100 



FARMERS' REGISTER— ESSAY ON USURY LAWS, 



against the toss which he may sustain. Wiiat 

 then docs the risk depend on? Principally on 

 three things: — First — on the personal character 

 and credit of the borrower. Second — on tlie na- 

 ture of the eraploymcjit in whicli the borrowed 

 capital is to be invested — and Tiurdhj — on tlie 

 character of the government, and adniinistration 

 of justice. 



First. An individual about to lend, will certain- 

 ly lend to a man of we;alth in preference to one of 

 no wealth, when the rate otlered is the same; and 

 again, wl>en they are equal in point of wealth 

 and security, preference will be given to the man- 

 who is most punctual, who pays* most promptly 

 and most cheerfully. Hence it is easy to explain 

 why governmeitts are generally enabled to bor- 

 row at a lower rate than individuals: It is be- 

 cause their credit is better established and more 

 generally known, and because too, the govern- 

 metit stocks, in consequence of the known solvehcy 

 and credit of the nation, can readily be converted 

 into cash by sale in the market,- or niay Ix; made 

 to perform, to a considerable extent, the functions 

 of a circulating medium, by a ready translerence 

 from hand to hand, through the whole extent of 

 an empire: whereas the notes and bonds of indi- 

 viduals have a sluggish circulation only, and that 

 through very narrow districts or neighborhoods. 

 Hence government stocks, payiiig the marketable 

 rate of mterest, always sell beyond par, and 

 hence too, Ave frequently find the three ;md four 

 per cent, stocks selling higher in the market than 

 those yielding higher dividends, because tlie lat- 

 ter are liable to immediate liquidation, whereas 

 the former perhaps may be irredeemable 'tor many 

 years. When Venice, Genoa, and Pisa, were in 

 all their glory, with an extensive commerce pouring 

 the riches of the world into their ports, they were 

 enabled to borrow all the money they wanted at 

 an interest of ti-om five to ten per cent., while the 

 more powertul, but less wealthy and less punctual 

 governments of Spain, France, and ■■Gemianj', 

 were obliged to pay 30 and 40 per cent, interest, 

 for the sums which they borrowed. It is needless 

 to dwell longer on this point: every body knows 

 that ceteris paribus the man of wealth anil respon- 

 sibility can borrow money on better terras, than he 

 who has no credit nor wealth. 



Second. The risk depends upon the nature of 

 the investment to be made of the borrowed capi- 

 tal, in all cases where the lender depends upon the 

 success of the investment lor the repayment of 

 his money. Thus there has ahvavs been more 

 risk and hazard attendant on the .shipping trade 

 than ujjon other commercial operations^ hence 

 the interest of loans made on the credit of the 

 shipping trade has always been high, particular- 

 ly in ancient times, in consequence of greater 

 risk then attendant on navigation in its in- 

 fant and rude state. In Athens, we learn 

 that the interest of the money employed in the 

 trade with the countries on the'Euxine and Medi- 

 terranean seas, amounted to 30— (Say says 60) 

 per cent. — while money was generally lent -in 

 the city on good security for only 12 per cent. 



In Virginia, and I believe in most of the states, 

 there is no restriction, I sui)pose for the reasons 

 just stated, on the interest of money lent upon 

 the credit ol the shipping trade. Whftn a loan is 

 made to an agriculturist, and. the principal secured 

 by mortgage on the land, the rate of interest will 



always be near a minimum, in consequence of the 

 great security. "No carjitalist would lend" says . 

 SicCulloch "on the personal security of a gun 

 powder manufacturer, and. on mortgage o\'er a 

 valuable estate, at the s^ame rate of interest." The 

 capital of the Ibrmer may be dissipated in a 

 moment, and the ability to repay be entirely de- 

 stroyed, Avhereas no accident caii destroy the abil- 

 ity to rellind in the latter case. Extreme hazard 

 is known to atteijd the mining operations in South 

 America; niimy mines may be opened before one 

 profitable one may be discovered. The risk being 

 very great, the -rate of interest is likewise very 

 high_l20 and 30 per cent, being frequently paid foV 

 money employed.in those operations. The larger 

 portion of the interest in these cases, is in fiict a 

 sort of ])remium of -iilsurance, and- is to b.e con- 

 sddered by no means as a hardship on the bor- 

 rower; tor his profits rise with the risk of the in- 

 vestment, and enable him, in case of success in 

 the business, to pay the high rate of interest with 

 just as' much advantage' to himsellj as lower rates 

 ai'e paid by less hazardous trades. The risk nses 

 to a maximum when' a spendthrill bon'ows 

 money to pay his debts, without being able to give 

 any security. In that case,^ the only hope of a re- 

 turn is based. on the reform of the prodigal, and 

 the confidence in his talents, industiy, or trade. 

 Tlie risk in this case is so great, that few' can be 

 found to lend to such persons at any interest, ex- 

 cept warm inends or relations, andthcj^ are actu- 

 ated rather by the spirit of charity- and friendship, 

 than of gain, and consequently 'charge but mode- 

 rate interest. Ileufce the'- apparent anomaly 

 sometimes exhibited, of the reckless profligate bor- 

 rowing money at the ordinary marketable rate of 

 interest. •... ' ■'■' 



Third. The risk varies ^dth the character of 

 the government and the administration of justice 

 in tile body politic. Under a well regulated go- 

 vernment, Avhere capital is well protected, con- 

 tracts enforced, and every right secured to the 

 possessor, the risk, so far as it depends on the go- 

 vernment, is reduced to a minimum, becoming an 

 almost evanescent element in the calculation. 

 When the government, however, is bad, capital 

 insecure, and contracts not enforced, the risk rises 

 to a maximum, and predominates over every other 

 element in the calculation. Thus in Rome, the 

 constant quarrels between the Patricians and Ple- 

 beians, and tlie frequent reversions of debt and in- 

 terest, rendered loans exceedingly hazardous, and 

 the rate of interest rose, as a necessary and inev- 

 itable consequence, so high as to indemnify the 

 borrower against this extraordinary risk, flowing 

 ti-om the natui'-e of the government. Thus we 

 find the' virtuous .Brutus taking 45 per cent, on 

 money, and we are told that a frightful usury 

 sprung up through thfe Roman commonwealth, 

 the etlect of those very laws and clamors of the 

 people directed against it. In the middle ages, 

 property. was insecure, and governments bad, and 

 the risk consequently very high; hence the preva- 

 lence of an exorbitant fate of interest as a neces- 

 sary conspquence. Hallam tells us, on the state- 

 ment of Matthew Paris, that in the reign of. Henry . 

 Ill, of England, the debtor paid 10 percent, every 

 two months, or 60 per cent, per annum upon bor- 

 rowed capital; whereas in Italy, interest was com- 

 paratively low, because the' governments were 

 there belter, and conti'acts enforced. At Verona, 



