326 



THE POPULAR EDUCATOR. 



because such an insurance would put an end to the motives for 

 prudence. It would not be possible, except to a very limited 

 extent, to insure against theft or fraud, because it is everybody's 

 business to be on the alert, and watchful against those risks. 

 But it would be wholly impossible to insure against bad debts, 

 as this would be a premium on indolence and thoughtlessness, 

 .ft is plain, then, that risk is for the most part within a cal- 

 culable quantity, which may be avoided by sharing what an 

 individual cannot escape from, but an association may share 

 among themselves, or something which may be avoided by 

 prudence or discretion. In the former case, it is part of the 

 cost which must inevitably be incurred by those who undertake 

 any industry ; in the latter, it is part of the labour of manage- 

 ment, and is remunerated on just the same principles as those 

 which regulate the wages of management. In no case can it be 

 properly be said to be part of profits. 



The only remaining element, then, in what is popularly called 

 profit, is interest. Interest has been* defined to be the wages of 

 abstinence. The definition is metaphorical, but is not a little 

 suggestive. Under a system which brings borrowers and lenders 

 together, the former stipulate to replace that which the latter 

 advance, and with it some such sum as may be agreed on as a 

 compensation which the lormer pay the latter for not using 

 their own property themselves, but allowing others the use of 

 it. The amount of such compensation is determined by compe- 

 tition. We must assume that the loan will be repaid, or that 

 no reasonable doubt exists that it will be repaid. Then the 

 amount of interest will depend on the proportion which subsists 

 between the amount of property to be lent and the number or 

 demand of those who wish to borrow. When the amount to be 

 lent is great, the rate of interest will be low ; when the number 

 or demand of borrowers is great, the rate of interest is high. 



Now all this is so plain, that it seems almost superfluous to 

 state it. But plain as it is, it is only lately that it has been 

 made intelligible, and that the legislatures of civilised countries 

 have been willing to accept the conclusions derived from the 

 fact. For centuries the law strove to forbid the payment of 

 interest at all ; and when the law did permit it, it attempted to 

 fix the amount payable. 



We do not now need to be told that people take little pieces 

 of yellow and white metal, not because they want these objects, 

 but because they want something else, which these bits of metal 

 will more certainly procure than anything else. In other words, 

 money is not desirable for its own sake, but for the sake of that 

 which it will obtain. When, therefore, one man lends another 

 a sum of money, he lends him the power of purchasing other 

 objects, and, in effect, lends him other objects. Now there can 

 be no doubt that if a man lend another the land which he 

 cultivates, or the seed which he puts into the land, the lender 

 of these necessary instruments of husbandry would expect to be 

 compensated, because he foregoes that which he could have 

 used to his own advantage, and permits another to use it instead. 

 But for a very long time persons who were otherwise eminent 

 for their abilities argued, that as money does not grow it is 

 unjust to demand anything for its use. To take what Antonio, 

 representing the current opinion, calls "a breed of barren metal," 

 Tas thought to be rapacious and immoral, and the act was dis- 

 countenanced. 



Usury was forbidden by the Jewish lawgiver, at least between 

 Israelites. The ancient polity of the chosen people discouraged 

 the accumulation of excessive wealth by any individual or 

 family. The lots which were assigned to the settlers were 

 inalienable, except for a term of years. Pledges had to be 

 restored. The perpetual servitude of one Israelite to another 

 was disallowed. With the same object, foreign trade was for- 

 bidden. Humanly speaking, the object of the Jewish lawgiver 

 was to establish in Palestine a hardy race of yeomen proprietors, 

 whose institutions should be as unchanging as possible. The 

 civil regulations of this polity, and especially that which forbade 

 usury, were transferred to the codes of Christian communities. 



I have stated elsewhere that there is hardly a fallacy ever 

 broached on social subjects which does not possess a germ of 

 truth in it. In the present instance, the ordinance which made 

 usury iDegal, and forbade it, had for its object the maintenance 

 of a general equality in a peculiar society. In more modern 

 times, enactments forbidding us'iry, or limiting its rate, had 

 for their justification the undoubted rule, that it is the business 

 of civil government to protect the weak against the strong, and 



therefore to interpret such contracts as the law recognises and 

 enforces on equitable grounds ; and they assumed, what is much 

 more doubtful, that money was exactly that kind of object the 

 lender of which could drive a hard or unfair bargain with tho 

 borrower. Hence, as soon as the law began to enforce con- 

 tracts in which the payment of interest was stipulated, it pre- 

 scribed the maximum rate which the borrower should pay. 



There are some contracts which the law of civilised com' 

 munities will never enforce at all. There are some persons 

 whom civilised communities will either disable from making 

 contracts at all, or will allow to make contracts only under 

 certain conditions and certain precautions. And lastly, there 

 are certain circumstances under which the law will annul con- 

 tracts altogether, though under ordinary circumstances it would 

 have enforced them. Thus no civilised community will allow a 

 man to sell himself as a slave, nor will it give validity to the 

 contracts of children or incompetent persons ; nor, if we can 

 take an instance, now happily fictitious, of the last case, does it 

 seem likely that in case a town was besieged, and so cut off 

 from all external supplies, the law would allow a contract to be 

 enforced, by which a single person, whom I will suppose to be 

 the sole owner of food, stipulated that, in exchange for his 

 property, the besieged inhabitants should give him their whole 

 substance. It could be doubtlessly argued that the rights of 

 property are protected in the interests of society, and that to 

 enforce such a contract as I have described at such a crisis, is 

 to sacrifice society itself to one of its incidents. Now it is 

 impossible to conceive any set of circumstances under which 

 the possessor of money would be able to exercise as much con- 

 trol over lenders, as the sole owner of provisions in a besieged 

 town could over those who were resident within the town. 



The old usury laws, however, inflicted serious losses on those 

 whom they intended to protect. The rate of interest, as I have 

 said above, is determined by the proportion between tho power 

 of lenders and the demand of borrowers. Now there are times 

 in which a borrower will be content to pay, not only the ordinary 

 or average rate of interest, but to sacrifice a part or the whole 

 of his so-called business profit, in order to meet an emergency. 

 To legally deprive him of this power is to force him to evade the 

 law, and to transact business with others who are also willing to 

 evade the law. Under such circumstances he is sure to suffer two 

 losses : first, a roundabout way, or an evasion of some regular 

 process, is sure to be more costly than a regular transaction ; 

 and next, they who make it their business to break the law are 

 certain to exact some compensation for the offence which they 

 have committed, and for the disrepute which is certain to cling 

 to those who are known to commit suoh irregularities. For 

 these reasons, therefore, we have, though only a few years ago, 

 abandoned all attempts to fix a legal rate of interest, and have 

 merely retained a machinery by which every contract is liable 

 to an equitable interpretation. 



The usury laws led, it seems, to the adoption of a method by 

 which mercantile bills are discounted, instead of being mado 

 liable to interest. Here, however, it will be necessary to give a 

 short explanation of those bills. In doing so, we shall see how 

 it is that the rate of discount is liable to great fluctuations, 

 while the rate of interest hardly varies at all. 



A trader may, and frequently does, carry on his business 

 with nothing but his own capital, never borrowing, either from 

 other traders, or from bankers or money-dealers. But such a 

 kind of business is impossible in foreign trade, and is unusual 

 in home trade. A trader who stands in good repute in the 

 mercantile world can always increase his capital by his credit ; 

 and very few traders are possessed of so much capital, that 

 they are willing to forego that extension of their business which 

 credit will enable them to effect. Hence most traders will give 

 commercial bills, i.e., instruments under which they pledge 

 themselves to pay a given sum at a given date ; or obtain credit 

 from bankers, who act as a kinc 1 of go-between to lenders and 

 borrowers, receiving the deposits of the one, and making ad- 

 vances to the other. The possessor of this commercial bill may 

 keep it by him till it becomes due, or he may carry it to his 

 banker and discount it that is, sell it for something less than 

 the amount which the person who gives the bill stipulates to 

 pay at a given time. The rate of this discount depends partly 

 on the credit of the individual, but the only variation with 

 which we are concerned is that which arises from the state of 

 the money market. 



