger and nakedness of the poor. To take interest, is to gather where one has not sown." St. Chrysostom, insisting on this argument, exclaims, in a style loaded with metaphors: "What is there more unreasonable than to sow without land, without rain, without a plowshare? All those who devote themselves to that damnable agriculture, harvest only tares. * * * Let us, then, cut off these monstrous children begotten of gold and silver, let us stifle this execrable fecundity * * *." St. Ambrose, St. Augustine and St. Jerome held the same language. The following is a dilemma of the latter, which, if it is inspired by charity, is hardly so by logic: "Have you loaned to him who had, or to him who had not? If he had, why loan to him? If he had not, why do you ask of him more, as if he had?"

II.192.9

—It is easy to reply that if one loans to those who have, it is because they do not always hold all their resources at their full disposal, and a timely loan of money permits them to await the receipt of their revenues. As to those who possess nothing, by loaning them capital one gives them the means of making their labor productive; one places in their hand the lever of wealth. If they had no credit, they would be still poorer; and they should at least, in consideration of the unexpected good, pay for the use of the money they have borrowed.

II.192.10

—Another doctor in the church, Gerson, the author of "Imitation of Christ," says: "It is better that there be some light usuries which procure help for the indigent, than to see them reduced by poverty to theft, waste of property, and selling their furniture and immovable property at a very low price."

II.192.11

—The church also condemned sales on time, as a stipulation was made in them in regard to interest on deferred payments. This was, according to the schoolmen, "to sell time, which can not be sold, since God has made it common to all." Strange to say, this maxim of the canon law was first proclaimed by the council of Coventry, in England, the very country where the popular adage, "Time is money," was afterward invented.

II.192.12

—But no one carried the prejudice against loans at interest (which, since the ninth century, had been stigmatized by the name of usury) farther than Luther, the originator of the religious reformation. His view of the subject is thus given in his "Table Talk": "The civil laws themselves prohibit usury. To exchange anything with any one and gain by the exchange is not a deed of charity; it is robbery. Every usurer is a robber worthy of the gibbet. I call those usurers who loan at five or six per cent. To-day, at Leipzig, he who loans a hundred florins, asks forty for them at the end of the year as interest on his money. Do you think God will tolerate such a thing? There is nothing under the sun I hate so much as that city of Leipzig; there is so much usury, avarice, insolence, trickery and rapacity there."

II.192.13

—More passion than knowledge entered into the judgment given by Luther. The Roman church had at that time relaxed its severity in regard to loans at interest. Its allies, the Florentines, had become rich by trading in money throughout Europe. In inveighing against bankers, Luther thought he was also inveighing against popes. Calvin showed better judgment, in not allowing himself to be turned from the examination of doctrines by considerations of party or of persons. He vigorously attacked the economic theory of Aristotle on the sterility of money. "Money, it is said, does not beget money. And does the sea produce it? Is it the fruit of a house, for the use of which, nevertheless, I receive a rent? Is money begotten, to speak properly, from the roof and walls? No, but the earth produces it; the sea bears ships which serve in a productive commerce, and with a sum of money a comfortable dwelling may be procured. If, then, more profit can be derived from money negotiations than from the cultivation of a field, why should not the possessor of a sum of money be permitted to derive from it any sum whatever, since the proprietor of a sterile field is permitted to lease it for a farm rent? And when land is acquired by the payment of money, does not this capital produce an annual revenue? What, pray, is the source of the profits of the merchant? His industry, you will say, and his diligence. Who doubts that money unemployed is useless wealth? He who demands capital, apparently wishes to use it as an instrument of production. It is not then from the money itself that the profit comes, but from the use that is made of it." (Calvin's letters.)

II.192.14

—Doctrines have as much influence as laws on the development of public prosperity. Protestant nations certainly owe to Calvin their superiority to Catholic nations, since the sixteenth century, in commerce and manufactures. Freedom to loan for interest gave rise in them to credit; and credit has doubled their power.

II.192.15

—Not until two centuries later did Montesquieu dare, for the first time in France, to profess the same principles. "Money," says the author of the "Spirit of Laws," "is the sign of values. It is clear that he who needs this sign should hire it, as he does other things he needs. * * * It is indeed a very kind act to loan money to a person without interest; but we perceive that this can only be a religious precept and not a civil law. In order that commerce be successful, money must have a value. If money has no value, no one will loan it, and the merchant can no longer undertake anything. I err in saying that no one will loan it. The business of society must always go on: usury becomes established, but with the disadvantages always experienced from it. The law of Mohammed confounds usury with interest. Usury increases, in Mohammedan countries, in proportion to the severity of the prohibition. The lender indemnifies himself for the peril of the contravention."

II.192.16

—Montesquieu here, under cover of his criticism of the laws of Mohammed, brings a charge against Christian society. Loaning at interest was still under condemnation in France, both by the canons of the church and the laws of the state, at the time when the "Spirit of Laws" appeared. A magistrate could less openly brave that double authority than any other citizen. Hence the artifice of the author. He applies his criticism to the past, or transfers it to the Orient. It is for French society to recognize itself in the picture, if it desires. The following reign relieved writers from that somewhat hypocritical reserve; and political economy, in the writings of Turgot, set forth principles with entire freedom.

II.192.17

—The constituent assembly sanctioned these principles. The law of Oct. 12, 1789, by proclaiming the legitimacy of loans at interest, put an end to a controversy which had been prolonged for twenty centuries: "All private citizens, bodies, communities and mortmain people" (i.e., those holding property which they could not alienate) "shall be able henceforth to loan for a fixed time, for interest stipulated according to the rates determined by law." The new law was written, in terms no less explicit, in article 1905 of the civil code, thus: "It is permitted to stipulate interest for a simple loan, whether of money or provisions or other movable property."

II.192.18

—Since that time loans at interest have been in accordance with civil law in France. Is this likewise natural law? Can reason, based upon the principles of morality and public utility, approve what the law declares? The Catholic church itself no longer contests it. If any are still doubtful on this point, we would refer them to the fine dissertations of the Cardinal of Luzerne and Cardinal Gousset. And as to the jurists who still rely on the arguments of Pothier, they have only to read the learned and often eloquent refutation of them given by M. Troplong, in his "Treatise on Loans." But the thesis which jurisprudence and theology have abandoned, has become a revolutionary commonplace. Loans at interest could find no favor with the socialistic school, which has declared war on capital, and on whose banner is inscribed: "Property is robbery." The theological school, in its arguments against interest loans, showed itself inconsistent. While it forbade the capitalist to collect a monthly or an annual due for the money borrowed of him, it permitted the landowner to lease his land in consideration of a farm rent, and to grant the use of his house to a tenant for a stipulated sum. The prohibition consequently applied to the form of the investment and not to the investment itself. The capitalist was prohibited, not from investing his capital, but from investing it in a certain manner. For lack of having analyzed the nature and having followed in its course the circulation of wealth, and, in consequence, of taking the sign for the thing signified, and the precious metals for value, a sort of embargo was put on money. In virtue of a preconceived theory which represented money as a sterile metal, they really impressed it with sterility.

II.192.19

—It is clear, however, that if the possessor of a sum of money has not the right to make it productive and to derive a revenue from it, the possessor of land could not, with any better right, lease it to a farmer to cultivate, in consideration of an income or rent from it. The earth, in fact, does not spontaneously engender a revenue any more than does money. Under both forms, capital is only the instrument of labor. He who receives it, must pay the price to him who leases it. The borrower owes the price in both cases, or he owes it in neither. There is no way of getting out of this dilemma.

II.192.20

—"Coined money," says M. Troplong very justly, "the creation of man and not of nature, is in turn utilized as a commodity, or as a sign of values, without there being any reason to cry out against this two-fold employment of it. It must submit to the condition of matter, which is to be a slave of man, and must serve all the uses and necessities that it can reasonably satisfy. So far, then, from disparaging the means of acquisition invented by the genius of man, in imitation of the natural and primitive means of acquisition, we should, on the contrary, recognize that this is the masterpiece of civilization, which opens to social activity new careers, new sources of labor, new and admirable means of promoting comfort among the classes who have inherited no wealth. Plutarch thought he was overwhelming the loaners by an irresistible argument, when he told them that they made something out of nothing. But, without knowing it, he gave the finest eulogy on credit which derives wealth from sterility. Money is no more impressed with infecundity than everything around us; for there is nothing productive for man save what is fertilized by labor or utilized by necessities which pay for their satisfaction. What would the earth produce, save tares and thistles, without the plowshare? What revenue would a house give its owner, if the necessity of a dwelling did not oblige a neighbor to lease it? * * Money becomes productive by the need the borrower has of it, the same as a building becomes productive by the need the tenant experiences of occupying it. Money is sterile only when it remains unemployed. Hence we see the confusion into which the canonists fall, when, granting that money may be made productive by industry, they insist on saying that in interest loans, it is the industry of the borrower, which, keeping the money active, renders it productive, and that, since the lender has no part in that industry, he should have no part in the benefits it procures. But what matters it to the lender what use the borrower makes of the loan? * * It is about as if the lessor of property should have scruples about the legitimacy of his contract because the tenant who rented his house did not occupy it. * * The price the lender receives is not a part of the profit the borrower will make by his industry; it is the price of the transfer which the lender makes to him, for a certain time, of the ownership of a sum that he has declared will be useful to him: a price the legitimacy of which rests on the deprivation the lender imposes upon himself, and on the advantage alleged by the borrower, usura propter usum."

II.192.21

—What M. Troplong here affirms, with general assent, is exactly what socialism denies. "He who lends," says Proudhon, "in the ordinary conditions of the trade of the lender, does not deprive himself of the capital which he lends; he lends it, because he has nothing to do with it for himself, being sufficiently provided with capital; he loans it, in short, because it is neither his desire, nor within his power, to give it value himself; because in keeping it in his hands, this capital, sterile by nature, would remain sterile; while, by the loan and the interest resulting from it, he produces a profit which enables the capitalist to live without labor." (From third letter to M. Bastiat.)

II.192.22

—That eminent economist, M. Bastiat, whose early loss to economic science we deplore, has remarked that this argument attacks sales as well as loans. If it can be alleged that the possessor of a sum of money does not deprive himself of it, by loaning it, why could we not say the same of the one who sells commodities which he possesses in too great abundance? The system of Proudhon would render every commercial transaction impossible, because there is not a single one which is not based on interest on the capital invested.

II.192.23

—But we do not need to appeal to analogies nor to enter upon comparisons, to refute a theory based on a position outside of facts accepted by everybody, and in opposition to these facts. Let us go directly to the root of the sophism. Socialism claims that the loan should not bear interest while the one who loans does not deprive himself, and that the lender suffers no privation while the capital loaned would remain sterile in his hands. This is an absolutely gratuitous allegation. First, if the capital borrowed must not produce interest, I can not see why the capitalist should part with it in favor of the borrower. People keep money only to derive an income from it; and if money must remain unproductive, people will cease to loan it. This will be the end of credit.

II.192.24

—But nothing appears to have a weaker foundation than this thesis of the necessary unproductiveness of capital in the hands of the capitalist. In one form or another, a capitalist always employs his money. He loans it at interest only when other forms of investment offer either a less return or one more uncertain; but in lack of a profitable loan, what prevents him from employing his money in agriculture, manufactures or commerce? It is surely lawful for him to buy land or a manufactory; and if he does not wish to put his own hand to the work, he can always take an agriculturist or a manufacturer as a partner, invest his funds in a joint stock association, or obtain shares in some marine enterprise or in railroads. In interdicting loans at interest, the socialists have forgotten to interdict association or to close the ways to human activity.

II.192.25

—The socialists, however, more consistent in this than the canonists, prohibit rent of land as well as interest on money. For them, the productiveness of capital, as Proudhon does not hesitate to say, is a pure fiction. What is there, if one reasons in this way, real in the world? Will the socialists always have eyes only not to see? The earth, from one end to the other of the countries which civilization has touched with its wand, recounts the marvels of capital. Capital is everywhere present. It is the universal motor, the soul of industry; it is the trace of the sojourn or the passage of man on the earth, that which distinguishes culture from barbarism. The power of a people is measured by the extent of its accumulation of labor. A farm in Beance, in France, of the same extent of land as could be bought in Canada or New Zealand for $800, would cost $80,000; and in an uninhabited country it can be had for nothing. Whence the difference in value? From the fact that the land which the colonists buy in New Zealand, for instance, is land yet to be tilled, land without capital; while he who acquires a domain in Beauce pays for the capital incorporated in it. The productiveness of soil enriched by fertilizers, improved by cultivation, provided with cattle and instruments of tillage, furnished with farm buildings and dwellings, and near to great markets—all these make the difference.

II.192.26

—And should the owner of this wealth, which often represents the accumulated labor of many centuries, rent it for nothing, like land covered with bushes and brambles, such as met the eyes of the first occupant? Not only would this be contrary to equity, but it would be physically impossible. A state of society in which proprietors who did not cultivate the soil with their own hands should be condemned to give it over, without compensation, to farmers who would derive the benefits of the labor previously expended on it, in addition to the profits from their own labor, would not be long in coming to an end. The abolition of rent would speedily entail the abolition of property.

II.192.27

—The socialistic theory of exchange belongs to a purely imaginary world. At no period of history has it even begun to be applied. Suppose men reduced to their own powers in a newly forming society. As certain individuals prove to be more richly endowed by nature or make a better use of their faculties, there will necessarily be workmen who will produce more than others, whose products will not find their equivalents in exchange, and will form an excess, a reserve, a capital; hence inequality of conditions and of fortunes. This inequality, when it exists, is transmitted or may be transmitted. Property implies inheritance. When we recognize in man the right to dispose of the results of his labor, we are inevitably led to admit that he may dispose, by the same right, of the results of labor which have been accumulated by him or his ancestors—in a word, of capital. To arrest this natural direction of human activity, the Banque du Peuple is a poor invention. [An allusion to a "People's Bank" instituted by Proudhon for the suppression of capital. E. J. L.] It would not, in fact, be sufficient to abolish rent of money and rent of land; it would be necessary, by a more radical and more logical process, to go so far as to abolish property. Communism is the last term of that theory, in which a subtle mind has imperfectly succeeded in disguising the absurdity and violence of the ideas by the novelty and charm of the form.

II.192.28

—II. RATE OF INTEREST. The legitimateness of loans at interest is to-day recognized in the principal states of Europe. But while abandoning the ground of absolute prohibition, governments have not had the courage openly to avow the doctrines of liberty. Just as it is sought to protect agriculture and manufactures against foreign competition, it is claimed that the cause of the borrower may be defended against the lender, and of the poor against the rich, by fixing the rate of interest or limiting it by the establishment of a maximum. Whoever, in loaning, exceeds this legal rate, exposes himself to a penalty. Usury no longer signifies the interest on money. This word, modified from its primitive sense, takes an opprobrious meaning, and becomes a mark of infamy. To invest one's money at a rate the law discountenances, is called practicing usury, and is to commit a crime.

II.192.29

—The laws which interdicted loans at interest have had their day; the laws which regulate the rate of interest will pass away in like manner. By examining the effects of this legislation, it is easy to show that it defeats its purpose. What is proposed to be accomplished by excepting money from the common rule of values, the level of which is determined by competition in the market? It is desired to prevent the price of that commodity from rising beyond measure, or, in other words, to oppose a barrier to the rise in interest. Now, observation teaches us that the more restrictions the laws have placed upon trade in money, in the past, the higher has become the rent of capital. The penalties against usury give rise to it or develop it; they are an added risk to those naturally connected with investments of capital. In compensation for this additional peril, the lender can not fail to demand a premium. The laws which augment the risk also discourage competition. The number of lenders and the amount of the disposable capital then diminishes, the number and eagerness of the borrowers remaining the same; and people are then astonished at the high price of the commodity, when they have done all they could to produce this condition of the market!

II.192.30

—In ancient times, the peoples who allowed the greatest liberty in the investment of capital were also those who saw commerce and the industries flourish in their midst, and among whom borrowers obtained the most moderate terms from lenders. The nations, on the contrary, who gave no latitude to credit transactions, or security for credits, were obliged to submit to pay more dearly than others for money. The history of Athens and that of Rome present conspicuous and instructive types of this contrast. At Rome a debtor who did not meet his engagements when due became the slave of the creditor. At Athens the right of the creditor to the person of the debtor was abolished by the laws of Solon. Solon did not attempt to regulate the interest on money, and no trace of usury laws is found in the annals of that commercial republic. The rate of interest at Athens varied according to the circumstances and with the security offered by borrowers. The lowest rate appears to have been 10 per cent.: this was in fact a very moderate charge for movable capital, at a time when the income from land was 12 per cent. to those who did not work their lands themselves, and when maritime commerce, which attracted money as well as men, borrowed at from 20 per cent. to 36 per cent., and when the industries, employing slaves as workmen, returned fabulous profits. The interest on money was in proportion to the profits on labor; and here we see why the question of debts, that permanent cause of troubles in the Roman empire, never excited either commotions or political agitations in Greece.

II.192.31

—In the early days of the Roman republic the rate of interest was not regulated by law. M. Troplong considers this latitude in regard to transactions as the cause of the oppression the people suffered from the patricians. But did the law of the Twelve Tables, which fixed the interest at 10 per cent. per annum, diminish the ravages of usury at Rome, and bring about a fall in interest? M. Troplong himself cites from Titus Livy and Plutarch numerous instances which superabundantly prove the contrary. Montesquieu was not in error on this point. "As the Roman people," he says, "were daily becoming more powerful, the magistrates sought to flatter them by having such laws enacted as were most pleasing to them: capital was restricted; interest diminished and finally prohibited; bodily constraint was taken away; and at last the abolition of debts was proposed, whenever a tribune wished to render himself popular. These continual changes, either by laws or by piebiscits, naturalized usury at Rome; for the creditors, seeing the people their debtors, their legislators and their judges, had no longer any confidence in contracts. The people, like discredited debtors, could borrow only at high rates; and this was the more so, because, though the laws only occasionally interfered, the complaints of the people were continuous, and always intimidated the creditors. Thus were all honorable means of loaning and borrowing abolished at Rome, and a frightful usury became established."

II.192.32

—The results in modern times have been the same. The only nations or states in which the trade in money has been most regular and confined to reasonable limits, are the very ones where the greatest freedom in money transactions has been tolerated or authorized. It is sufficient to mention Genoa, Venice, Florence, Holland and England. Holland, in the seventeenth century, although its credit was weakened by war, borrowed at 4 per cent.; in England, the current interest was 3 per cent. toward the middle of the eighteenth century. Owing to their ability to give value to their capital, the Florentines and Milanese, in the sixteenth century, under the name of Lombards, took the place of the Jews, in a large way, and became the bankers of Europe. Freedom in the matter of interest favored the establishment of credit institutions. The foundation of the bank of England and that of Amsterdam were nearly a century earlier than that of the bank of France.

II.192.33

—Moreover, the fall in interest and the development of commerce, in the states where there was the greatest toleration for credit transactions, appear to have followed step by step the progress of this liberty. Thus, in England, Henry VIII. had fixed the rate of interest at 10 per cent. Edward VI. absolutely interdicted loaning at interest. Elizabeth gave an impulse to trade by abrogating the statute of Edward and re-established 10 per cent. as a maximum rate, thus indirectly giving much latitude to traffic in money.

II.192.34

—The statute of Queen Anne fixed the rate of interest at 5 per cent. per annum, and pronounced every contract void in which the interest should exceed this rate. In accordance with the usual practice of the English, who rarely act from general principles, this statute was long nominally in force after being allowed to become practically obsolete. Then it was abrogated by successive degrees, a part at a time. The act of the fifty-ninth year of George III. (1812) was the first attack made on the principle. It was enacted that a bill of exchange or a bill payable to order, which might be declared void because of usury, should be valid in the hands of one who had taken it in good faith. Then came the act of the fourth year of William IV. (1833), which, in renewing the privilege of the bank of England, abrogated the usury laws in the kingdom, so far as bills of exchange and notes payable to order on three months or less were concerned. The act of the first year of Victoria's reign extended the exemption to bills of exchange and notes payable to order, the term of which did not extend beyond a year; and the act of the third year of the same reign comprehended also all loan contracts made for sums which exceeded £10, provided the loan was not secured by a mortgage on real estate.

II.192.35

—In consequence of the latter provision, landed property had now to pay higher than the current market rates for money, and was, therefore, at a disadvantage in comparison with manufactures and commerce. Such an inequality before the law could not permanently continue. In 1854 a law was enacted (17 and 18 Vict., ch. 90) repealing all existing statutes against usury, though not touching the statutes in reference to pawnbrokers. These were modified later (35 and 36 Vict., ch. 93).

II.192.36

—The above-mentioned changes in the laws made to regulate the rate of interest appear to have been a result of the celebrated resolutions which were reported to the house of commons in 1818, in the following language. "1st, Resolved, that it is the opinion of this committee that the laws regulating or restraining the rate of interest have been extensively evaded, and have failed of the effect of imposing a maximum on such rate; and of late years, from the constant excess of the market rate of interest above the rate limited by law, they have added to the expense incurred by borrowers on real security, and that such borrowers have been compelled to resort to the mode of granting annuities on lives, a mode which has been made a cover for obtaining higher interest than the rate limited by law, and has further subjected the borrowers to enormous charges or forced them to make very disadvantageous sales of their estates. 2d, Resolved, that it is the opinion of this committee that the construction of such laws, as applicable to the transactions of commerce as at present carried on, have been attended with much uncertainty as to the legality of many transactions of frequent occurrence, and consequently been productive of much embarrassment and litigation. 3d, Resolved. that it is the opinion of this committee that the present period, when the market rate of interest is below the legal rate, affords an opportunity peculiarly proper for the repeal of said laws."

II.192.37

—As to the effect of the repeal of these laws, unexceptionable official documents permit us to judge. In the year 1841 the bank of England took the initiative in that regard, and, in a country where it is customary to follow public opinion rather than to lead it, did not hesitate to give an impetus to public thought. On May 13, its court of directors met and embodied the results of eight years' experience in the following declaration: "Resolved, That the modification of the usury laws at present existing has contributed greatly to facilitate the operations of the bank, and is essential for the proper management of its circulation." Parliament, on its side, determined to obtain evidence of the good or bad results of the partial repeal of the usury laws. The house of lords, in the year 1841, investigated the subject, and the testimony brought before it (published in 1845), casts much light on the question.

II.192.38

—A distinguished economist. Mr. Norman, after having called attention to the fact that the bank of England, thanks to freedom of interest, had successively fixed the rate of discount, following the variations of the market, from 4 to 4½ per cent. on July 21, 1836; at 5 per cent. on Sept. 1 of the same year; at 5½ per cent. on June 20, 1839; and at 6 per cent. on Aug. 1 of the same year; terminated his deposition in these terms: "I have always regarded with surprise and admiration the way in which the mercantile pressure of 1839 was borne. It was very severe, and the number of failures of consequence was certainly small; and I can not help attributing in some degree the manner in which that pressure was sustained, comparing it with what had occurred on similar occasions previously, such as in 1826, to the state of the law which enabled capital and loanable accommodation to flow into those channels where it was most wanted and could be best paid for—in fact, into its natural channels."

II.192.39

—One of the most eminent practical bankers, Saml. J. Loyd (afterward Lord Overstone), confirmed this opinion by the following explanation: "Had the law which fixed the maximum rate of discount at 5 per cent. been maintained in operation, it would have produced inconveniences of two kinds: in some cases, parties requiring the command of money would have been unable to obtain it, and would consequently have been subjected to many very serious evils, such as forced sales of their goods at ruinous prices, injury to their general credit, and, in many cases, actual suspension of their payments; in other cases, parties would probably have obtained the money by resorting to circuitous contrivances for the purpose of evading the law, which would necessarily have entailed upon them great additional trouble, discredit and expense." Mr. Loyd hence concluded that the act of 1833 had saved British commerce, in the pressure of 1839.

II.192.40

—This was also the conclusion to which Mr. Samuel Gurney, one of the most able bankers and most revered men in London, finally arrived, who called attention to the fact that in 1818, when the state loans were the only ones exempt from the operation of the usury laws, and when considerable loans had been issued by the government, capital deserted the commercial market, which was subject to the legal limit, for the market of public funds; and commerce had to suffer much in consequence of the restrictions which fettered business. Mr. Gurney entered into detailed calculations which brought into relief the consequences of the two systems of restriction and freedom in the matter of interest. "The advantages of the relaxation in the law to the trading community," he said, "are that under every circumstance they are able to procure supplies of money and to carry on their business with facility. In the two or three last pressures which we have had, we have had very few failures. I will now take the other side. What is the disadvantage? It is that they have to pay this high interest for a limited time; the calculation of that disadvantage brings it to a very small sum. A firm of large extent may have under discount to the extent of £50,000, and have to pay 6 per cent. interest for that £30,000 instead of 5 per cent. for six months; this is the extent of loss, which comes to only £250. For that loss he gets the advantage of general facility, a less risk, as credit is much better preserved—advantages greatly beyond the loss. One other great advantage is the ability to borrow money upon the security of his goods, or sell them. If he borrow money upon his goods, it resolves itself into a calculation of a similar character; if he thus borrow £100,000, there will be a loss of £300 or £400; but if he is compelled to sell his goods, he can not, under such circumstances, at a less loss than from 10 per cent. to 20 per cent.; and therefore, on the one hand, he may have to lose some £300 or £400; but, on the other, if compelled to sell his merchandise, which he must do were he unable to pay more than the legal rate of interest upon a loan, the loss would be, under forced sales, of from £10,000 to £20,000." We might extend these quotations. The witnesses summoned, in the course of the inquiry, were, with scarcely an exception, unanimous.

II.192.41

—Some persons have observed that, if merchants in high position gained by the repeal of the usury laws, the same was not true of those whose credit was less firmly established, and that usurious rates were demanded of this class. But what does that prove? That there was, apparently, a certain risk in lending. If the usury laws had been operative, the embarrassed merchants would not have found money, or they would have had to pay still more to procure it. In either case, failure was imminent. Thus much for the example of England: let us now pass to France.

II.192.42

—Interest on money was certainly much higher at the time when legislation interdicted interest loans and burned Jews, than under the far more mild régime which authorized loans under the form of annuities, and fixed by law the rate at which loans could he made by alienating capital in this manner; it had become still lower, and commerce had become extensive at the time when Turgot wrote these remarkable lines: "It is a well-known fact that there is not a commercial place on the earth where the greater part of the commerce does not depend on money borrowed without alienation of capital, and where interest is not regulated by a simple agreement, according to the greater or less amount of loanable money in the place, and the degree of solvency of the borrower. The rigor of the laws has yielded to the force of things; jurisprudence has been obliged to modify in practice its speculative principles, and people have long since come to openly tolerate loaning by note, discount, and every species of money negotiation between parties. It will always be thus whenever the law prohibits what the nature of things renders necessary."

II.192.43

—The constituent assembly only half adopted the ideas of Turgot. The law of 1789 permitted loans at interest under any form, but it reserved to the legislator the right to fix, or at least to limit, the rate of interest. The civil code, promulgated in 1804, stipulated a similar reservation; these were mere preliminary and tentative changes, which prepared the way for the law of Sept. 3, 1807.

II.192.44

—We say nothing of the intermediary régime. Some claim that the convention declared money merchandise, and that in consequence of that unlimited freedom, usury for some years invaded and ravaged the country. The laws of the convention were contradictory. At one time, to raise the price of the assignats, it interdicted trade in the precious metals: again, it removed the prohibition and left every one free to buy and sell gold and silver at their actual value. Interest, the rent of capital, only resumed its liberty as a consequence.*28 This liberty was the result of the toleration of the government, and not of a clear perception of a principle which it firmly proclaimed. But what matter is it whether the convention, in removing the barriers it had itself raised, removed also others or not, and rendered homage to political economy without willing it or knowing it? The events which occurred in the commercial world, during that period of anarchy and the disturbed times which succeeded it, prove nothing either for or against any system.

II.192.45

—We are, however, inclined to believe that, notwithstanding the calamities which were the inevitable result of the civil disorders and of war, and although commerce, manufactures and credit were nearly paralyzed in France from 1793 to 1797, the toleration accorded meanwhile to pecuniary transactions bore more good fruit than bad. People have quoted the protests of some chambers of commerce, which complained at that time of the dullness of trade, the great numbers of failures and the cupidity of loaners. In reply we will say, without having regard to these particular cases, that the speech of Joubert, who proposed the law of 1807, itself shows that interest on money had generally fallen. But, were it otherwise, can any one really suppose that laws more restrictive would have procured money for trade at a low price, at a time when the risks connected with every negotiation or credit transaction were so great, and when confidence was so weak?

II.192.46

—The legislators of 1804, more favorable to liberty than those of 1807, had left the way open. Article 1707 of the civil code provided that the interest agreed upon might exceed the rate fixed by law, whenever the law contained no prohibition to the contrary. This was directly to recognize that the value of money, like all other values, results from the state of the market and the terms arranged between parties. The legislators of 1807 shut this half-open door, by putting agreed-on rates of interest in the same line as legal interest. It may be well to quote here the language of a law which can serve as a starting point in the discussion. "Art. 1. The interest agreed upon shall not exceed 5 per cent. in civil matters [i.e., those coming under the cognizance of what are known as civil courts, in France, in distinction from mercantile courts. E. J. L.], nor 6 per cent. in mercantile matters, without retention. Art. 2. The legal interest shall be, in civil matters, 5 per cent., and in mercantile matters 6 per cent., also without retention. Art. 3. When it shall be proven that a loan has been made at a rate exceeding that fixed by Art. 1, the lender shall be condemned by the court before which the case is brought, to restore this excess, if he has received it, or to suffer a reduction of the principal of the debt, and he may even be remanded, if cause appear, to the court of correction, and, in case of conviction, condemned to a fine not exceeding half the capital he has lent on usury. If the result of the law process shows that the lender has practiced fraud, he shall be condemned, besides the above fine, to imprisonment for a term not exceeding two years."

II.192.47

—The economy of the law of 1807 consists entirely in a small number of rules. It lays down as a principle that freedom of agreement in regard to rate of interest must be exercised only within the limit of the legal maximum. Provisionally, this maximum is fixed at 5 per cent. in civil matters, and at 6 per cent. in mercantile ones.

II.192.48

—The law of 1807 makes usury a crime. But what is usury? Bentham said truly that it was not susceptible of definition. And in fact, if usury consists in loaning at a rate higher than that fixed by the legislature, one may be a usurer in England while loaning at a rate which would be permissible in France, and vice versa. In France the offense depends, not on the nature of the act, but on the quality of the lender. One is a usurer if he loans at 6 per cent. in civil matters, but ceases to be so if he loans at the same rate to one engaged in commerce. These inconsistencies in legislation prove that an attempt has been made to regulate that which, from its nature, evades legal rules. The authors of the law of 1807 perceived this; for, after having made the act of loaning at an interest in excess of the legal rate a crime, they did not affix any penalty. The court, in this case, can only sentence the lender to restore the excess. The sentence can only extend to a fine in the case of habitual usury, that is to say, when the offense becomes changed; when, instead of having to deal with parties whose bargains depend upon the variations of the market, the court finds before it a speculator who makes a business of seeking the most risky investments, those which serve as an excuse or pretext for unlimited profits.

II.192.49

—The law of 1807 has only one kind of merit. In a country where there is too little general information on matters of political economy, and where anticommercial prejudices have still much influence, it bears a certain relation to the average level of intelligence and the state of morals. In 1836 a motion was made by M. Lherbette aimed at the repeal of this law and the restoration of freedom in the matter of interest; but it failed because of the unenlightened opposition of the elective chamber. In 1850 the proposition of M. Saint-Priest to modify the law had no better success: the law which was enacted Dec. 15, instead of punishing the simple contravention of the law prescribing the legal interest, is only aimed against the habit of disregarding it, and confines itself to increasing the penalties.

II.192.50

—The law of 1807 governs the trade in money in all the countries of Europe which have adopted or imitated the French civil laws. To examine into the effects it has produced in France, is then to obtain the elements which may serve to give the most general view of the question. The law of 1807 did not, as we know, bring about a fall in the rate of interest, which is, notwithstanding the solidity of the operations, much higher in France, in every scale of credit, than in England, Holland and Belgium. The absolute prohibition it contains has not prevented the loaner, wherever there were risks to be incurred, from stipulating for excessively high interest which was legally usurious. That has been accomplished in a contraband way instead of openly. But the troubles from it have been only the greater; for the interest must include, besides the premium for the risk arising from the small degree of solvency in the borrower, that of the risk arising from contravention of the law.

II.192.51

—The mohatra, so much branded by Pascal, has reappeared, and the usurious loan has been disguised under the form of a sale. In other cases the fraud has been accomplished under the form of a donation; besides the legal interest, the lender has required a supplementary interest, under the title of gift. Sales with privilege of redemption have also served to conceal usury, which has, besides, taken place under cover of an exchange. But the most usual as well as the most simple form has consisted in stating in the loan contract, or on the notes given to the loaner, a sum higher than that which the borrower had received.

II.192.52

—The defenders of the system sanctioned by the law of 1807 themselves recognize that this law, far from uprooting usury, has perhaps aggravated it. Usury, it has been said, is devastating French rural districts; and it is certain that the debts of small property-holders had much to do with the socialism of the central and eastern departments of France in 1849 and 1850.

II.192.53

—A representative of the upper Rhine, M. Cassal, cited in the tribune curious examples of frauds practiced in Alsace to evade the provisions of the law of 1807. "The usurer," be said, "no longer proceeds in this fashion: 'I lend you one hundred francs in consideration of ten francs.' Nothing like that is written. A note of a hundred francs is made, but only ninety of it are given. Care is taken that it be done with no witnesses present, and then you have the provision of article 1322 of the civil code, which establishes a legal presumption in favor of the creditor who has a writing. In this case itself it is very difficult to prove usury. More frequently sales with power of redemption occur: property is bought for the consideration of one hundred francs, and only ninety are paid; and when the debtor wishes to obtain his property again, he is obliged to pay back the sum stipulated in the contract as price, and happy is he, too, if the purchaser will consent to restore him his property. In this case also, the stipulations of article 1325 of the French civil code are exactly fulfilled: you have no witnesses, and it is impossible to prove usury. When one of these men loans at 5 per cent. on a simple note, there is much reason for mistrust; the lender has evil designs. When the note falls due, the debtor can pay; but the creditor promises to wait. When the time comes that the latter knows the former has no money, he becomes pressing, prosecutes, hounds the debtor, forces him to make an assignment, lays down orders, and, finally, compels the unfortunate to pay what is called the interest of patience. Then he takes everything the former can give: fifty francs, a pair of sabots, a batch of bread, per week. But all this is the A B C of usury. The usurer but rarely makes his bargain in his own name. The borrower sometimes does not even know him; the business is done through an intermediary, a sort of broker, who, ordinarily, has nothing to lose, not even honor, who also takes brokerage, and thus increases still more the interest on the money. When loans are made, the first step is to ask for security. This security is the person who signs the note and carries it to the borrower, or vice versa; the intermediary likewise, signs the note, and it is sometimes covered by three, four or five signatures before reaching the real lender. The usurer is then in the position which, in the language of the law, is called 'a third carrier in good faith.' The aim of the business is to make some kind of a bargain: in primitive times, a trade in flocks or herds; later, in real estate. This is how it is effected. Sometimes one lends a sum, always by an intermediary, on a simple note or an obligation acknowledged before a notary, and on the other hand, he has a field or other real estate sold to him at an extremely low price. Care is taken, however, that the matter be so arranged that the lesion of the seven-twelfths may not be reached. These men, who thus exploit French rural districts, have divided the territory: each one has his chosen portion to exploit, and it is rare for another to permit himself to go there to do business. You comprehend then that they are perfectly well acquainted with the value of the estates, better than the peasants themselves. Consequently there may be usury of 100 per cent. or 200 per cent. without the cognizance of the law. At other times, and this is far more serious and more common, they force the borrower, giving him meantime the funds for the purpose, to buy a piece of land or some other commodity at a very high price. Here they do not take the trouble to put as large a sum as possible into the contract: they put the property at double or triple its value. Let them succeed in making a man contract a debt, and nothing can save him; he is soon dispossessed of his property. I know entire villages which do not contain two solvent private citizens."

II.192.54

—Looking at this social condition, one would think he was living in the middle ages. Is it necessary, in order to remedy this, to make the penalties greater and to increase the legal restrictions? M. Cassal, who is not, however, an economist, but who has had a near view of the evil, does not think so. "I know the country usurer well enough," he said, "to apprehend that our law (that of 1850) instead of producing the extinction of usury, may perhaps produce the contrary effect, by closing the purse strings and shutting out all credit. Usury is the only means, the single source of credit to the countrymen; and if that source dries up, I fear they may be more miserable than before."

II.192.55

—The defenders of restrictive laws in the matter of interest would do well to reflect upon this remarkable avowal. They think they have replied to all objections when they say: "If the borrower is not sufficiently solvent for loans to be granted him at the legal rate; if an additional premium is necessary to cover the risk—well, people will not lend to him at all." Shall credit be thus obliged to stop rather than exceed the level of interest which the legislator has supposed legitimate? But credit can no more be arrested in society than the circulation of blood in the human body. For the one as for the other, motion is life. You say that loaning at high interest will in the long run ruin the borrower. This is possible; but he will be ruined without usury, if he does not find a way to borrow what he needs to meet his obligations when they fall due!

II.192.56

—The capitalist who speculates upon the temporary distress of the borrower is a wretch. Science has no intention of sheltering such under her mantle. If usury extends to direct or indirect fraud, there are laws to punish it. But let no one attack the freedom of mercantile transactions, under pretext of preventing usury. Provided the loaner and borrower are free to make a bargain, the contract should be valid. It matters little at what rate the investment be made: the interest of money is naturally subject to one law alone, that which determines that the price of things, instead of being fixed arbitrarily by the civil power, results from the essentially variable relation between supply and demand. There is but one way to abolish usury, and that is to extend to property the benefits of credit institutions, and accustom proprietors punctually to fulfill their obligations. For the rest, the relation of demand to supply so bears upon the contracting parties, that governments, when they wish to borrow, are themselves subject to it. Whenever it was necessary to contract public loans, the French government took good care not to appeal to the law of 1807. In difficult circumstances it has borrowed at 7 per cent. and even at 8 per cent.; and instead of then considering the capitalists who undertook the loan at these high rates as usurers subject to the penalty of the law, it sought to attract them by all means in its power. Not to speak of the profits they have made by loaning to embarrassed governments, have not bankers obtained all the marks of distinction which could flatter their vanity? Have they not been covered with cordons and admitted to the ranks of the aristocracy?

II.192.57

—Thus the state itself sets the example of violation of the law. It seems that the legal rate of interest is obligatory on every one except itself. To loan at 6 per cent. to private individuals, is to expose one's self to the severity of the courts; to loan at 6 per cent. to the state, to cities, to departments, is to merit public gratitude. Who can henceforth take seriously this pretended crime of usury, which is not such for states, but is such in private transactions?

II.192.58

—This is not all. In testimony of the powerlessness of the legislator when he attempts to do violence to the nature of things, the French law of 1807 was obliged, in fixing a maximum rate of interest, to admit of exceptions and establish categories. Thus, loans on property security, on pledge, on provisions, and discount, escape its rules. The same observation applies to commissions charged by banks, and to the premium given to brokers who answer for the persons to whom they sell merchandise; as well as to those commercial practices which are so many additions and supplements to the interest stipulated in the money loans.

II.192.59

—III. LOANS WHICH EXCEED THE LEGAL RATE. The loan on pledge (or pawn), which entails at once numerous risks and considerable expenses of administration, is one of those which can be made only at a relatively high interest. All the pawnbrokers in Europe would be ruined in a few months, if they were compelled to loan at a rate corresponding to the price current of money in the market. The exception which has been made in their favor, or rather, the freedom in regard to interest which is allowed to be the rule in their case, has been favorable to those who patronize these institutions. To speak only of the mont de piété at Paris, the interest asked of borrowers has constantly diminished since the last century: it was 5 per cent. per month in the year III. (1795-6), 2½ per cent. per month in the year VIII. (1800-1), and 1¼ per cent. in 1831. As the rent of money becomes lower in the general market of capital, the pawnbroker will lend at a lower interest to necessitous families.

II.192.60

—As to the loan of provisions, which the law of 1807 does not govern, and in which one may always, by the terms of article 1907 of the civil code, exceed the legal interest, jurists have found a reason to justify that exception, which, if they were disposed, might be made to apply equally well to loans of money. "How can we think," says M. Troplong in his "Commentary on Loans," "that the legislator could have intended to impose the same rate of interest on loans of provisions as on money? How can we suppose that he would have taken no account of the risks, which are much greater in the loan of provisions than in the loan of money; in the loan of provisions, we say, where an abundant harvest at the time of payment may take away so much of the value of the thing lent in time of dearth? Would he have condemned the system followed in all ancient nations by legislators and economists, of fixing the interest on provisions higher than the interest of money? We think, then, that there would be nothing illicit in an agreement which should obligate the borrower of a hundred measures of oil, grapes, or apples, to repay a hundred and ten or a hundred and fifteen at the following harvest."

II.192.61

—When one borrows money, it is not the metal exactly which one wishes to possess, but the value it represents. Under the form of money or under the form of provisions, the lender delivers capital: capital is the object of the contract. From the essential point of view, which is that of value, there is no difference. In vain has it been objected that the value of grain was variable; for the same objection would apply to the value of money. Who does not know that the power of the precious metals was much greater in the time of Charlemagne than in the reign of St. Louis; in the time of St. Louis than in the reign of Louis XIV.; and in the reign of Louis XIV. than in our day? No doubt money presents a more fixed and certain measure of value from one year to another than wheat; but from one century to another the advantage of fixity and constancy passes to the wheat. The price of cereals is, in fact, the light by the aid of which we find our way in studying the economy of society in the past.

II.192.62

—Under one form as well as another, the rent of capital depends on its abundance or rarity compared with the urgency of the demand. It is not the nature of the loan which can raise the premium; it is the situation of the borrower. Why did the legislator of 1809 allow the rate of 6 per cent. in mercantile bargains, while he imposed the minimum limit of 5 per cent. in civil matters? Apparently, that difference of interest signifies that the risks are greater in one case than in the other, and that the trader who invests his funds in uncertain operations does not give the same security for payment. Why does M. Troplong recognize in the lender of provisions the right to demand from 10 to 15 per cent. interest, if not because the certainty of payment is less in transactions of that nature? Starting there, to be consistent, one step more should be taken: the principle should be separated from the example, and one should say that the premium on the risk, which is one of the elements of interest, increases naturally in proportion as the certainty of reimbursement diminishes. In loans at interest, the premium on the risk acts as a sort of insurance on capital; this is why there are no reasons for refusing to allow it in the loan of money, when it is allowed in the loan of provisions. Credit is naturally personal. There exists no such thing as one rate of interest belonging to provisions and a different interest belonging to the precious metals. It is because those who borrow provisions generally place themselves in a more hazardous situation, that high interest is demanded of them. But a good number of borrowers to whom money is loaned personally merit still less confidence; why should it not be permitted to stipulate with them a premium for insurance, commensurate with the perilous chances they cause one to incur? The principle is admitted in wholesale contracts. Do you suppose that there is not, as M. Sainte-Beuve has so well said, any such debtor whose solvency makes the loaner run as much risk as he would incur from tempests? To sum up, either the exception made in the case of the loaner of provisions has no raison d'être, or the considerations which have determined it tend invincibly to liberty in the rate of interest, under a general law.

II.192.63

—On the question of discount the subtleties of jurisprudence are freely exercised. Certain jurists rank it in the category of sales; others, in that of loans. "The banker who discounts," says M. Troplong, "only makes a loan. Accustomed to trade in money and notes, he only purchases a credit; and as 10,000 francs, payable in one year, are not worth 10,000 francs payable now, he gives a less price than the nominal one. This price is calculated on the time to run, on the solidity represented by the signature of the one who signs it, the value of that signature, the place. etc. Discount is only the difference between the nominal and the real value. I have said that the banker buys a credit; I add that, on his side, the borrower buys a present sum for a sum not due. In all cases, the borrower who sells his credit does not contract the obligation of returning the same thing, characteristic of the loan; his obligation is, to deliver the chose and guarantee its payment. On the other hand, the banker becomes proprietor of the effect, with the same title as if he had bought any other article; he uses it as be pleases, and has nothing more to do with the one who assigned it to him except so far as pertains to the security."

II.192.64

—We see that if the rate of discount escapes in France the rules laid down by the law of 1807, it is not through respect to a theory which takes its point of support outside of realities. The legislator has yielded to the force of things, either by formally accepting or by tolerating usages which he could no more modify than destroy.

II.192.65

—M. d'Esterno has cited, in the Journal des Economistes, curious examples of loans at a high rate, which are negotiated, to the mutual satisfaction of borrower and lender, the department of Saône-et-Loire. "There are," he say, "small farmers who buy, in May, cattle for labor, and sell them again in November. If they buy them for cash, they pay 600 francs for them, for instance, but, as they only pay 300 francs at the time of getting them, and promise the other 300 at the time when they count on having sold them, they consent to give 50 francs more for that accommodation. This transaction is usual, and it is repeated in the case of other animals, hogs, for example." Thus, farmers who would probably not consent to borrow at the rate of 7 per cent. upon mortgage, willingly borrow under that form at 33 per cent. The transaction has no relation to the current rate of interest; but it is within the ability and convenience of the parties who contract. That is sufficient to explain it. Credit institutions, by furnishing circulating capital at lower rates to property owners and farmers, will alone be able to supplant this custom.

II.192.66

—Contraventions of the law of 1807 are especially frequent, and occur with impunity in civil matters. One has only to consult the notaries to be convinced that, if mortgage loans were confined to the strict limits of the legal rate, there would be to-day, outside of Paris and the range of the capital, few serious and effective loans. By means of accessory agreements, immediate deductions, and various compensations, people succeed, while inscribing only the legal rate in loan contracts, in winning and retaining capital in liens on real estate.

II.192.67

—As a general statement, it may be said that the only loans which the restrictive laws affect, are the large transactions in which an habitually low price for money renders that intervention at least useless. Those, on the contrary, which escape the action of the legislative enactments, and of the law of 1807 as well as the others, consist of transactions of slight importance and in which a high rate of interest is invariably found to be stipulated. This is true, especially of loans in retail trade and for a short term of credit. Those who loan by the week figure largely in that category. Those who loan by the day are a class of capitalists that should not be forgotten, and who, notwithstanding the high interest they obtain, render real service.

II.192.68

—"In the Paris provision market," said M. Aubréy in his speech against the proposition of M. Saint-Priest, "a well-known trade in money is carried on: one keeps a shop of five-franc pieces, that is to say, a certain variety of a banker keeps an office in the market and delivers to merchants of the four seasons and to vegetable gardeners a five-franc piece. With this five-franc piece the small trader buys provisions and food which he goes and sells about the city. At the end of his day's work he returns; he has often earned two or three francs with the aid of that five-franc piece. Do you suppose it is hard for him to pay the banker who furnished him the instrument of labor the sum of 25 centimes from his day's profits? * * In this case the interest of the money is 1800 per cent. Some people wished to enter complaint in the name of the law; but the magistrates of the bar of Paris were obliged to recoil before the numerous and incessant cries of the opposition; this resistance derived its strength from the good sense of the people and the benefits of liberty."

II.192.69

—It would seem that an investment by which money brings 1800 per cent. would call in the competition of capitalists, and that this competition would lower the rent of capital. Yet the loans which have taken in the French language the name of "loans by the little week" remain at a rate that varies little. The reciprocal advantages of the borrower and lender would not suffice to explain the permanency of so high an interest in these investments. To understand it we must consider the risks to which capital is exposed. The ambulating tradesmen are an essentially nomadic portion of the population: it is the business to which those have recourse, who, for the time being, can do no other, or whose indolence makes them shun labor. From such customers one can not expect great scrupulousness in the fulfillment of their obligations. Five-franc-piece bankers are those who most frequently become bankrupt. The petty dealer, who often spends in drink the day's earnings, consumes both capital and profits. To escape the surveillance and pursuit of the creditor, the debtor has only to migrate from one occupation to another, in the infinite circle of petty trades which spring up and multiply in the streets of Paris. The capitalist lends to strangers, to people who have neither a sou nor a trunk, and without other guarantee than their interest to meet punctually their obligations so as to create for themselves a species of credit, an interest which all do not comprehend. If the debtors were punctual and scrupulous, the creditors, renewing their capital eighteen times a year, would very quickly make their fortune. Many, however, become ruined; and the sphere of these transactions does not appear to enlarge, which proves that there is in them a commingling of good and had chances.

II.192.70

—And now, I ask, are not the laws which restrict liberty of interest judged, when we see that, for one transaction at 6 per cent. which they prevent in the average sphere of credit, they tolerate or do not prevent a little lower down the scale of loans, numberless public operations every day, in which the usury extends to 1800 per cent. per year?

II.192.71

—IV. BASIS OF INTEREST. It is time to abandon the historical controversy to examine the foundation of interest. Three principal elements co-operate to determine it: the rent of capital; the premium on the insurance to cover the risk, and, in a great number of cases, the charge for commission; and the salary of the intermediary who puts the borrower in communication with the lender. The rent of capital, the instrument of labor, the motor which sets commerce, agriculture and manufactures in motion, is the principal element in interest. How is its rate determined? and what is its measure? Has this element anything fixed, which depends not on places, time or persons? or must it vary with circumstances and according to individuals? There is, we know, no such thing as unchangeable value; the notion even of value, arising as it does from the idea of relation, implies change. The rent of capital, like the price of all things, must vary under the action of demand and supply; and the law of demand and supply is itself subordinated to all the vicissitudes of production as well as of consumption, not to speak of the influence which progress or decline in means of transportation may exercise. One may not, then, prejudge what the rent of capital should be; but should confine himself to stating what it is. The observation of facts must rule in this matter. No doubt it is recognized in studying the economic history of peoples, that the rent of capital diminishes as wealth increases. But it should also be remarked that, through that incontestable tendency to a fall, the oscillations of interest become more frequent in proportion as commercial relations, developed by increased comfort and intelligence, come to multiply. The rent of capital varies, perhaps, less, in that descending progression, from one century to the following one; but from one year to another, it changes more. Credit, which formerly seemed to have nerves of steel and a hardened epidermis, has contracted the impressionable nature and delicate temperament of the sensitive. One can then determine the rent of capital only approximately, under given circumstances and while these circumstances continue. The system which would make the government regulate the rate of interest, to remain true and not deviate from the facts, would require the rate to be revised each month, each week; and, in some cases, each day; but a rule that required incessant alteration would not be a rule. This system is then condemned either to unchangeability of interest which is contrary to justice, or to an incessant change which would be the negation of law. As to the theories whose pet chimera is a fixed and in some sort normal interest, we will speak of them only to recall a few facts. The bank of France attempted to put them in practice, by maintaining the rate of discount at 4 per cent., in times of pressure as in periods of prosperity; but its resistance was finally overcome: in 1847 it was obliged to raise its rate of discount to 5 per cent. in order to arrest the export of specie; and in 1852, not to remain outside of the business world, it reduced it to 3 per cent.

II.192.72

—The second element in interest is the tax for insurance or risk. This may be considered as still more variable than the preceding, and is certainly more difficult to estimate. The rent of capital is, as it were, the real part of interest, the part which is regulated by the value of things, the state of the market; and insurance is the personal part. The risk changes not only with the circumstances, but also with the situation and character of the borrowers: it is almost nothing in loans made on bills of exchange or notes payable to order which have several good indorsers; it is considerable in the case of a borrower who gives only his guarantee, and the lender raises the premium for the risk in proportion to the lack of solidity in the guarantee. This weakness of the guarantee may be diminished by the confidence of the lender or increased by his mistrust. This is an element to be taken into account, which, because it is personal on both sides, touches closely upon the arbitrary. "He who loans his capital," says M. Aubréy, "with risk of losing it in whole or in part, renders a greater and consequently better remunerated service than he who loans his capital without risking anything; this is what constitutes the difference between the lessor of real estate and of personal property; because the capital of the one always preserves its identity easy to establish, and is often secured by privileges and mortgages, while, on the contrary, the capital of the other is capable of being consumed by use and absorbed without return, as interest and principal; this is also the difference between the civil and the commercial loan, as well as the loan on pledge (pawn-loan), between obligations on short time and on long time, between maritime contracts and land contracts." The extent of the service is not measured by the extent of the risk; but he who consents to loan his capital, without the certainty of recovering it when due, is right in demanding of the debtor a premium for insurance against this danger: this is not a remuneration, it is simply a compensation, a guarantee. But whether remuneration or guarantee, in doubtful cases a prudent creditor would not dispense with this supplement to the rent of capital; yet it is not always sufficient to preserve him from ruin. When M. Proudhon said that the interest of money represented the risk, the chance that might befall, alea, he then exaggerated the truth, he took the part for the whole, he left out of account the very basis of interest, which is the rent capital gives. But even this shows that he took account of one element which all legislation has disregarded.

II.192.73

—The socialist school, in the theory of gratuitous credit, substitutes for the premium on the risk, a sort of mutual insurance which unites all those making exchanges in the bonds of universal solidarity, and which makes every member of society bear his part in the consequences of the bad speculations or bad chances of all. This is not distributive justice: for the people who offer securities are put in the same category as those who offer none. The socialists make the moral being which they call society intervene in human affairs in exactly the same way as the ancients had their gods engage in them. Society, as they picture it in their romances, distributes subsistence and even wealth to all individuals; all the difference consists in having the manna come from the bank of the people, or the phalanstery, instead of descending from heaven. The people's bank having failed, and the phalanstery having aborted, we have to examine if it is possible, in the ordinary course of transactions, to establish any test or measure whatever of the risk. This element of interest obeys no rules, even for a day, even for a given case; it is an affair of opinion, a question of individual chances. There is nothing in it which one can generalize sufficiently to establish an economic principle, or a legal regulation. The element of risk interposes still greater obstacles than does the element of rent, to any attempt to fix or limit the interest on money.

II.192.74

—The third element of interest is thus defined by M. Aubréy, who, as a banker, could speak from acquaintance with the subject: "The instruments of labor only reach the laborers through intermediaries; this is the consequence of progress. Capital in the form of money, being an instrument of labor, is as much under the law of division of labor as capital in any other form. As every one knows, capital is put in motion and circulates by the aid of motive agents called banks; labor improves and prospers by reason of the activity and abundance with which capital circulates in these great reservoirs; but every one should also know how much accumulated wealth, moral power and dignity of character is necessary, properly to direct these credit institutions. Now just these rare and valuable qualities, and this difficult and necessary labor in credit institutions, are remunerated by a charge for commission, which increases the interest on the capital furnished. M. Proudhon, in his people's bank, does not contest the legitimacy of this charge; for, when he decreed gratuitous credit, he reserved a discount of from 1 per cent. to 2 per cent. for expenses of administration. Is it possible to determine the measure of this third element? Evidently not. There are credit establishments of different kinds. The banker whose operations extend to millions in a day, takes only a very small commission and yet makes much money, while the petty dealer, who operates only with some thousands of francs, or with five-franc pieces, may charge a very high commission and yet earn but little; though he may give the same measure of his time and labor as the banker."

II.192.75

—The above definition is neither complete nor altogether correct. Although it no more belongs to the government to regulate this part of interest than other parts, we must recognize that this contains an element more easy to estimate and less fluctuating. The institution of banks of circulation and discount has reduced the commission charge to small proportions, wherever their influence extends; yet even the state has a share in it, under the form of the stamp duty it puts on their notes. The commission charge of the intermediary bankers is often blended with the premium for risk: it is thus, for example, at Paris, where a discounter, for giving the third signature, and rendering a commercial bill acceptable at the bank of France, takes a premium or duty of 1 per cent., ¾ per cent. or ½ per cent.

II.192.76

—In analyzing the elements of which interest is composed, we have seen that there is not one which gives a sure basis for estimating it. This has led M. Lherbette to say: "If you think there is a fixed, invariable basis for interest, why do you make it vary according to circumstances? and if you believe, on the contrary, that its basis is variable, why do you fix upon a rate from which the contracting parties shall not be allowed to vary according to the particular circumstances in which they find themselves and which they will understand better than you? In any case, if you determine to fix it, it will have to be continually modified; for circumstances constantly change; it would be necessary to establish mercurials for money as for bread." [The mercurials were registers of the price of grain and some other necessary provisions, and were formerly required to be kept in a public place in the market towns of France. E. J. L.] Even that would not be possible. The tax on bread embraces two or three qualities, of which it fixes the price by consulting the price of grain of corresponding quality; but the tax of interest does not depend on such simple calculations: in its case the rate in the mercurial would have to include as many qualities as there are particular situations, or individuals having recourse to credit. In the domain of credit, the list of classes is infinite: and this will infallibly baffle any pretension to a rule. Freedom in the matter of interest results not less from the powerlessness of the restrictive system than from the right which belongs to the contracting parties to dispose of their property as they think best. The experience of the past is here the most direct auxiliary of principles.

II.192.77

—It is henceforth a recognized fact, thanks to the intelligence of our time, that interest on money is a legitimate value; why, then, should other conditions be imposed on it than on other values? When merchandise is in the warehouse or brought into market, its price is freely discussed between the buyer and seller; both find this method to their advantage; and the seller would carry away his goods as well as the buyer his money, if any one pretended to dictate to them the conditions of sale and purchase. In the matter of guarantees, both spurn the intervention of the state, and think themselves better off with free competition. Is there the least reason at all serious why trade in money should be excepted from the general law of trade? Sometimes society enjoys a tranquillity favorable to business, while again it passes through periods of monetary pressure in which every enterprise becomes difficult, and the activity of labor seems paralyzed. Money is sometimes scarce and sometimes abundant; the rent of capital must then vary, like any other value, according to circumstances. As to borrowers, they are not all equally solvent: on the contrary, they occupy, according to their morality, their reputation, and the competence they enjoy, various degrees in the scale of securities. Shall one say to a lender: "Whatever be the state of society, tranquil or disturbed; whatever be the abundance or scarcity of money; whether capital moves in full security or under the pressure of great anxiety; you shall loan your money on the same conditions and to all"? That would be unjust and absurd; one of two things would inevitably happen: either the prohibition would not be regarded, or capital would be refused, and society would have to manage as it could, to live without credit. Let us change the hypothesis. If a limit may be imposed on the profits of money capital by establishing a maximum rate of interest for money, why may not a maximum be fixed for every species of revenues, all kinds of transactions, and every sort of merchandise? If it is forbidden to lend above a certain rate of interest, why should it not be prohibited to sell above a certain price? The people have a much greater interest in not paying a high price for wheat in time of scarcity, than in finding loans at a low rate of interest. If money capital must not bring its possessor more than a certain per cent. yearly, why should the profit from capital in machines, land or manufactures be unlimited? Suppose I lend my neighbor $20,000, with which he purchases a spinning mill which gives him an annual return of 50 per cent.; why should not I be permitted to obtain what interest I can for my capital, when the borrower who receives this capital from me is free to derive any profit he can therefrom?

II.192.78

—It is claimed that the interest of money is an exception to the general rules of trade. M. Paillet said that property rights must yield, the same as others, to public utility; and he compared the prohibition to loan above a certain rate, with the interdiction to build within the line of fortresses, with expropriation for the public good, with the prohibition to clear land, with all measures, in short, which society takes to protect the weak against the strong. Political economy does not contest the right of society; but it denies its applicability in this case. What public interest requires the state to regulate the rent of money? We find none. In a theocratic government, where the state is everything and does everything, that would perhaps be conceivable. The priests in that case fix the price of provisions, the form of garments and the number of ablutions. People are not astonished to see them interfere in the system of industries, when they behold their authority reaching even to the domestic hearth. But since the industries have come forth from their swaddling bands, and citizens of the same state can freely trade with each other, it is the interest of each and all that trade in money should be as free as in other commodities. What would the ability to buy and sell products signify, without any other rule than the price resulting from the relation between demand and supply, if capital, which begets the products, were subject to different conditions on the market? Competition determines the rent of capital as well as the price of merchandise; and that alone can bring about and surely will bring about a fall in the rate of interest. Only chimerical or violently-disposed persons demand other methods.

II.192.79

—The adherents of the doctrine of the balance of trade thought that money, instead of representing the capital in circulation, was the capital itself of each country. This is why they subjected money negotiations to special rules. It was with this feeling that M. Jaubert, who reported the law of 1807, said: "If commerce gives itself up to speculations in interest, it goes out of its way, and will in the end arrest the progress of industry." As if capital, or rather accumulated labor, was intended for any thing else than to serve as a motor, and to procure profits for those who possess it. Communities live by tradition as much as by progress. We increase in stature because we rise on the shoulders of our fathers. Capital prepares the way for labor. The regulation of interest, as we know from the experience of our predecessors, is of no more service to labor than it is to capital. If it makes the latter unproductive, it prevents the former from development. But this system has consequences still more fatal to society than to the individual. It was decreed in France, by the law of 1850, that the maximum interest should remain fixed at 5 per cent. in civil matters. But that did not satisfy either M. Pelletier, who demanded money at 3 per cent., nor M. Proudhon, who aimed to reduce it to zero. The moment the people get the idea that it belongs to the law-making power to determine the rate of interest or to fix a limit to it, we are exposed to all the demands of anarchy. When the people, complaining rightly or wrongly of the hard times, come to demand a reduction in the annual interest, by what right can opposition be made? Will it be said, "We can not"? The legislators would then falsify their own action. Will they respond, "We will not"? That would be opening the way to revolution. The people would withdraw to the Aventine Hill, claiming abolition of debts; or, perhaps, to avoid paying them, or to pay them in paper money, they will send to the legislature, as certain departments did in 1849, socialistic revolutionists. Regulating interest by legislation is the first step of society toward bankruptcy; for it is the substitution of arbitrary law for the right to make agreements freely.

II.192.80

—Freedom in the matter of interest is proper for all peoples who have attained their majority and who are governed by laws of their own making: but it is especially appropriate in republics. Where the right of a citizen to take part in governmental affairs is recognized, he can not, without injustice and contradiction, be denied the power to regulate as he pleases his own affairs; to buy, sell, lend or borrow on such conditions as the market offers. The component parts of the sovereign power can not be held in tutelage. It is ridiculous that the law should stipulate for them as for aliens or prodigals put under an interdict. Let them not be called upon to deliberate on the nature and direction of the government, if they are judged incapable of comprehending and defending their true interests; or if that honor is accorded to their independence and intelligence, let the horizon of sovereignty be at least extended to private transactions and the domestic hearth.

II.192.81

—The United States probably owe some measure of their prosperity to the comparative freedom in the matter of interest. In New York discount has sometimes been taken as high as 18 per cent. per annum. At San Francisco money has been worth 4 per cent. or 5 per cent. a month. What matters it, after all, if those who borrow at this rate employ it so as to make still greater profits?

II.192.82

—The rate of interest is generally in proportion to that of profits. Where industrial investments bring 12 per cent. to 15 per cent., it would be foolish to claim that one ought to borrow money at 4 per cent. to 5 per cent. The trade in money would, in fact, cease, if it could not take place under conditions similar to those prevailing in other industries. When, on the contrary, capital employed in agriculture and manufactures brings a return of 5 per cent. to 6 per cent., a moderate interest, say from 3½ per cent. to 4 per cent. is generally sufficient for the capitalist. Where the profits from agriculture are considerable, as in many of the western states, the remuneration of labor and of capital is high. Interest is high as well as wages. In Great Britain, on the contrary, where manufacturers, in order to become rich, must operate on immense quantities, the profit being very small on each fraction, capital obtains only a moderate interest. The abundance produced by the treasures accumulated by industry makes capital less in demand there than labor.

II.192.83

—Harmony of these diverse functions in society can only result from liberty. It is liberty which has caused the growth of manufactures and has given wings to commerce. Liberty can alone regulate the interest of money, to the satisfaction of everybody. Capital can have no other master than itself; and its tyranny will be best avoided by not seeking to reduce it to slavery. A just balance will here arise from the relations naturally established between men and not from the laws they may be tempted to enact.

II.192.84

—BIBLIOGRAPHY. A Tract against the High Rate of Usury, etc., by Sir Thomas Colepeper, London, 1623, 4to; Interest of Money Mistaken—or, a treatise proving that a fall in interest is the effect and not the cause of the wealth of nations, London, 1668, 4to—(this treatise was written against the work by Child, who had maintained the opposite opinion); Brief Observations concerning Trade and the Interest of Money, by Josiah Child, London, 1668, 4to; Usury Explained and Condemned by the Holy Scriptures and by Tradition, by Father Thorentier, Paris, 1673, 12mo; Treatise on the Practice among Merchants of dealing in Bills and Money Loans, by a doctor of theology, 1684; Treatise on Money Negotiations and Usury, by Father Thomassin, Paris, 1697, 8vo; Usury, Interest and the Profit derived from Loans, or the ancient doctrine opposed to the new opinions, by J. Arthur de la Gibonays, Paris, 1710, 12mo; Treatise on Commercial Loans, by a doctor of the theological faculty at Paris, 1736; Treatise on Commercial Loans, or on legitimate and illegitimate interest on money, by Abbé Étienne Mignot, Paris, 1738, 1759, 1767, 4 vols., 12mo; Dissertation on the Legitimacy of Interest on Money current in Trade, by J. B. Gastumean, Hague, 1750, 12mo; An Essay on the Governing Causes of the Rate of Interest, by Joseph Massie, London, 1750, 8vo; Discourse for and against the Reduction of Interest on Money, by Abbé J. P. de Gua de Malves, 1757, Dialogue between Bail and Pontas—a theological dissertation on usury; Theological dissertation on the Practice of Commercial Loans and on the three Contracts, against the author of the Dialogue between Bail and Pontas, with a critical examination of the Letter of a Merchant on Loans, by Pierre Lecoq. Rouen, 1767. 12mo; Recent Letters to a Friend on Usurious Commercial Loans, by Abbé de la Porte, Amsterdam and Paris, 1769, 12mo; Theological, Economical and Civil Principles in regard to Usury, by Abbé de la Porte, Paris. 1769-72, 4 vols., 12mo; Treatise on Usury, serving as a reply to a letter on this subject, published in 1770 under the name of Prost de Rayer, and to the anonymous treatise on the same subject, by Étienne Souchet, Cologne. 1769. Paris and Berlin, 1776, 12mo. Legitimacy of Legal Usury, in which its utility is proven, by J. Faiguet de Villeneuve, Amsterdam, 1770. 12mo; Remarks on the Treatise on Usury and Interest (by Abbé de La Forest. 1769). with on Analysis of the Reflections on Commercial Loans (1771), to serve as a supplement to the theological dissertation on usury, by Pierre Lecoq, Amsterdam. 1775. 12mo; Means of extirpating Usury, or a Project for the establishment of a Public Bank for loaning upon all kinds of Property, by a lawyer in the parliament (H. Prévost de Saint Lucien), 1776-8. 12mo—(the establishment of the mord de pieti was attributed to the effect produced by this book): The Theory of Interest on Money derived from principles of Natural Law. Theology and Politics, against the abuse of the imputation of Usury, by J. L. Gouttes, Paris, 1780, 12mo; The Defender of Usury Confounded, or a Refutation of the Theory of Interest on Money, by Abbé de la Porte (with a collection of the ordinances against usury, by Maultrot), Paris. 1782, 12mo: Observations on Interest Loans in Commerce, by the Abbé Prigent, Paris, 1783, 12mo; The Defender of Usury Confounded once more by the Author of Principles of Usury, a Refutation of the Theory of Interest on Money, by the Abbé de la Porte, Paris, 1786, 12mo: Usury Laws—or, an exposition of the impolicy of legal restraints on the terms of pecuniary bargains, by Jeremy Bentham, 1787; The new Patrons of Usury Refuted, including the last defender of Calrin on the same subject—a work dedicated to the states general, by the Abbé Rougane, Paris, 1789, 12 mo; Memoir on Loaning at Interest, by J. Turgot. 1789; Considerations on Loaning at Interest, by M. * * * (Baron Ambroise Render). Jurist, Paris, 1806, 8vo; Memoir honored with a Prize by the Academie du Gard, on this question: To determine the principle of Interest on Money, and its relation to Morals, by J. D. Meyer. Amsterdam, 1808, 8vo; Elucidation of Loans, Usury and Trade in Money, by Abbé Remi Pothier, Rheims, 1809; Considerations on the Rate of Interest, by E. B. Sugden, London, 1817, 8vo; Report by and Evidence taken before the Select Committee of the House of Commons on the Usury Law, London, 1818, folio; Dissertation on Commercial Loans, by Card. C. G. de la Luzerne, Dijon, 1823, 3 vols., 8vo; Dissertation on Contracts for Annuities, followed by some observations on two decisions on the matter of usury paid at Paris, by Cardinal Caprara, (Pagès, 1816), Lyons, 1823; Reflections on the Speech of the Chairman of the Commission for the Reduction of Interest, by P. Pelegrin, Paris, 1824, 8vo; On the Rate of Interest on Money, and its Reduction, by A. J. E. Baconnière-Salverte, Paris, 1824, 8vo; Explanation of a simple Means of reducing the Rate of Interest on the Public Funds in France, by André D. Laffon de Ladébat, Paris, 1825, 8vo; Dissertation on Loans at Interest—an explanation of the circumstances which justify taking interest, by Abbé E. Pagès, Paris and Lyons, 1826, 8vo; Treatise on Usury in Civil and Commercial Transactions, by F.-X. P. Garnier, Paris, 1826, 12mo; Usury Considered in its Relations to Political Economy, Public Morals and Legislation—or, the necessity of repealing the Law of Sept. 3, 1807, and modifying Art. 1907 of the Civil Code, by Ch. Lucas, Paris, 1829, 8mo, pamphlet; Discussion on Usury, where it is demonstrated that moderate usury is neither contrary to the Holy Scripture, nor to natural law, etc., by Abbé Mastrolini, (translated into French from the 4th Italian edition, by the Canon of Annecy, and supplemented by a collection of the decisions of the Holy See on usury), Lyons, 1834, 8vo; Investigations made by the English Parliament in 1838 and 1841 on the effects produced by the Laws in regard to Usury; Monts de Piété (pawnbrokers' shops) and Banks which loan on Pledges, by M. A. Blaise, Paris, 1843, 1 vol., 8vo; Observations on the Usury Laws, by J. B. Byle, Serjeant at Law, (London?) 1845; Gratuitous Credit—a discussion between Bastiat and Proudhon, Paris, 1850, 1 vol., 16mo; Obstacles to Credit—considerations submitted to the commission of the legislative assembly, who examine the proposition of M. de Saint-Priest on usury, by J. Beauvais, Merchant, Paris, 1850, 8vo, pamphlet; Manual for Debates on Usury, Crédit Foncier (i e., loans secured by mortgage of real estate), Finance, etc.—a summary of the labors of the greatest thinkers, applied to France by a system immediately practicable, by Albert Polonius, Paris, 1850, 1 vol., 8vo; The Question of Usury, by Saint-Priest; Report of the Commission appointed to examine the Proposition of M. Felix de Saint-Priest on the Crime of Usury, by M. Paillet. The Moniteur of those times contains the speeches of MM. Aubréy (of the Vosges), Sainte-Beuve, Lherbette and Léon Faucher; in favor of the proposition by MM. Paillet, Saint-Priest and Corsan. Other writers have treated the subject of usury incidentally, among whom may be named Plutarch, Against Borrowing for Interest; Saumaise, Four Treatises on Usury, in Latin; Dumoulin, On Usuries; Voodt, De Pœnore; Scaccia, Questions; Montesquieu, Spirit of Laws; D. Hume, Essay on the Interest of Money (1752); Pothier, Loans, Contracts of Sale; M. Frémery, Studies in Commercial Law; Thieriet, Dissertation on Loans at Interest. To the above should be added: Some Considerations of the Consequences of the Lowering of Interest and Raising the Value of Money, by John Locke, 18mo, London, 1692; An Essay on the Law of Usury, by Mark Ord, Hartford, 1809, 8vo; Interest made Equity, by J. R. M'Culloch, N. Y., 1826; A Summary of the History and Law of Usury, with an examination of the Policy of the existing System, by J. B. Kelly, 8vo, Philadelphia, 1853; The History of Usury from the Earliest Period to the Present Time, together with a brief statement of general principles concerning the conflict of laws in different states and countries, and an examination into the policy of Laws on Usury, and their effect upon Commerce, by J. B. C. Murray, Philadelphia, 1866, 8vo; Labor and Loans at Interest, by Ch. le Lièvre, Paris (?); Labor and Usury in Ancient Times, by Ch. le Lièvre; Loans at Interest, by L. F. Vignon; A Treatise on the Law of Usury, Pawns or Pledges, and Maritime Loans, by R. H. Tyler, Albany, 1873, 8vo; Free Trade in Money the Great and Principal Cause of Fraud, Poverty and Ruin: Stringent Usury Laws the best defense of the People against Hard Times, etc., by J. Whipple, Boston, 1878. 8vo, paper; Encyclopedia of Commerce, article Interest, by Smith Homans; Appleton's Encyclopœdia, Johnson's Encyclopœdia, Encyclopœdia Britannica, article Interest. See also Poole's Index to Periodical Literature, under Usury and Usury Laws; also Saml. Jones Loyd's Testimony on Banks of Issue before the Select Committee of the House of Commons in 1840, queries 2841 and 2842; J. S. Mill's Political Economy, book iii., chap. xxiii.; H. D. Macleod's Principles of Economics, vol. i., pp. 215-219; Science of Wealth, by Amasa Walker, book iv., chap. vi.; Roscher's Political Economy, book iii., chap. iv.; Usury Laws: their Nature, Expediency and Influence—opinions of Jeremy Bentham and John Calvin, with review of the existing situation and recent experience of the United States, by Richard H. Dana, Jr., David A. Wells, and others, (Econ. Tracts, No. IV., series of 1880-81, N. Y., Society for Political Education); Essay on the History and Legislation on Usury, by Liégeois, Paris, 1863; Interest on Money and Usury, by M. Sabrau, Paris, 1865; Freedom of Money—official investigation into the project of repealing the laws which prohibit usury, by M. Dulae, Paris, 1865; Usury and Finance in relation to the Law of 1807, by M. Gorse, Paris, 1865.

E. J. L., Tr
LÉON FAUCHER.


Notes for this chapter


28.
"Not that the laws of the convention ever meant to proclaim the principle of absolute liberty in the matter of interest. It would be an error to suppose this: they only intended to remove the prohibitions on payments in money." (Troplong.)

Footnote for INTERIOR

End of Notes


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