108 



FARMERS' REGISTER— ESSAY ON USURY LAWS. 



mind seizes with the lightning's rapidity on the 

 important and essential points ol' his subjact, con- 

 necting tliem. together by such a chaiii oi' close 

 and logicar reasoning, as almost to prcscntj4:6 the 

 mind, the lull rigor ot" mathematical demonstra- 

 tion. Mr. Calhoun in the senate of the United 

 States, while speaking on JMr. Webster's bill to 

 prolong the charter of the United JjiLates Bank, 

 says, " among others (limitations to be prescidbed) 

 I entirely concur in the suggestion of the gentle- 

 man from Georgia' (Mr. J^'orsyth) of fixing the 

 rate of interest at five per cent.; a. suggestion -oi' 

 the very highest importance, as having a most' 

 important bearing on...the value of property and 

 the prosperity of the country, in every '-branch of 

 its industry."- I wish very nmch Mr. C. had 

 given his .reasons ia exfenso, lor such a regu- 

 lation. I know lidl well, they would have been 

 the very best which could have been urged: "with- 

 out such aid, however, I cannot conjecture any 

 good -and substantial, argument in favor of the re- 

 duction of bank interest, so- far below the marketa- 

 ble rate in every portion of the vinion. .JNIany of 

 the earlier writers on political economy were in 

 favor of a low legal rate of interest upon the sup- 

 position that the marketable rate might be regu- 

 lated by loans at the banks. This is well tnown 

 to proceed on the fallacious idea, that interest de- 

 pends on the quantity of money, and not on the 

 quantity of capital. If tlie. banks lor the purpose 

 of lowering interest should make exorbitant issues, 

 they immediately flood the country with paper, 

 and a consequent depreciation must check the 

 over-issue, by producing dralls on the banks for 

 specie, or if sj)ecie payment should be suspended, 

 then the paper monej^ would depreciate in propor- 

 tion, and even much more than in proportion to 

 the over-issue, so that you 'can never by the issue 

 of notes increase the aggregate value of the whole 

 circulathig medium. If the whole United States 

 require a circulating medium of $: 100,000,000 to 

 perform the functions of circulation, and you in- 

 (;rease it by the issue of an inc6n\'ertible paper 

 money (and remember this is the only Avay in 

 which you can increase it) to ■$l200,000j000, you 

 will just make two dollars after the issue, to be 

 worth what one Avas before, and of course 

 200,000,000 AviU be worth no more than the 

 100,000,000. Property it is true, of every de- 

 Kcrij^tion will rise in price, but it will be- a merely 

 nominal v'ls'i, dependent entirely on the deprecia- 

 tion of the currency. Even then, if interest de- 

 pended on the amount of circulating medium, 

 banks could hot lower it, for the very plain reason, 

 that the issues ol' banks cannot possibly increase 

 tlie aggi-cgatc value of the whole circulating me- 

 dium. 



But you may say if bank interest is reduced to 

 five per cent, banks will never lend, except- on the 

 very best security, and they may accommodate 

 with safety all who can furnish such security. To 

 this I answer, that there is no fact better ascer- 

 tained in the operation of banking, than that of a 

 possibility of over-issue even upon th-e best secu- 

 rity. The moment you bring bank interest below 

 the marketable Tate of interest, every individual in 

 jeach of a bank -will go to it for accomraod-ati'on 

 • rather than to individuals, for the simple reason 

 that he obtains the loan on cheaper terms. Un- 

 der these circumstances, every body would be dis- 

 posed to borrow of the nank, and pledge his pro- 



perty for repayment. The entire property of the 

 country stands ready to mortgage itself to the 

 banks tlie moment their rate of inrerest liills much 

 below thq marketable rate. Mr. Ricardo says if 

 the bank mierest in England falls below the mar- 

 ketable rate, the bank is immediately besieged by 

 a host of customers applying lor discounts, and 

 the clerks are- all kept in the most constant and ac-- 

 tive emiddyment. This is well known to have 

 been particularly the case during the continental 

 wars in Europe, when the immense loans con- 

 tracted by government, together with a train of 

 concomitant events, partly accidental, and partly 

 growing out of the war, raised the market far 

 above the bank interesi. On the contrary, when 

 the bank rises above the market interest, the banks 

 have little to do, the clerks are idle, lor money is 

 borrowed from individuals where it can be gotten 

 cheaper than from the banks. To show the im- 

 propriety of. this great restritvtion on interest upon 

 loans of the bank' of the United States, let us take, 

 for illustration, the state of Illinois. Parties con- 

 tracting may agree for interest in this state as high 

 as 12^ per cent., and this is about the marketable 

 rate. You establish here, as we will suppose, a 

 branch bank of the United States, to lend money 

 at 5 per cent: is ilr not evident that every borrower 

 will gain 7^-.per cent, by going to the bank? And 

 consequently everyone will give it preference over 

 individuals, and the whole property of the com- 

 munity wovdd be readily mortgaged for repayment; 

 If then the bank pevsisted in fending in ev^ery case, 

 the whole state would be inund-ated with paper; for 

 there is no amount of money which the bank 

 might not lend out. The bank then would be 

 obliged to stop its issues long before all the com- 

 munity was nccommodated: those wh& could not 

 borrow from this source then, would go to indrvid- 

 uals,_anl pay. 12^ per cent, for loans. Now I 

 would ask- if, upon any principle of justice or poli- 

 cy, any great monied institution ought to be re- 

 quired to furnish a lew individuals in society with 

 money at 5 per cent., while all other borrowers 

 are obliged to pay 12^? Do you not by such a 

 measure as this require of the bank to make a 

 donation of 7^- per cent', in the capital boiTow-ed by 

 each individual? Butj say you, the bank by lend- 

 ing more than a sum equal to the reserve in tlie 

 vaults, may make its fair profits even at an inte- 

 rest of 5 per" cent. Grant it; a,nd what follows? 

 Why that this is an argumeht for charginga bonus 

 which ought to be equal to the advantage which 

 accrues- from the monopoly of banking. If each 

 of the branches of the United States bank, Avere 

 allowed to charge an interest proportioned to the 

 market rate in each state, wherQ located, the go- 

 vernment might demand a bonus far bej'ond that 

 which has been contracted for in the present char- 

 ter, and justly demand it, foi' the whole community 

 are -entitled to indemnification lor advantages 

 yielded in the case of monopdi^s. . 



There are other considerations Avhicli would in- 

 duce me to decide against the limitation proposed 

 by Messrs. Calhoun and Forsyth. . Our great ob- 

 jection to all national banks is that the power may 

 become so great as to endanger the libertios' of 

 the country. Reduce the rate -of interest to five 

 per cent, and the power of the United. Si ates Bank 

 will be greatly increased; I have shown the alter 

 impossibility of such p, bank lending all the capi- 

 tal which is. demanded; even on the best security. 



