FAR:>IERS' REGISTER— ESSAY ON USURY LAWS. 



ira 



never be remedied, whereas exorbitant interest ! bards, to even a greater extent than by the Jewsi 

 maybe gotten rid of, by boiTOwing at a cheaper | Henry VII. one of the most vigilant penetrating 



rate from other (juartcrs. Moreov'er, whether the 

 individuals borrowing are eventually ruined or 

 not, much Avili^ most undoubtedly, be done to re- 

 lieve the distress, by thus throwing the capital into 

 circulation. We have just seen how the circu- 

 lating medium is economised in times of general 



monarchs that ever sat on the British throne, en- 

 acted laws not only against interest, but against all 

 profits t)n bills of exchange; and the historian tells 

 us, that^vith all his \igilaiice and energj^ he could 

 not secure the execution of the law. In the reign 

 of Henry Till, ten per cent; mtereet was allowed, 



confulence and tiuicied security, by the subslitution i and corresponded nearly whh the market rate: "but 

 of credit for cash. Now in times of great pecu- | in the reign of his son, the prohibition was re- 

 niary pressure, ever}^ single portion ot" property i vived, and continued during the feign of the bi- 

 broijght into the market by the pressure, increases j gotted and persecuting IMarj-; and the effect was 

 the demand for a circulating medium, because a- rise of intere^ to 14 percent. Coming nearer 

 every such case is a new exchange of propert}- re- to our own times, we find that the rate of interest 

 quiring money to etiect it, wliich will be of course ' was fixed in France as early as 1665 at five per 

 prevented, ii money can be borrowed before tlie " ''~ ^"'''^ ''" ' '^ ^ :*r___, c *_ /• 



propert}^ is brought under the hammer. 



So far, I have beeai arguing against the usurj' 

 laws upon the ground ol' the evils which tlicy pro- 

 duce in case oT" tlieir efiicient operation. But I 

 believe all history has satisfactorily proved that 

 the usury laws will ever be broken or evaded, 

 in spite of the law, or the judge. If the marketa- 

 ble rate of interest i-ises beyond the legal, the 

 lender of money then labors under a strong temp- 

 tation to violate the law. Suppose tliat he does it 

 openly, what is the consequence? why, in the 

 first place, the risk which the law occasions be- 

 comes a new element in the calculation, and he 



cent. In 1766 the law reduced it from five to lour. 

 Instead however (says Storch) of reducing the 

 market rate firom five to four, it was raised to six, 

 an additional per cent, being required to cover the 

 risk of illegality; and this very wisely produced a 

 repeal of the measure. Again, m 17S6 the Em- 

 press Catherine reduced the legal rate of interest 

 ti-om six to five in Livonia. Hitherto, says Storch, 

 those who had good security- to offer vrere enabled 

 to borrow at six per cent, but henceforth they had 

 to pay seven per cent, and upwards. Man)" other 

 instances might be adduced, but it is not at all 

 necessary to cite a greater number, to prove what 

 ever}' man who is acquainted with the principles 



must exact higher interest to indemnity him against j of political economy must readily admit. 



it. In the second place, there is an. ignomiiiy in- 

 curred by violating the law of his country, and he 

 must charge on this account likewise, for no man 

 will incur ignominy and degradation without behio- 

 Avell paid ibr it. Tiiirdly — the hosicst conscientious 

 and scrupulous capitalists either withdraw their 

 capital altogether from the market, because of the 

 insutficiency ol' the legal rate of interest, or use it 

 themselves. This leaves the money market en- 

 tirely in the hands of the unscrupulous and un- 

 merciful moneylender, who in the absence of reg- 

 ular competition, is enabled to charge a much high- 

 er interest on his loans. For these three reasons 

 it is, that laws restraining the rate of interest 

 operate most oji])ressively on the needy borrower, 

 by actually raising interest instead of lowering 

 it. We have already seen to what an enormous 

 heiffht the usury laws raised interest in Rome. 

 Montesquieu says, mterest in the city Avas 34 per 

 cent., in the provinces 48 per cent. • Brutus lent 

 monej" at 45 per cent, in Cyprus. And we have 

 seen too to what a height interest has risen in all 

 Mahomedan countries, for the same reason, it he- 

 ing in those countries ten or twenty times higher 

 than in Europe, in consequence of the risk created 

 by the laws themselves. During the middle ages, 

 interest was generally prohibited altogether, or 

 much restricted: and wiiat was the result ? Whv. 



In ever}" country' where usur}" laws exist, so soon 

 as the market rate rises above the legal, besides 

 the direct and positive infrmgements of the law 

 which have just been considered, numerous de- 

 vices are had recourse to, for the purpose of defeat- 

 ing and evading its operation; and in spite of the 

 assertion of Lord Mansfield that, ''wheii tlie real 

 truth is a loan of rnoney, the wit of man cannot 

 find a shift to take it out of the statute," these 

 evasions do \ery frequcndy succeed in defeating 

 the law. The usury laws are certainly penal sta- 

 tutes, and according to a rule of interpretation ac- 

 knowledged by all jurists, ought to be constmed 

 strictl}".- In England, those laws have-been exe- 

 cuted with as much ligor as perhaps in any other 

 comitiy; and jet all the writers agree that the}' 

 are very frequently and succossluljy evaded. They 

 have given rise in that country to a species of 

 gambluig in annuhies of the most pernicious char- 

 acter. The following resolution appears in a very 

 able report made by a committee of the House of 

 Commons on the usury laws in 1818. "It is the 

 opinion of this committee that the la^vs regulating 

 or restraining the rate of interest have been ex- 

 tensively evaded, and have failed of tlte effect of 

 imposing a maximum on such rate: and that of 

 late vears, from the constant excess of the market 



' rate of interest above the legal, they have added 

 the Jews, who were the c;reat monev lenders of; to the expense incuiTcd by liorrowers on real se- 

 Europe, were in the habit of lending riiohev (savs j curity. and that such borrowers have been corn- 

 Chief Justice Hale) at 40 per cent., and sonietimes ; pelled to resort to the mode of granting annuities 

 as high as 50 or 100. In 1215 Edward I. under the j on lives, a mode which has been made a cover 

 imnuTse of the most misguided political Aiews and for obtaining a higher rate of interest than the 

 fanatical zeal, confiscated the pro]icrtvof the Jews rate limited by law, and has further subjected the 



in England, and banished them from the country. 

 Fifteen thousand were thus robbed and driven into 

 exile — and what says the historian of tlie result ? 

 AVhy, that lending and bon-o^Anng must take place 

 in everv countr}-, aiid that so soon as the Jew 



bon-owers to enormous charges, or forced Uiem to 

 make very disadvantageous sales of dicir estates." 

 The metliod resorted to m France for the purpose 

 of evading the usur}" laws, is simply to give a 

 bonus before comj^ieting the transaction, or wliich 



were driven away, the jiractice of usurA" was ex- | is the same thing, to fi-ame the obligation for a 

 ercised by the English themselves, and the Lorn- i larger sum than was actually advanced by the 

 Vol. II.— 12 



