110 



FARMERS' REGISTER— ESSAY ON USURV LAWS. 



sue much less than they would when making only 

 five per cent.; there would be less tendency to spe- 

 culation, which over issues always produce; and 

 consequently, not such distressing draughts upon 

 the great eastern states, always Ibllovved by dread- 

 ful reaction on the west. 



The last argument which I shall mention in fa- 

 vor of making bank interest conform to the mar- 

 ketable, is, that whenever bank interest is very 

 low, a bank lever is instantly generated in the 

 country. Every section, every little village, im- 

 mediately comes forward for a bank; all are eager 

 for the boon. When vv^as the banking mania 

 greatest in England? Precisely at the time when 

 the bank interest was farthest below market inte- 

 rest — from 1795 to the termination of the continen- 

 tal wars. Market interest was, during the time, 

 rano-ing from five to fi'leen per cent., while bank 

 interest' was only five. Look to our own country, 

 and vou Avill find that whenever bank interest gets 

 below the market, an instantaneous bank fever is 

 the consequence. At this moment, bank interest 

 is too low every where; and every where do we 

 hear of new incorporations, and numberless ap- 

 plications for banks — and this produces art almost 

 irresistible tendency to a mere paper system. I 

 hope then I have shown the policy of making 

 bank interest conform to the marketable rate in 

 every quarter where banks are established. With 

 regard to the Bank of the United States, a ques- 

 tioTi perhaps might arise, as to the propriety of in- 

 demnifying the western states, where the interest 

 would be highest; but this is not a question for me' 

 to discuss. 



Effect of the Usury Laws during money pressures. 



I will now proceed to examine into the peculiar 

 operation of the usury laws in those seasons of 

 distrust and commercial embarrassment, when 

 there is great pressure in the money market. My 

 limits at present will not allow me to enter fully 

 into this subject, and point out in detail the causes 

 which produce these pressures: I can therefore 

 give but a hasty and imperfect sketch of the gene- 

 ral causes, and point out the pernicious influence 

 of the usury laws. In almost every country, par- 

 ticularly a highly commercial one, circumstances 

 are constantly occurring to give an impulse to 

 prices, either upwards or downwards; and accord- 

 ingly as they are moving in the one direction, or 

 the other, so will the spirit of speculation be fos- 

 tered, or checked. When prices are rising, all are 

 on the alert: the energies of man are drawn forth, 

 his hopes which ever have an undue influence, 

 are thrown into full play, and the imagination 

 spreads the most enchanting schemes and projects 

 before him; he is disposed to rush into business, 

 or to get possession of property, whose enhance- 

 ment in value from the rising tide of general pros- 

 perity is alone expected to make him wealth}'-. In 

 such a condition of things, the credit system will 

 be pushed to the extreme limits. The borro-\j'er 

 wants money to purchase, or enter into business 

 with, and as property and business are improving, 

 the lender is not so scrupulous about security. 

 He lends upon moderate security because he be- 

 lieves the improvement of prices will soon render 

 it very ample. Buying and selling too under those 

 circumstances will generally be on credit as ex- 

 tended as possible. By and by, prices attain their 

 maximum — there is a pause for a i'ew weeks be- 



fore the decline commences; then follows a state 

 of things precisely the reverse of what I have 

 just described. Every body wishes to sell, to avert 

 the ruin which will arise from a farther fiill of 

 prices — few are disposed to buy — the reaction, 

 after the great extension of credit, must of course 

 ruin the most adventurous. In this time of uncer- 

 tainty and alarm, the money lender shrinks from 

 the riiarket; what was good security a short time 

 previous is not so now; hence he is disposed to 

 withhold his money from the market. Purchases 

 and sales become now a cash business, for the uni- 

 versal destruction of confidence puts an end at 

 once to the credit system. This increases the em- 

 barrassments of the nation still farther, and pre- 

 vents that wholesome and rapid circulation of cap- 

 ital from place to place-, and hand to hand, so 

 essential to the prosperity of eveiy country. 

 Now let us ask, what are the chief causes of the 

 advance or decline of prices and the consequent 

 stimulus to speculation on the one hand, or ruinous 

 stagnation of trade on the other? A deficiency at 

 one time in all the necessaries of life, would of 

 course give this upward impulse to prices; but such 

 a general deficiency does not often occur. A par- 

 tial deficiency will ha\e the same tendency, 

 though not to the same extent. "Thus (says 

 Mr. Tooke) a scarcity of agricultural produce, 

 which would, under a fixed amount of currency, 

 advance the monej' prices in a ratio more or less 

 beyond the mere proportion of deficiency, is the 

 occasion of an actual increase in the amount of 

 the circulating medium, which increase is again, 

 while progressive, the occasion of accelerating 

 the rate and extending the range in the rise of 

 prices." A deficiency of cotton, wool and sugar, 

 would produce, thoucrh not perhaps to the same 

 extent, the same spirit of speculation and enhance- 

 ment of prices. We have all heard of the great 

 but ruinous speculations in sugar at the commence- 

 ment of the last war, when the West India 

 supply was expected to fail. Another cause for 

 the extension of credit and the generation of the 

 spirit of speculation is the opening of new markets, 

 or the extension of old ones. The hopes of man 

 in this case are sure to have an undue influence 

 on him. The merchant and manufacturer rush 

 with tfieir capital to supply this new demand, and 

 they are sure in the end to find that they have 

 overrated it, and a re-vulsion soon takes place 

 with aU the evils consequent on declining prices. 

 We have all become acquainted with the immense 

 influence exercised on prices in this country by the 

 conlinental wars of Napoleon, and the awfiil re- 

 vulsion consequent on a return to a state of peace. 

 The unwise interference of government with la- 

 bor and capital as I have shown elsewhere* has? 

 a tendency to produce a singular effect. Govern- 

 ment for example determines to foster and protect 

 certain manufactures. This very circumstance in- 

 stantly entices into the business a large portion of 

 labor and capital, for the purpose of realizing the 

 high profits which increased prices are to yield. 

 This ])roduces an over-supply of manufactures, 

 and a speedy reaction, with ruinous decline of 

 prices. This was witnessed in New England im- 

 mediately after the tariff^ of 1828, where it was 

 supposed at least ^25,000,000 worth of capital was 



* Lectures on Restrictive System, 



