USURY. 



767 



the parties, to adopt some uniform measure of in- 

 terest, but whether the parties should be prohibited 

 from stipulating for any rate of interest which they 

 may choose. In former ages, it was quite a com- 

 mon practice for legislatures to regulate the rate of 

 buying and selling many commodities, so as to re- 

 strain the ratio of profits within certain limits. 

 Such regulations would now be generally deemed 

 un philosophical and impolitic, as well as oppressive. 

 All that the law would now attempt to accomplish, 

 would be to prevent imposition, fraud and circum- 

 vention in such contracts. Why should not the 

 same principles apply to bargains about money ? 

 "Why should a man, dealing fairly and openly, be 

 prevented by the laws from making as high a profit 

 upon the sale or loan of money as upon the sale or 

 loan of merchandise ? 



The general grounds upon which legislation upon 

 the subject of the interest of money has been justi- 

 fied, as contradistinguished from other profitable 

 contracts, are, the prevention of excessive interest ; 

 the prevention of prodigality ; the protection of the 

 poor and needy against extortion ; the suppression 

 of rash enterprise, and the security of the weak 

 and credulous against imposition. Now, it will be 

 found, upon a careful examination, that some of 

 these grounds are quite unsatisfactory and delusive ; 

 and some of them are equally applicable to all other 

 contracts and bargains as well as to loans of money. 

 So far as the object of laws is to prevent oppression 

 and imposition, and undue advantage of the strong 

 over the weak and credulous, the principal should 

 apply to all contracts, not by regulating the terms 

 of every contract a priori, and settling what, under 

 all the circumstances, should be just and reason- 

 able, but by providing, by general principles of law, 

 that unconscionable and oppressive contracts, where 

 undue advantage is taken of the weakness, or cre- 

 dulity, or necessity, of the other party, shall be 

 either wholly set aside, or reduced to moderation, 

 upon a full trial of each particular cause, and an ex- 

 amination of all the facts, so as to make the deci- 

 sion just in itself, ex cequo et bono. There is 

 nothing in the nature of contracts for loans of 

 money which, in this respect, makes it either 

 necessary or proper to distinguish them from others. 

 Nor is it easy to see how prodigality would be en- 

 couraged by the facility of borrowing any more than 

 of buying. Interest will always bear a' steady pro- 

 portion to the means of repayment, and the punc- 

 tuality of the performance of the contract. If per- 

 sons are prodigal and extravagant, they will not be 

 less inclined to borrow because the laws have pro- 

 tected them against paying an undue interest ; 

 and if they do borrow under such circumstances, 

 they must either give an extravagant interest, in 

 order to indemnify the lender against the additional 

 risk from its illegality, or else they will borrow 

 upon the usual terms ; and in neither case does the 

 prohibition answer its purpose. 



The interest of money must ordinarily be regu- 

 lated in practice by the value of the use to the 

 borrower as well as the lender, by the general de- 

 mand for it, and by the hazard of repayment. If 

 the demand be small, and the security be good, the 

 interest will be low. If the demand be great, the 

 interest will be high, although the security be good. 

 And if the demand be great, and the security doubt- 

 ful, it is obvious that the price will be proportion- 

 ally enhanced, since it includes the risk of loss as 

 well as the value of the use. Now, it is certain 

 that these three ingredients admit of very various 



combinations, and that there are perpetual changes 

 going on in relation to each. Nothing is more un- 

 certain or variable than the demand for money, and 

 the facility of obtaining it. It depends upon a 

 thousand circumstances, political, commercial, and 

 even local. No man can foresee them; and no 

 legislation can suitably provide for them. The 

 very elements upon which to found a rule admit of 

 no arrangement and no certainty. Is it not, there- 

 fore, unwise, as well as unjust, to establish a general 

 rule to govern all cases, when the rule itself cannot 

 work the same way any two days in succession 

 throughout the year ? 



On the other hand, there are positive mischiefs 

 attendant upon all absolute regulations of this sub- 

 ject. In the first place, no laws can practically re- 

 duce the rate of interest below the lowest ordinary 

 market rate at the time when the money is wanted. 

 It will be borrowed, at all events, if there is a 

 necessity ; and in proportion as the demand grows 

 more urgent, there will be a corresponding disposi- 

 tion to evade and break down the restriction. 

 Thus a tendency is created to a habitual disobe- 

 dience to the laws a tendency which, in every 

 view, moral as well as political, is deeply to be de- 

 precated. In the next place, it operates greatly to 

 the discouragement of trade and commerce. No- 

 thing more favours the interests of commerce than 

 a general liberty to buy and sell without restraint 

 or obstruction. If the party can always obtain 

 money, while he possesses good credit, without any 

 restraint as to the interest he shall give for it, from 

 the rise or fall of markets, he will naturally be in- 

 duced to extend his business, and may extend it 

 with comparative security and advantage. But, it 

 he is obliged to calculate all possible chances of 

 relieving his necessities beforehand, with the know- 

 ledge that, if money rises in the market, he must 

 borrow upon disadvantageous terms, he will not 

 embark at all in enterprises which go beyond his 

 own present means ; or he will take the risk, and, 

 if the exigency arises, he must pay proportionally 

 higher, because the law gives no validity to the 

 contract. He must pay the lender for trusting to 

 his honour and honesty, and not to the authority 

 of the laws. In short, the moment it is admitted 

 (what can hardly be disputed) that commerce can- 

 not well subsist, to a great degree, in any country, 

 without mutual and extensive credits, it is obvious 

 that every measure that facilitates and gives security 

 to such credits must be beneficial. 



Another evil attendant upon restrictive laws is, 

 that, in any scarcity or extraordinary emergency, 

 they unavoidably enhance the market price of 

 money. They make the pressure heavier, and com- 

 pel the parties to heavier sacrifices. Many men 

 will not, in such times, lend their money at all 

 upon common interest ; and yet they have great 

 scruples about letting it upon any contract for 

 usury, lest they should lose both principal and in- 

 terest. Others, if they do lend without regard to 

 the laws, demand a higher and perhaps extravagant 

 compensation for the hazard which they run. And 

 conscientious borrowers, rather than incur the im- 

 putation of being violators of the laws, make other 

 sacrifices of their property, which sometimes are 

 ruinous, and generally are deeply injurious to their 

 estates. If, under such circumstances, they were 

 free to make their own bargains, they could borrow 

 at lower rates, and could give legal security. In 

 short, the prohibitory system, in many cases, aggra- 

 vates the very evils which it is intended to mitigate. 



