Henry Carey’s Speech on the Rates of Interest.
In the Pennsylvania Constitutional Convention, 1873.
In the Constitutional Convention, in Committee of the Whole on the article reported from the Committee on Agriculture, Mining, Manufactures, and Commerce, the first section being as follows:—“In the absence of special contracts the legal rate of interest and discount shall be seven per centum per annum, but special contracts for higher or lower rates shall be lawful. All national and other banks of issue shall be restricted to the rate of seven per centum per annum.” Mr. H. C. Carey made an address in favor of striking out the section. The following is an abstract of his remarks:—
Precisely a century and a half since, in 1723, the General Assembly of Pennsylvania reduced the legal charge for the use of money from eight to six per cent. per annum. This was a great step in the direction of civilization, proving, as it did, that the labor of the present was obtaining increased power over accumulations of the past, the laborer approaching toward equality with the capitalist. At that point it has since remained, with, however, some change in the penalties which had been then prescribed for violations of the law.
Throughout the recent war the financial policy of the National Government so greatly favored the money-borrower and the laborer as to have afforded reason for believing that the actual rate of interest was about to fall permanently below the legal one, with the effect of speedily causing usury laws to fall into entire disuse. Since its close, however, under a mistaken idea that such was the real road to resumption, all the Treasury operation of favoring the money-lender; the result exhibiting itself in the facts that combinations are being everywhere formed for raising the price of money; that the long loans of the past are being daily more and more superseded by the call loans of the present; that manufacturer and merchant are more and more fleeced by Shylocks who would gladly take “the pound of flesh nearest the heart” from all over whom they are enabled to obtain control.
Anxious for the perpetuation of this unhappy state of things, these latter now invite their victims to give their aid towards leveling the barriers by which they themselves are even yet to a considerable extent protected, assuring them that further grant of power will be followed by greater moderation in its exercise. Misled thereby, money borrowers, traders, and manufacturers are seen uniting, year after year with their common enemy in the effort at obtaining a repeal of the laws in regard to money, under which the State has so greatly prospered. Happily our working men, farmers, mechanics, and laborers fail to see that advantage is likely to accrue to them from a change whose obvious tendency is that of increasing the power of the few who have money to lend over the many who need to borrow; and hence it is that their Representatives at Harrisburg have so steadily closed their ears against the siren song by which it is sought to lead their constituents to give their aid to the work of their own destruction.
Under these circumstances is it that we are now asked to give place in the organic law to a provision by means of which this deplorable system is to be made permanent, the Legislature being thereby prohibited, be the necessity what it may, from placing any restraint upon the few who now control the supply of the most important of all the machinery of commerce, as against the many whose existence, and that of their wives and children, is dependent upon the obtaining the use thereof on such terms as shall not from year to year cause them to become more and more mere tools in the hands of the already rich. This being the first time in the world’s history that any such idea has been suggested, it may be well, before determining on its adoption, to study what has been elsewhere done in this direction, and what has been the result.
Mr. Carey then proceeded to quote at great length from recent and able writers the results that had followed in England from the adoption of the proposition now before the convention. These may be summed up as the charging of enormous rates of interest, the London joint stock banks making dividends among their stockholders to the extent of twenty, thirty, and almost forty per cent., the whole of which has ultimately to be taken from the wages of labor employed in manufactures, or in agriculture. At no time, said Mr. Carey, in Britain’s history, have pauperism and usury traveled so closely hand in hand together; the rich growing rich to an extent that, till now, would have been regarded as fabulous, and the wretchedness of the poor having grown in like proportion.
After discussing the effects of the repeal of the usury laws in some of the American States, Mr. Carey continued:—
“We may be told, however, that at times money is abundant, and that even so late as last summer it was difficult to obtain legal interest. Such certainly was the case with those who desired to put it out on call; but at that very moment those who needed to obtain the use of money for long periods were being taxed, even on securities of unexceptionable character, at double, or more than double, the legal rates. The whole tendency of the existing system is in the direction of annihilating the disposition for making those permanent loans of money by means of which the people of other countries are enabled to carry into effect operations tending to secure to themselves control of the world’s commerce. Under that system there is, and there can be, none of that stability in the price of money required for carrying out such operations.
Leaving out of view the recent great combination for the maintenance and perpetuation of slavery, there has been none so powerful, none so dangerous as that which now exists among those who, having obtained a complete control of the money power, are laboring to obtain legal recognition of the right of capital to perfect freedom as regards all the measures to which it may be pleased to resort for the purpose of obtaining more perfect control over labor. Already several of the States have to some extent yielded to the pressure that has been brought to bear upon them. Chief among these is Massachusetts, the usury laws having there been totally repealed, and with the effect, says a distinguished citizen of that State, that “all the savings institutions of the city at once raised the rate from six to seven per cent.; those out of the city to seven and a half and eight per cent. and there was no rate too high for the greedy. The consequence,” as he continues, “has been disastrous to industrial pursuits. Of farming towns in my county, more than one quarter have diminished in population.” Rates per day have now to a great extent, as I am assured, superseded the old rates per month or year; two cents per day, or $7.30 per annum, having become the charge for securities of the highest order. What, under such circumstances, must be the rate for paper of those who, sound and solvent as they may be, cannot furnish such security, may readily be imagined. Let the monopoly system be maintained and the rate, even at its headquarters, New England, will attain a far higher point than any that has yet been reached; this, too, in despite of the fact that her people had so promptly secured to themselves a third of the whole circulation allowed to the 40,000,000 of the population of the Union scattered throughout almost a continent. How greatly they value the power that has been thus obtained is proved by the fact that to every effort at inducing them to surrender, for advantage of the West or South, any portion thereof, has met with resistance so determined that nothing has been yet accomplished.
Abandonment of our present policy is strongly urged upon us for the reason that mortgages bear in New York a higher rate of interest. A Pennsylvanian in any of the northern counties has, as we are told, but to cross the line to obtain the best security at seven per cent. Why, however, is it that his neighbors find themselves compelled to go abroad when desirous of obtaining money on such security? The answer to this question is found in the fact that the taxation of mortgages is there so great as to absorb from half to two-thirds of the interest promised to be paid.
Again, we are told that Ohio legalizes “special contracts” up to eight per cent. and, that if we would prevent the efflux of capital we must follow in the same direction. Is there, however, in the exhibit now made by that State, anything to warrant us in so doing? Like Pennsylvania, she has abundant coal and ore. She has two large cities, the one fronting on the Ohio, and the other on the lakes, giving her more natural facilities for maintaining commerce than are possessed by Pennsylvania; and yet, while the addition to her population in the last decade was but 306,000, that of Pennsylvania was 615,000. In that time she added 900 to her railroad mileage, Pennsylvania meantime adding 2,500. While her capital engaged in manufactures rose from 57 to 141 millions, that of Pennsylvania grew from 109 to 406, the mere increase of the one being more than fifty per cent. in excess of the total of the other. May we find in these figures any evidence that capital has been attracted to Ohio by a higher rate of interest, or repelled from our State by a lower one? Assuredly not!
What in this direction is proposed to be done among ourselves is shown in the section now presented for our consideration. By it the legal rate in the absence of “special contracts” is to be raised to seven per cent., such “contracts,” however ruinous in their character, and whatsoever the nature of the security, are to be legalized; the only exception to these sweeping changes being that national banks, issuing circulating notes are to be limited to seven per cent. Shylock asked only “the due and forfeit of his bond.” Let this section be adopted, let him then present himself in any of our courts, can its judge do other than decide that “the law allows it and the court awards it,” monstrous as may have been the usury, and discreditable as may have been the arts by means of which the unfortunate debtor may have been entrapped? Assuredly not. Shylock, happily, was outwitted, the bond having made no provision for taking even “one jot of blood.” Here, the unfortunate debtor, forced by his flinty-hearted creditor into a “special contract” utterly ruinous, may, in view of the destruction of all hope for the future of his wife and children, shed almost tears of blood, but they will be of no avail; yet do we claim to live under a system whose foundation-stone exhibits itself in the great precept from which we learn that duty requires of us to do to others as we would that others should do unto ourselves.
By the English law the little landowner, the mechanic who owns the house in which he lives, is protected against his wealthy mortgagee. Here, on the contrary, the farmer, suffering under the effects of blight or drought, and thus deprived of power to meet with punctuality the demands of his mortgagee, is to have no protection whatsoever. So, too, with the poor mechanic suffering temporarily by reason of accidental incapacity for work, and, with the sheriff full in view before him, compelled to enter into a “special contract” doubling if not trebling, the previous rate of interest. Infamous as may be its extortion the court may not deny the aid required for its enforcement.
The amount now loaned on mortgage security in this State at six per cent. is certainly not less than $400,000,000, and probably extends to $500,000,000, a large portion of which is liable to be called for at any moment. Let this section be adopted and we shall almost at once witness a combined movement among mortgagees for raising the rate of interest. Notices demanding payment will fly thick as hail throughout the State, every holder of such security knowing well that the greater the alarm that can be produced and the more utter the impossibility of obtaining other moneys the larger may be made the future rate of interest. The unfortunate mortgagor must then accept the terms, hard as they may be, dictated to him, be they 8, 10, 12, or 20 per cent. Such, as I am assured has been the course of things in Connecticut, where distress the most severe has been produced by a recent abandonment by the State of the policy under which it has in the past so greatly prospered. At this moment her savings’ banks are engaged in compelling mortgagers to accept eight per cent. as the present rate. How long it will be before they will carry it up to ten or twelve, or what will be the effect, remains to be seen. Already among ourselves the effects of the sad blunders of our great financiers exhibit themselves in the very unpleasant fact that sheriffs’ sales are six times more numerous than they were in the period from 1861 to 1867, when the country was so severely suffering under the waste of property, labor, and life, which had but then occurred. Let this section be adopted, giving perfect freedom to the Shylocks of the day, and the next half dozen years will witness the transfer, under the sheriff’s hammer, of the larger portion of the real property of both the city and the State. Of all the devices yet invented for the subjugation of labor by capital, there is none that can claim to be entitled to take precedence of that which has been now proposed for our consideration.
Rightly styled the Keystone of the Union, one duty yet remains to her to be performed, to wit: that of bringing about equality in the distribution of power over that machinery for whose use men pay interest, which is known as money. New England, being rich and having her people concentrated within very narrow limits, has been allowed to absorb a portion of that power fully equal to her needs, while this State, richer still, has been so “cabined, cribbed, confined,” that her mine and furnace operators find it difficult to obtain that circulating medium by whose aid alone can they distribute among their workmen their shares of the things produced.—New York, already rich, has been allowed to absorb a fourth of the permitted circulation, to the almost entire exclusion of the States south of Pennsylvania and west of the Mississippi; and hence it is that her people are enabled to levy upon those of all these latter such enormous taxes. To the work of correcting this enormous evil Pennsylvania should now address herself. Instead of following in the wake of New Jersey and Connecticut, thereby giving to the monopoly an increase of strength, let her place herself side by side with the suffering States of the West, the South, and the Southwest, demanding that what has been made free to New York and New England shall be made equally free to her and them. Let her do this, and the remedy will be secured, with such increase in the general power for developing the wonderful resources of the Union as will speedily make of it an iron and cloth exporting State, with such power for retaining and controlling the precious metals as will place it on a surer footing in that respect than any of the powers of the Eastern world. The more rapid the societary circulation, and the greater the facility of making exchanges from hand to hand, and from place to place, the greater is the tendency toward reduction in the rate of interest, toward equality in the condition of laborer and employer, and toward growth and power to command the services of all the metals, gold and silver included.
It will be said, however, that adoption of such measures as have been indicated would tend to produce a general rise of prices; or, in the words of our self-styled economists, would cause “inflation.” The vulgar error here involved was examined some thirty years since by an eminent British economist, and with a thoroughness never before exhibited in reference to any other economic question whatsoever, the result exhibiting itself in the following brief words of a highly distinguished American one, published some twelve or fifteen years since, to wit:
“Among the innumerable influences which go to determine the general rate of prices, the quantity of money, or currency, is one of the least effective.”
Since then we have had a great war, in the course of which there have been numerous and extensive changes in the price of commodities, every one of which is clearly traceable to causes widely different from those to which they so generally are attributed. Be that, however, as it may, the question now before us is one of right and justice, and not of mere expediency. North and east of Pennsylvania eight millions of people have been allowed a greater share of the most important of all powers, the money one, than has been allotted to the thirty-two millions south and west of New York, and have thus been granted a power of taxation that should be no longer tolerated. The basis of our whole system is to be found in equality before the law, each and every man, each and every State, being entitled to exercise the same powers that are permitted to our people, or other States. If the Union is to be maintained, it can be so on no terms other than those of recognition of the existence of the equality that has here been indicated. To the work of compelling that recognition Pennsylvania should give herself, inscribing on her shield the brief words fiat justitia, ruat cœlum—let justice be done though the heavens fall!