Usury; Or, Interest, Premium and Discount

by S. H. Crittenden

“And as to any scruples of conscience, since all other conveniences of life may be either bought or hired, there seems to be no greater oppression in taking a recompense or price for the hire of this, than of any other convenience.”

For the taking of such recompense we have moreover, the very highest authority in the words of our Saviour, who, in the parable of the talents, censures the slothful servant in these words: “Thou wicked and slothful servant, thou knewest that I reap where I sowed not, and gather where I have not strewed. Thou oughtest therefore to have put my money at the exchangers, and then at my coming I should have received mine own with Usury.”

Dr. Adam Smith, in his work entitled “Wealth of Nations,” [Vol. 1, p. 429,] published in 1776, and which has been long a text book for political economists, says: “A capital lent at Interest may, in this manner, be considered as an assignment from the lender to the borrower of a certain considerable portion of the annual produce; upon condition that the borrower in return shall, during the continuance of the loan, annually assign to the lender a smaller portion, called the Interest; and at the end of it a portion equally considerable with that which had originally been assigned to him, called the repayment. Though money, either coin, or paper, serves generally as the deed of assignment, both to the smaller and to the more considerable portion, it is of itself altogether different from what is assigned by it.” And again: “As such capitals are commonly lent out, and paid back in money, they constitute what is called the monied interest.” “In some countries the Interest of money has been prohibited by law. But as something can everywhere be made by the use of money, something ought everywhere to be paid for the use of it. This regulation instead of preventing, has been found from experience, to increase the evil of Usury; the debtor being obliged to pay, not only for the use of the money, but for the risk which his creditor runs by accepting a compensation for that use. He is obliged, if one may say so, to insure his creditor from the penalties of Usury.”

“In countries where Interest is permitted, the law, in order to prevent the extortion of Usury, generally fixes the highest rate which can be taken without incurring a penalty. This rate ought always to be somewhat above the lowest market price, or the price which is commonly paid for the use of money by those who can give the most undoubted security.”

“If this legal rate should be fixed below the lowest market rate, the effects of this fixation must be nearly the same as those of a total prohibition of Interest.”

“The creditor will not lend his money for less than the use of it is worth, and the debtor must pay him for the risk which he runs by accepting the full value of that use. If it is fixed precisely at the lowest market price, it ruins, with honest people, who respect the laws of their country, the credit of all those who cannot give the very best security, and obliges them to have recourse to exorbitant usurers.”

“The legal rate, it is to be observed, though it ought to be somewhat above, ought not to be much above the lowest market rate. If the legal rate of interest in Great Britain, for example, were fixed so high as eight or ten per cent. the greater part of the money which was to be lent, would be lent to prodigals and projectors, who alone would be willing to give this high rate of Interest. Sober people, who will give for the use of money no more than a part of what they are likely to make by the use of it, would not venture into the competition. A great part of the capital of the country, would thus be kept out of the hands most likely to make a profitable and advantageous use of it, and thrown into those most likely to waste and destroy it. Where the legal rate of Interest, on the contrary, is fixed but a very little above the lowest market rate, sober people are universally preferred as borrowers to prodigals and projectors. The person who lends money gets nearly as much Interest from the former, as he dare take from the latter, and his money is much safer in the hands of the one set of people, than in those of the other. A great part of the capital of the country is thus thrown into the hands in which it is most likely to be employed with advantage. “No law can reduce the common rate of Interest below the lowest ordinary market rate at the time when that law is made. Notwithstanding the edict of 1766, by which the French king attempted to reduce the rate of Interest from five to four per cent., money continued to be lent in France at five per cent.: the law being evaded in several different ways.”

Puffendorf, whose treatise on the “Laws of Nature and of Nations,” was published in England in 1710, says: “The arguments which are brought against Usury are easily answered. It is urged that the loan of a consumable commodity ought to be given gratis, because the loan of all other things is so. But I answer that I have the power of granting the use of my goods that are not consumable either gratis, or for rent: whereof, the one is a loan, the other a letting. So what should hinder me from granting the use of my money also, either gratis, or for a certain recompense? When one man borrows to increase his wealth, or improve his condition, why should another lend to him for nothing? Nay, ’tis an unreasonable thing, when you vastly improve your fortune with my money, not to admit me to some share of the gain. For I, in the meantime, am debarred from making that advantage which I might have otherwise expected, by applying it to my own use. Besides, I have parted with something valuable, which ought therefore to be considered: for in lieu of my money, I have only an action against your person, which cannot be prosecuted without some trouble. It may also happen by some accident that the debt may be lost. Nay, sometimes the debtor must be courted and caressed, that it be not lost. And some borrow on purpose to make their creditors dependent on them. As, the Marechal de Rochelause, when he was taxed by Louis XIII. with taking part with the Duke of Mayenne, pleaded in excuse, that he did not follow the Duke, but his money: for his debt would be in a desperate condition if he did not stick close to his debtor.

“Besides, it is not seldom that we lend to persons who are utterly unable to pay; and therefore some are of the opinion that it would be for the advantage of the public, to allow none but merchants to take up money at use; for this would make the poor industrious, and force them to frugality, who, some of them, are not afraid to pay Interest for money to maintain their extravagancies. And monied men, rather than let their money lie dead, would either take to merchandise themselves or would put out their money to those who do: which would make trade flourish to the great benefit of the commonwealth.

Grotius is of the opinion, “that the legal interest ought to be stated, not according to the gains of the borrower, but the loss that thereby accrues to the lender: as in buying and selling, and other contracts, no regard is had to what the receiver may make of the commodity, but what goes away from the seller.”