A Collection of Essays and Fugitiv Writings

This iz precisely the case in America. Our remittances to Europe and the East Indies require considerable sums in specie to be exported; and the merchant wil not import specie, except to facilitate the purchase of hiz cargoes in America. He will not import it for the purpose of loaning, because hiz stock in trade affords a better profit. The few landholders who hav a little cash abuv their annual expenditures, wil not loan it; for they can make twelv, fifteen, eighteen per cent. on their money by the purchase of certificates, and more on the purchase of lands. There are therefore no motivs, no inducements, for the welthy citizens to loan money, and consequently when a man iz distressed to make a payment, he iz compelled to sacrifice property to perhaps five times the valu of the det; because the law will not permit hiz nabor to take twelv or fifteen per cent. per ann. for the loan of money, a few months; when he haz the money, and would gladly releev hiz frend, if he could receev an adequate compensation.

Thus laws against usury drive cash from a country. They really and continually create a scarcity of an article, and then restrain men from raizing the price, in proportion to that scarcity. They create distresses of the poor, and at the same time, create an impossibility of releef. Were money left, like all kinds of commodities, to command its own price in market; whenever its price should rize abuv the usual cleer profit of other business, men would import specie, or turn their stock into cash, and loan it on good security; for no man would submit to the drudgery of business, if he could make money az fast by lying stil, with hiz money at interest. Had money been permitted to bear its own price according to the demand for it in America since the war, it would hav been kept in the country, or introduced til the rate of interest had fallen, even below the legal standard. Limit the profit on any article of life, and set the price so low that peeple can make more by deeling in other articles, and the articles so fixed wil become scarce and deer. Were the legislatures of the several states to say that our traders should make but one per cent. on salt, they would not bring cargoes of it to the country. It would be az scarce az money iz now. Let the price of wheet be fixed at half a dollar a bushel, and in two years we should not hav a bushel in market. It iz the same case with money. The low profits on the use of money, expel it from the country, and none can be obtained at the legal price. Let the interest rize to any sum which can be obtained, and in two years, it would be az eezy to borrow money at a low interest, az it iz now difficult to command it at any price. The laws of nature wil continue to opperate, in spite of the feeble opposition of human power.

Another consideration demands our notice. The laws against usury increase the distresses of the needy, by enhancing the risk, and consequently the insurance on loans.142 It iz fruitless to attempt to prevent loans of money. When men are pressed for money, they can always find persons to supply them, upon some terms. But az a loan of money at a higher rate of interest than iz allowed by law, exposes the lender to a loss of the money, and a fine or forfiture besides, hiz demand for the use of hiz money wil rize in proportion to that risk. This haz always been one of the most pernicious effects of such laws. So that the law, not only creates a scarcity in the first instance, but actually raizes the demand of interest much abuv the natural demand required by that scarcity. In short, insted of releeving the detter, it multiplies hiz distresses four fold.

Besides, such laws, like all national restrictions on trade, tend to make men dishonest, in particular things, and thus weeken the powers of the moral faculty. There are ten thousand ways of evading such laws, and slight evasions gradually produce a habit of violating law, and harden the mind against the feer of its penalties. Indeed, such laws tend to undermine that confidence which iz the basis of social intercourse. Laws which encourage informations, should be enacted with caution. Such are laws against usury. A man haz often the strongest temptation to be a treecherous rascal, by inducing hiz frend to loan him money, on illegal interest, and then betraying him. This species of villany waz lately carried so far in Massachusetts, az to induce the legislature to repeel a clauze of their law against usury. And a man of morality must shudder, while he reeds the legal prosecutions and adjudications in England upon their statutes of usury.

The absurdity of attempting to fix the valu of money iz another objection to it of no small consequence. The valu of it depends wholly on the quantity in circulation and the demand. In this respect it resembles all other articles of trade; and who ever thought of fixing the price of goods by law?143 It iz almost impossible for a legislature to ascertain exactly the valu of money at any one time; and utterly impossible to say that the valu when ascertained, shall continu the same for six months. Nay, two slates adjoining eech other may estimate the use of money very differently at the same period. In New York the legal interest iz seven per cent. in New England but six. A man may therefore do that legally in one state, which in the others would expoze him to a severe penalty.

In ancient Rome, the interest waz twelv per cent. The emperor Justinian reduced it to four, but allowed higher interest to be taken of merchants, on account of the risk. In Holland, when Grotius wrote, the common interest waz eight per cent.; but twelv to merchants. In England, the statute 37th, Henry VIII, confined interest to ten per cent. By the 21st James I, it waz reduced to eight; by the 12th Charles II, to six; and by 12th Ann, to five, the present legal interest in that country.144

Postlethwaite remarks very justly that theze laws hav not ascertained the real valu or interest of money; for when the legal interest haz been six per cent. the real interest haz sometimes been four; and when the legal interest haz been five, the real interest haz sometimes been seven. Indeed the interest of money depends on such a combination of circumstances, az the scarcity of money, the demand in market, and the hazard, that an attempt to find and fix a permanent rate, iz one of the most visionary schemes that a public body can undertake. To proov the impossibility of such a scheme, I would only mention the continual practice of violating laws against usury; which would not be the case, if the real valu of money had been ascertained and fixed.145 If legislatures had found the tru valu of the use of money, there would hav been fewer violations of their laws: If they hav, in any case, fixed a rate of interest lower than the real valu, they hav violated the rights of their subjects. This iz a serious consideration; and perhaps in no instance are the laws of England and America more strongly marked with the traces of ancient prejudice and barbarity, than in the prohibition which prevents a man from using hiz money az he pleezes, while he may demand any sum whatever for the use of hiz other property.

The only power, I conceev, a legislature haz to determin what interest shall arize on the use of money, or property, iz where the parties hav not determined it by agreement. Thus when a man haz taken up goods upon credit, or where, by any other legal meens, a man becomes possessed of anothers money or estate, without a specific stipulation for interest, the law very properly steps in and ascertains the sum which the detter shall pay for the use of that money. But to make a law that a man shall not take but six per cent. for the use of money, when the borrower iz willing to giv more, and the lender cannot part with hiz money at that rate of interest, iz a daring violation of private rights, an injury often to both parties, and productiv of innumerable embarrassments to commerce.

We are told that such laws are necessary to guard men from the oppression of the rich. What an error! Waz a monied man ever compelled to assist a distressed nabor, by the forfitures incurred by such laws? Iz not hiz money hiz own? Wil he lend it all, if it should not be for hiz benefit? Besides, cannot a man in necessity alienate hiz property for one fourth of its valu? Are not such bona fide contracts made every day to raize money to answer a temporary purpose? Nay, hav not the laws of all commercial states authorized sales by auction, where any man may part with hiz property for a fourth of its valu? Iz there any remedy in law against such a sacrifice of a man's estate? Wherein then consists the security of laws against usury? In the name of common sense and common equity, let legislators be consistent. If men are improvident, lazy and careless, a loss of property wil be their punishment, and no mezures of government wil prevent it.

To what then shall we ascribe the severe laws against high interest, which hav been and stil are existing in most commercial countries? I presume the cause may be easily assigned. The Jewish prohibition, not to take interest, except of strangers, first gave rise to douts in the minds of our pious christian forefathers, with respect to the legality of any interest at all. This produced, in the dark ages, severe ecclesiastical laws against taking any thing for the use of money; and theze laws originated a general prejudice against it, thro the Christian world.

In the twelfth and thirteenth centuries, commerce began to revive; but az there waz but little money, and trade waz lucrativ, because in few hands, money bore a very high interest. In some parts of Europe, the interest waz forty per cent. Even with this interest, certain Italian traders could make an annual profit, and therefore it waz for their benefit to giv it. It however rendered them very unpopular.146

The Jews, for their infidelity, had been considered by the Christians az outcasts on earth. Severe laws were enacted against them in almost every country; depriving them of the rights of citizens, and forbidding them to hold real estates. Proscribed and insulted, the poor Jews were compelled to turn their hand against every man in their own defence. They commenced strolling traders and bankers, and by theze meens commanded a large share of the money in every kingdom.

With this command of cash, the Jews very justly compensated themselves for the injuries they suffered from the tyrannical laws which existed against them. They loaned money at the highest rate of interest they could obtain. Hence the general karacter of the Jews, and the prejudice against them that survives to this enlightened period.

It iz very probable, that before the discovery of the American mines, money waz so scarce in Europe, that a few brokers in eech kingdom might engross such a share, az to hav it in their power to oppress peeple. This waz evidently the case in England, about the reign of Edward I, and the parliament thought proper to interfere and restrain the evil. Laws against usury were doutless necessary and useful at that time. But since the world haz been filled with gold and silver from South America, and nations hav opened an intercourse with eech other, there never can be a want of specie, where a country can supply produce enough to exchange for it. It haz become a mere fluid in the commercial world; and in order to obtain a supply, in a country abounding with produce and manufactures, the legislature haz nothing to do, but let it bear its own price; let it command its own valu, ether at interest, or in exchange for commodities.

Laws against usury therefore I consider az originating ether in the necessity of the times, which long ago ceesed, or in a bigotted prejudice against the Jews, which waz az barbarous formerly, az it iz now infamous. Laws restraining the interest of money I now consider, in the same light, az I do laws against freedom of conscience. And were it not for the force of habit, I should az soon expect to see a modern legislature ordering a pious sectary to the stake for hiz principles, az to see them gravely passing a law, to limit the profit on the use of hiz money. And unless the legislatures of this enlightened age should repeel such laws, and place money on a footing with other property, they will be considered az accessory to a direct violation of the deerest rights of men, and will be answerable for more frauds, perjuries, treechery and expensiv litigations, than proceed from any other single cause in society. I am so firmly persuaded of the truth of theze principles, that I venture to predict, the opinions of men will be changed in less than half a century, and posterity will wonder that their forefathers could think of maintaining a position so absurd and contradictory, az that men hav no right to make more than six per cent. on the loan of money, while they hav an indefeezable right to make unlimited profit on their money in any other manner. They will vew laws against usury in the same light that we do the inquisition in Spain, the execution of gypsies and witches in the last century, or thoze laws of England which make 100l. annual income necessary to qualify a man for killing a partridge, while they allow forty shillings only to qualify him for electing a knight of the shire.