American politics (non-partisan) from the beginning to date

by Thomas V. Cooper; Hector T. Fenton

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being everywhere formed for raising the price of money; that the long loans of the past are being daily more and more superseded by the call loans of the present; that manufacturer and merchant are more and more fleeced by Shylocks who would gladly take “the pound of flesh nearest the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.