FARMERS' REGISTER— ESSAY ON USURY LAWS. 



115 



Piiurcs unwisely laid by Uic legislature to under- 

 luine ;uul destroy tlie characters of both borrower 

 and lender, lie who violates or evades the usury 

 laws sutlers iu character, and he who pleads tliem 

 in bar ol' the payment of his debt, is pointed at 

 Avith the (in<^er of scorn. How unwise is the law 

 Avhich holds out a temptation to the borrower to 

 become inti)rnier and prosecutor lor the jienalties, 

 and thus to reap iniqidtous adv^antaye irom a 

 transaction to which he was a willing, and perhaps 

 a benefited party. Mr. Hay in 1817 in one of the 

 ablest and most ])liilosophical speeches ever deliver- 

 ed in the legislature of Virginia, justly saj's in re- 

 lation to our usury laws "nmch, sir, as we from 

 habit venerate tlie law in the abstract, its practical 

 operation has been always odious. Sir, I have 

 seen a borrower retire trom the supreme tribunal 

 with a decision iri his favor. The instinctive hor- 

 ror of the bj'-standers has opened a lane ibrhim 

 to pass as if they feared contamination from his 

 touch. These laws, are calculated to harden the 

 heart of man; they offer him ai:)remiura forun- 

 kindness." 



The disrepute into which the money lenders 

 have fallen in most countries, is owing chiefly to 

 the usury laws. Their rights have been violated by 

 the law, and tiiey have been almost forced to give 

 up their straight forward honest character, for one 

 of cunning and evasion. Repeal those laws, let the 

 capital of the scrupulous be brouglit into the mo- 

 ney market, and inymediately you will secure ame- 

 lioration of character in the money lender, and in- 

 terest will rather be lowered than raised. I am 

 not dealing in vain conjecture; we have facts to 

 prove our assertion; "The case of Holland" says 

 Mr. McCulloch, "ilirnishen a practical and striking 

 proof of the correctness of the theory; It is an 

 undoubted liict that the rate of interest has been 

 for a very long period, lower in Holland, than in 

 any other country in Europe, and yet Holland is 

 the only country where usury laws are altogether 

 unknown, where capitalists are allowed to demand, 

 and borrowers to pa}', any rate of interest. Not- 

 withstanding all the violent chmiges of the go- 

 vernment and tJte extraordinary derangement of 

 her financial concerns in the course of the last 

 twenty years, the rate of interest in Holland has 

 continued comparatively steady. During the Avhole 

 of that period, persons w'lio could offer unexcep- 

 tionable security, have been able to boiTow money 

 at from three to five and a half per cent.; nor has 

 the average rate of interest charged on catiital 

 advanced on the worst species of security, ever 

 exceeded six or seven per cent., except when the 

 government was negotiating a forced loan. But 

 in this countiy, Avhere the law declares that no 

 more than five per cent, shall be taken, the rate of 

 interest for capital advanced on the best landed 

 security has in the same period, varied from five to 

 1(3 or 17 per cent., or five times as much as in 

 Holland. Surely this ought to put to rest all 

 doubts as to the inefficacy of the usury laws." In 

 France the usury laws were abolished at the revo- 

 lution, and Storch saj's the abolition was attended 

 with no rise of interest. "In Hamburg, (sa^-s the 

 reportof the House of Commons above alluded to) 

 the rate of interest is quite unrestricted; or if there 

 be a Avrittcn law restraining it, it has become alto- 

 gether obsolete. The rate therefore varies according 

 to circumstances: occasionally it has been at seven, 

 eight and even ten per cent., mid in 1799, a period 



of great mercanlile embarrassment and insecurity, 

 it was as high as 14 per cent.: generally however, 

 the rate of discount on good bills does not exceed 

 lour or five per cent." 



In New York the rate of interest is seven per 

 cent., but I believe loans might easily have been 

 negotiated before the present money pressure, on 

 good security, for six per cent., and even less. In 

 South Carolina the legal rate is seven per cent., 

 but the marketable rate, says Dr. Cooper, is only 

 six. We- need never fear then that the rate of 

 Interest, wh.en lell free, will become exorbitant. 

 It is bound over by laws as certain and unerring in 

 their operation as those which govern the prices and 

 hires of any other species of property in the com- 

 munity. 



Compound Interest. 



Before leaving this branch of my subject, I will 

 say a fi^w words on the subject of compound interest, 

 or receiving interest on interest, as soon as it is due. 

 This kind of interest is universally condemned in all 

 countries: principally because of the rapidity with 

 which it accumulates, and the severity with which 

 it would operate on the debtor. Now I cannot possi- 

 bly see the justice of those* la'\vs against compound 

 interest, in all cases. I can well imagine that honest 

 persons may be engaged in law suits Avhich may 

 require years to carry them tlirough the labarjTi- 

 thic mazes of a chanceiy court, and in such cases, 

 1 am very willing to allow that compound interest 

 ought not to be granted: but in all cases where the 

 obligation is an acknowledged one by the debtor, 

 and he faOs to pay interest when due, I can see no 

 reason, and I believe ingenuity cannot point out 

 one, why the debtor should not pay interest on the 

 interest which was due; The law in this case, 

 violates the principle of a,ll good law — that no one 

 should be allowed to take advantage of his own 

 wrong. If the debtor, by fraud and stratagein, can 

 evade the payment of interest, he gains by it — 

 and the creditor is made to loose by his kindness 

 and indulgence. There is surely no principle of 

 justice which ca,n sanction the law against com- 

 pound interest. If the interest is paid up when 

 due, the creditor can lend it out again, and thus 

 make coinpound interest. If the debtor Avithhold 

 it, then it is nothing but justice that he should pay 

 interest on it, as it has certainly become principal. 

 Thus says Jeremy Bentham, "the cause of him 

 whose contention is to catch again, is preferred to 

 that of him whose contention is to avoid a loss; 

 contrary' to the reasonable and usetijl maxim of 

 that branch of the common law which has acquired 

 the name of equity. The gain which the law in 

 its tenderness thus bestows on the defciuher, is an 

 encouragement, a reward, which it holds out for 

 breach of fahh, for iniquity, for indolence, for negli- 

 gence." 

 III. Arguments used in favor of the Usury Laxos. 



I \vill now advert to some of the princiiile argu- 

 ments urged in favor of the usury laws, and as 

 their refutation is generally involved in the preced- 

 ing reasonmg, I sliall be very brief. One very 

 popular argument in favor of these laws is, that 

 they have either a tendency to check prodigality, by 

 preventing the prodigal from getting money at all, 

 or if he succeeds, they prevcnthis ruin by forbidding 

 high interest. In answer to this it has been justly 

 urged, that either the prodigal has property, or he 

 ha's none. If he has property he can gi\?e good 



