Another consideration demands our notice. The laws against usury increase the distresses of the needy, by enhancing the risk, and consequently the insurance on loans.[142] It iz fruitless to attempt to prevent loans of money. When men are pressed for money, they can always find persons to supply them, upon some terms. But az a loan of money at a higher rate of interest than iz allowed by law, exposes the lender to a loss of the money, and a fine or forfiture besides, hiz demand for the use of hiz money wil rize in proportion to that risk. This haz always been one of the most pernicious effects of such laws. So that the law, not only creates a scarcity in the first instance, but actually raizes the demand of interest much abuv the natural demand required by that scarcity. In short, insted of releeving the detter, it multiplies hiz distresses four fold.
Besides, such laws, like all national restrictions on trade, tend to make men dishonest, in particular things, and thus weeken the powers of the moral faculty. There are ten thousand ways of evading such laws, and slight evasions gradually produce a habit of violating law, and harden the mind against the feer of its penalties. Indeed, such laws tend to undermine that confidence which iz the basis of social intercourse. Laws which encourage informations, should be enacted with caution. Such are laws against usury. A man haz often the strongest temptation to be a treecherous rascal, by inducing hiz frend to loan him money, on illegal interest, and then betraying him. This species of villany waz lately carried so far in Massachusetts, az to induce the legislature to repeel a clauze of their law against usury. And a man of morality must shudder, while he reeds the legal prosecutions and adjudications in England upon their statutes of usury.
The absurdity of attempting to fix the valu of money iz another objection to it of no small consequence. The valu of it depends wholly on the quantity in circulation and the demand. In this respect it resembles all other articles of trade; and who ever thought of fixing the price of goods by law?[143] It iz almost impossible for a legislature to ascertain exactly the valu of money at any one time; and utterly impossible to say that the valu when ascertained, shall continu the same for six months. Nay, two slates adjoining eech other may estimate the use of money very differently at the same period. In New York the legal interest iz seven per cent. in New England but six. A man may therefore do that legally in one state, which in the others would expoze him to a severe penalty.
In ancient Rome, the interest waz twelv per cent. The emperor Justinian reduced it to four, but allowed higher interest to be taken of merchants, on account of the risk. In Holland, when Grotius wrote, the common interest waz eight per cent.; but twelv to merchants. In England, the statute 37th, Henry VIII, confined interest to ten per cent. By the 21st James I, it waz reduced to eight; by the 12th Charles II, to six; and by 12th Ann, to five, the present legal interest in that country.[144]
Postlethwaite remarks very justly that theze laws hav not ascertained the real valu or interest of money; for when the legal interest haz been six per cent. the real interest haz sometimes been four; and when the legal interest haz been five, the real interest haz sometimes been seven. Indeed the interest of money depends on such a combination of circumstances, az the scarcity of money, the demand in market, and the hazard, that an attempt to find and fix a permanent rate, iz one of the most visionary schemes that a public body can undertake. To proov the impossibility of such a scheme, I would only mention the continual practice of violating laws against usury; which would not be the case, if the real valu of money had been ascertained and fixed.[145] If legislatures had found the tru valu of the use of money, there would hav been fewer violations of their laws: If they hav, in any case, fixed a rate of interest lower than the real valu, they hav violated the rights of their subjects. This iz a serious consideration; and perhaps in no instance are the laws of England and America more strongly marked with the traces of ancient prejudice and barbarity, than in the prohibition which prevents a man from using hiz money az he pleezes, while he may demand any sum whatever for the use of hiz other property.
The only power, I conceev, a legislature haz to determin what interest shall arize on the use of money, or property, iz where the parties hav not determined it by agreement. Thus when a man haz taken up goods upon credit, or where, by any other legal meens, a man becomes possessed of anothers money or estate, without a specific stipulation for interest, the law very properly steps in and ascertains the sum which the detter shall pay for the use of that money. But to make a law that a man shall not take but six per cent. for the use of money, when the borrower iz willing to giv more, and the lender cannot part with hiz money at that rate of interest, iz a daring violation of private rights, an injury often to both parties, and productiv of innumerable embarrassments to commerce.
We are told that such laws are necessary to guard men from the oppression of the rich. What an error! Waz a monied man ever compelled to assist a distressed nabor, by the forfitures incurred by such laws? Iz not hiz money hiz own? Wil he lend it all, if it should not be for hiz benefit? Besides, cannot a man in necessity alienate hiz property for one fourth of its valu? Are not such bona fide contracts made every day to raize money to answer a temporary purpose? Nay, hav not the laws of all commercial states authorized sales by auction, where any man may part with hiz property for a fourth of its valu? Iz there any remedy in law against such a sacrifice of a man's estate? Wherein then consists the security of laws against usury? In the name of common sense and common equity, let legislators be consistent. If men are improvident, lazy and careless, a loss of property wil be their punishment, and no mezures of government wil prevent it.
To what then shall we ascribe the severe laws against high interest, which hav been and stil are existing in most commercial countries? I presume the cause may be easily assigned. The Jewish prohibition, not to take interest, except of strangers, first gave rise to douts in the minds of our pious christian forefathers, with respect to the legality of any interest at all. This produced, in the dark ages, severe ecclesiastical laws against taking any thing for the use of money; and theze laws originated a general prejudice against it, thro the Christian world.
In the twelfth and thirteenth centuries, commerce began to revive; but az there waz but little money, and trade waz lucrativ, because in few hands, money bore a very high interest. In some parts of Europe, the interest waz forty per cent. Even with this interest, certain Italian traders could make an annual profit, and therefore it waz for their benefit to giv it. It however rendered them very unpopular.[146]
The Jews, for their infidelity, had been considered by the Christians az outcasts on earth. Severe laws were enacted against them in almost every country; depriving them of the rights of citizens, and forbidding them to hold real estates. Proscribed and insulted, the poor Jews were compelled to turn their hand against every man in their own defence. They commenced strolling traders and bankers, and by theze meens commanded a large share of the money in every kingdom.