(3) If Usury laws were not disregarded, they would be even worse in their effects than they are now. We must suppose that their aim is to aid borrowers, and make it easier for them to contract loans. But are borrowers, as a class, any more deserving of the fostering care of government than are lenders? Even if it could make its interference effective, as it cannot, is there any reason why government, leaving these borrowers to make all other bargains, sales, and transfers according to their best skill and judgment, should rush to their rescue only when they propose to borrow money? If they are competent to do their other business for themselves, government pays their capacity a poor compliment in undertaking to help them in the single matter of making loans; and the borrowers in turn have reason to pray to be delivered from their friends, since they, of all others, would be the men especially injured if all the lenders obeyed the usury laws. Suppose that a borrower is in great need of a loan, and that for some reason his credit is now a little weak. Many men would be willing to loan him at 9%, which affords a margin for the extra risk, but at 6, which we will suppose the maximum allowed by the law, he cannot borrow a dollar, because his credit is not quite equal to the best. If, therefore, the lenders obey the law, he, and such as he, must fail. And because it is unlawful to take over 6% he will be obliged to pay those who are willing to violate the law 10 or 12, to compensate them for the risk and odium of such violation, while, under freedom, he could borrow at 8. Moreover, if the loanable value of money at the time be actually 9, while the law only allows 6, many men will attempt to use their own capital productively, who would otherwise loan it, in order to realize the high rate; and this action of theirs still further restricts the loan-market and makes it more difficult to borrow. If, then, the purpose of government be to aid borrowers, no means could be more unskilfully chosen for that end than to pass usury laws, since such laws, so far as they are obeyed, have necessarily the opposite tendency; and even when violated redound to the disadvantage of borrowers, so long as the laws themselves are popularly regarded as of any legal or moral force.
In 1716, the Bank of England, as a great loaning institution, was exempted from the operation of all usury laws: why the bank only, and not other people as well, the Act of Parliament does not state. In 1867, the State of Massachusetts repealed all its usury laws, though 6% is to be understood in the absence of special agreement, and the result has been entirely satisfactory to all classes of the people. Rhode Island had done this previously, and Connecticut did it subsequently, and both have experienced equal satisfaction in the result. Other States will soon follow in their lead; and this relic of ignorance and prejudice will pass away. Adam Smith left the Wealth of Nations disfigured by the concession that governments might properly enough pass usury laws; but it is gratifying to be able to add that he was convinced of his error in that by Bentham's book on Usury, and fully acknowledged his conviction in the spirit of a genuine lover of truth. We conclude, then, that usury laws are needless, since interest, like all other prices, will perfectly adjust itself. They are disregarded, since lenders will loan or withhold their money according to their own keen sense of interest. They are pernicious, since they infringe the rights of property, and tend to prevent weak borrowers from having a fair chance in the market.
The present writing is at midsummer, 1890; and, in order to complete the entire discussion so far as this country is concerned, it is needful to add, that, between 1878 (when specie payments were resumed) and 1890, the circulating medium of all kinds is proven by official statistics of the highest authority to have increased from $805,793,807 to $1,405,018,000, or more than 57 per centum. This circulating medium consists of six formal kinds; namely, gold, silver, greenbanks, bank-bills, gold-certificates, and silver-certificates. Each of these differs in important respects from each of the rest, but all come alike under our fundamental classification of Moneys, as either an intermediate merchandise or promises to render it. This increase is way beyond any increase in the population of the country, and way beyond any apparent or proven increase in the national business; while at the same time the banking facilities of the country, which always spare the use of Money by substituting cheques therefor in the wholesale business and in a large share of the retail business also, have been increasing in equal measure. The number of national banks, especially in the West and South, has been multiplying. The use of cheques has been enlarging in every commercial community in the land. Yet up to the present time all of this vast volume of Money has been kept at par with gold, and consequently at the highest state of efficiency for commercial purposes.
What about the immediate future? Science is not prophecy except in a quite subordinate sense. Congress is loudly threatening at this very moment to more than double the enforced monthly coinage of silver dollars at the public expense for the sole benefit of a comparatively few miners of silver. If this threat be executed upon a long-suffering people of tax-payers, who will have no one to blame but themselves if they tolerate the outrage, Science is willing to venture the prediction, that the monetary standard here will drop from gold to silver within a twelvemonth or two; that general prices will rise much beyond the appreciation of money implied in that drop, though they will be illusory and gainless; that prudent debtors will hold high carnival for a time at the expense of their creditors; that the country will become as empty of gold as a contribution-box is of other money between Sundays; that foreign trade (soon to be explained), already in a sickening decline, under restrictions and prohibitions, will hasten to a practical demise; and that the United States, at once the laughing-stock and the victim to the superior intelligence of other nations, will come through alternate fever and chills to a position of common sense and ultimate recovery.
CHAPTER VI.
FOREIGN TRADE.
Wonderful is the continuity in the growth of any great Science, and equally so the persistency of any radical error that once gets fairly imbedded within it. As we saw fully in the last chapter Money is nothing in the world but a convenient, intermediate, equivalent, and easily measurable merchandise; but almost as soon as men began to analyze Sales and to generalize from their data, a notion nestled way down in their work, that Sales against Money were somehow or other different from Sales against other merchandise; and thence sprang up, particularly among the Romans, what we have called the Bullion Theory. The broad and the true view was held indeed from the beginning, and was maintained even among the Romans, as we learn from an interesting passage in the Roman Law,—"Sabinus and Cassius think Value can dwell in another thing than money too, whence is that which was commonly said, Buying and Selling is carried on in the exchange of goods, and that view of purchase and sale is very old; but the opinion of Procullus has deservedly prevailed, who says, Exchange is a particular kind of transaction different from Selling."
Science has indeed sloughed off this old and vital error, and most of its sequels; but Public Opinion in many countries is full of it still; and Legislation, in our own country at least, is all the time trying or threatening to transmute merchandise (say silver) into money, as if that could raise its value or change its nature.
It was but a single step from the Bullion Theory to the Mercantile System. If money be somehow different from and better than merchandise, then each nation should strive to handle its foreign trade so as to get back from other nations more money than it renders to them in exchange: in other words, each nation must try to sell to the rest more goods than it takes goods back in pay, so as to have a "balance" come in of gold and silver. How natural the transition from Bullionism to Mercantileism! And it was a step of genuine progress too. Goods are good, and there is profit in their exchange; but gold is somehow better than goods, and we must manage somehow to get a "balance" in that! If this position had only been sound, and one nation only been in possession of the precious secret, how nicely it might have worked for that nation! But all the leading Nations of Europe made the transition from Bullionism to Mercantileism at one and the same time, and they vexed and impoverished each other for three half-centuries, and went to war with each other besides, under the double illusion, (1) that gold could be practically gotten in that way, and (2) that if gotten it were one whit better than the goods for which it would have been at once spent.