114 



FARMERS' REGISTER— ESSAY ON USURY LAWS. 



lender. None of" the parties interested, can be 

 called in to swear to the fact of sucli a bonus being 

 given: unless therefore some third disinterested 

 party was privy to the transaction, it remains unim- 

 peachable. In Russia, the usury laws are con- 

 stantly and successfully evaded. The rate fixed 

 by law is I believe five per cent.; "mtmy people" 

 says Jeremy Bentham "lend money, and no body 

 at that rate; the lowest ordinary rate upon the very 

 best real secmity is eight per cent., nine per cent, 

 and even ten, upon such sccm'ity are common. The 

 contract is renewed from year to year. For a thou- 

 sand roubles, the borrower in his written contract 

 obliges himself to pay at the end of the year, one 

 thousand and fifty. Rcfore witnesses he receives 

 his thousand roubles: and without [a witness] he 

 immediately pays back his thirty roubles or what- 

 ever the sum may be, tliat is necessary to bring 

 the real rate of mterest to the rate verbally agreed 

 on." 



In the state of Tirginia, the most common mode 

 of evading the usury laws, is by purchase of bonds. 

 The Court of Appeals have decided, that the pur- 

 chase of bonds at discount, does not come with- 

 in the pale of the law. Now suppose, A wishes 

 to borrow $ 1000 of B, but he Icnows B will not 

 lend at six per cent. He executes a bond, entirely 

 fictitious to C, which C immediately sells to B at 

 six per cent, discount; B pays C only .^940 wliich 

 is handed over to A, and B knows nothing, or at 

 least legally knows nothing, of tlie fictitious char- 

 acter of the bond, and consequently cannot be re- 

 sponsible under the usury laws. Another mode oi 

 evading those laws, is by drawing and redrawing 

 bills of exchange, and selling them at discount. 



But you may ask if these laws are so success- 

 fully evaded, why should a clamor be raised against 

 them, as they must be harmless on our own prin- 

 ciples. To this I answer, that many money hold- 

 ers are precluded by occupation and oilier circum- 

 stances, li-om being enabled to prai-tice these de- 

 vices; and again, public opinion al\\'ays brands 

 them with some degree of ignominy, which drives 

 a large portion of the scrupulous and conscientious 

 ii-om the business, and leaves it consequently in 

 the hands of those who, taking advantage of the 

 monoj)oly which they enjoy, exact a much higher 

 interest virtually, than if allowed to lend their 

 money directly, without being forced by the law 

 to practice a fraud. Thus, in England the method 

 of borrowing by selling annuities, always enhances 

 the interest; actually paid. "The laws against 

 usury" says Mr. Holland, partner of the house 

 of Baring, Brothers & Co. and one of the best 

 intbrmed merchants in the country, says Mr. 

 McCulloch, "drives men in distress, or in want of 

 money, to much more disastrous modes of raising 

 it, tlian they would adopt if no usuiylaws existed. 

 The land o\vner requires capital to increase his 

 live stock, or improve his lands, or for any other 

 ]:>urjwsc, at a period when the government is bor- 

 rowing money at above five per cent.; no one will 

 then lend to the land owner, because his money is 

 worth more to him than the law allows. The 

 land owner must therefore either give up his im- 

 provements, or borrow money on annuity interest, 

 on much more disadvantageous terms than he 

 would have done, if no law existed against usurj\" 

 Mr. Sugden on being asked by a conunittce of the 

 Ilouseoi'Commons, if whether there were no usury 

 laws, better terms could be obtained by the borrower 



than those wliich he gets by borrowing on an- 

 nuity interest, answered, "I am decidedly of opin- 

 ion, that bdter terms could have been obtained; 

 fbr there is a stigma which attaches to men who 

 lend money upon annuities, that drives all respect- 

 able men out of the market. Some leading men 

 did latterly embark in such transactions; but I 

 never knew a man of reputation in my own pro- 

 fiission (law) lend money in such a majiner, al- 

 though Ave have the best means of ascertaining 

 the safest security, and of obtaining the best 

 terms." Unfortunately, m our own state, public 

 opinion is decidedly opposed to the business of 

 purchasing bonds; and the consequence is, that 

 comi)aratively little capital is employed in this 

 manner, and the business being thus thrown inta 

 the hands of a Hew, gives them a monopoly of 

 tlie market and the power of dictating their own 

 terms, especially ii^ times of pressure and alarm. 

 The very best paper in New York has been dis- 

 counted durmg the present pressure, at two, and 

 two and a halt' per cent, per month; and such has 

 been the embarrassment in the money market, that 

 persons have borrowed, as has frequently been the 

 case m such times in London, tor twenty-four 

 hours only, at the enormous interest of one per 

 cent, per diAi. I have no hesitation then in de- 

 claring it as my honest conviction, that the usury 

 laws injure that very class in whose defence they 

 are enacted, and foster and pamper the veiy clas« 

 against whom they are intended to operate. The 

 unscrupulous heartless "shaver" is the man who 

 reaps the greatest advantage from their opera- 

 tion. He is in fact most interested in their con- 

 tinuance. 



Thus do we see that the usury laws in every 

 country will be either directly broken, or artfully 

 evaded. That in both cases, instead of lowering 

 mterest below the market rate, they actually raise 

 it much higher than it would reach Avithout those 

 laws, and thus injure the honest scrupulous money 

 lender en the one side, who is unwilling to violate 

 or even evade the laAvs of his countiy, while they 

 on the other hand, oppress the borrower by actu- 

 ally raising the interest of money for beyond the 

 point it would reach, Avithout the artificial risk 

 created by the law, and tJie stigma attached to all 

 those transactions, by pultlic opinion. 



Moral influence of the Usury Laws. 



Let us now contemplate these laws for a moment, 

 in relation to their influence on the moral condition 

 of society. All law should spring naturally from 

 the relations of society, and be of such a character 

 as to command the sympathy of the community 

 in favor of its execution, and not against it: all law 

 should be based on natural justice as far as possible, 

 and should be of such a character as will secure 

 the perfect obedience of the members of the body 

 politic. This wdl ensure always the reign of the 

 law which is the vitality of genuine republicanism. 

 Now what is the character of the usury laws'? 

 They are evidently an infringement of the rights 

 of a certain species of capitalists; they hold out the 

 greatest temptation to a violation of the laAvs; they 

 administer to the very worst passions of our nature, 

 avarice, ingratitude, revenge; they sacrifice the 

 honest niiui, and pamper and feed the dishonest 

 and uiiRcrujiulous. They engender liypocrisy, 

 cunning and false dealing on the one side, and 

 treachery and cUshoncsty on the other. They ai-e 



