Usury; Or, Interest, Premium and Discount

by S. H. Crittenden

There exists almost universally, a sort of hereditary prejudice against the very name of Usury. Almost every one will plead guilty to such feelings as these: “Usury is a bad thing, and as such ought to be prevented; Usurers are a bad sort of men, a very bad sort of men, and as such ought to be punished and suppressed.” Now, it is not wonderful that men fall into such opinions, and become firmly grounded in them, when they hear them handed down and repeated by those to whom they are in the habit of looking with confidence for correct ideas.

For it cannot be expected that the mass of mankind should find leisure, even had they the ability, to examine into the grounds of a hundredth part of the rules and maxims which they find themselves compelled to follow and observe. The fact is, that wherever it has been attempted to limit the rate of Interest, or to abolish it altogether by law, there the practice of Usury has uniformly revived. And, as might naturally be expected, the more severe the penalties, and the more rigid their execution, the higher the rate of interest was sure to rise. Because the risk being so much greater, the lender must needs have a larger premium of insurance to tempt him to incur it. It is a matter of history, that at Rome, during the continuance of the republican form of government the rates of interest were enormous. The simple and plain reason of this was, that the debtors who were always plebeians, were continually threatening their patrician creditors.

So also, in those Christian countries where Interest on loans has been forbidden, or what is equivalent, where it has been placed by law at so low a point as would not suffice to pay the risk of loss to a lender, the practice has been made over almost entirely to the Jews; while at the same time so great has been the extortion, oppression, and humiliation to which this people were exposed that nothing short of a very heavy rate of Interest could indemnify them for such risks and repeated losses.

Thus in any case the ratio of the Premium of insurance, which frequently forms the greater portion of what is called Interest, will depend upon the degree of security presented to the lender. The greater the risk, the higher will be the rate of Interest. When we detach from the rate of interest all that is paid as a security to the lender against the risk of partial or total loss of his capital, it remains to consider that part which is purely and simply Interest: that is to say, rent paid for the use of capital.

This is the point upon which many wise legislators have endeavored to lay down laws as infallible guides, and many learned economists have advocated such restrictive enactments, as even to this day obtain in most civilized countries. The Romans seem, according to Cato, to have considered an Usurer, as worse than a thief. For, says he, “Our Ancestors, enacted in their laws, that a thief should be condemned to pay double, but an Usurer, quadruple.”

Even that most learned commentator on law, Sir Henry Blackstone, pronounces that a legal limit ought to be placed to this branch of trade.

I will quote from Blackstone, on this subject. He says, when speaking of the general points in the contract of hiring and borrowing: [2 Com., p. 454,] “There is one species of this price or reward, the most usual of any, but concerning which many good and learned men have in former times very much perplexed themselves, and other people, by raising doubts about its legality in foro conscientie.

“That is, when money is lent on a contract, to receive not only the principal sum again, but also an increase by way of compensation for the use; which is generally called Interest by those who think it lawful, and Usury by those who do not so; for those enemies to Interest, in general, make no distinction between that and Usury, holding any increase of money to be indefensibly usurious. And this they ground, as well on the prohibition of it by the law of Moses among the Jews, as also upon what is said to be laid down by Aristotle, that money is naturally barren, and to make it breed money is preposterous and a perversion of the end of its institution, which was only to serve the purposes of Exchange, and not of increase. Hence the school divines have branded the practice of taking Interest as being contrary to the divine law, both natural and revealed: and the canon law has proscribed the taking any, the least, increase for the loan of money, as a mortal sin.

“But in answer to this it hath been observed, that the Mosaical precept was clearly a political, and not a moral precept. It only prohibited the Jews from taking Usury from their brethren, the Jews: but in express words, permitted them to take it of a stranger; which proves that the taking of moderate Usury, or a reward for the use, for so the word signifies, is not malum in se, (a sin in itself considered,) since it was allowed where any but an Israelite was concerned. And as to the reason given by Aristotle, and deduced from the natural barrenness of money, the same may with equal force be alleged of houses, which never breed houses; and twenty other things, which nobody doubts it is lawful to make profit of, by letting them to hire.

“And though money was originally used only for the purposes of exchange, yet the laws of any State may be well justified in permitting it to be turned to the purposes of profit, if the convenience of society, (the great end for which money was invented,) shall require it. And that the allowance of moderate Interest tends greatly to the benefit of the public, especially in a trading country, will appear from that generally acknowledged principle, that commerce cannot subsist without mutual and extensive credit. Unless money, therefore, can be borrowed, trade cannot be carried on: and if no Premium were allowed for the hire of money, few persons would care to lend it; or, at least, the ease of borrowing at a short warning, (which is the life of commerce,) would be entirely at an end.