The German Empire, in 1600, allowed the debtor to contract that, in case of delay, the contract might be declared annulled. In France, on the other hand, even during the 18th century, nearly all loans were made in the form of rent-purchase (Law, Trade and Money, 127), and the creditor could declare the contract void only in case the debtor did not pay him the rent. (Warnkönig, Franz. R. G., II, 585 ff.) For strictly Catholic countries, the prohibition relating to the taking of interest still really remains. However, Leo X.'s bull, Inter multiplices, exempts the so-called monti di pietà, and by this means put obstacles in the way of saving, and promoted real usury. Of this last, Niebuhr, Briefe, II, 399, adduces very striking instances from the Pope's own temporal dominion. In the case of pledge, even 12 per cent. per annum is required. (Rom im Jahr, 1833, 163.) Yet, in 1830, the Poenitentiaria Romana instructed the clergy, without, however, deciding the chief question, not to disquiet people any longer in the confessional who had taken interest. (Guillaumin, Dictionnaire de l'Economie politique, art. usure.) On the Russian Sect, Staroverzen, which still condemns the taking of interest, see Storch, Handbuch, II, 19. By the Russian government it was permitted very early. Ewers, Ältestes Recht der R., 323 seq.
[191-10] The first scientific defense of interest is generally considered to be that of Salmasius, loc. cit. Yet Bacon, Sermones fideles, C. 39 (after 1539), and at bottom also H. Grotius, De Jure Belli et Pacis, 1626, taught that it was lawful to take interest in so far as it was not against the love due to one's neighbor (Endemann, loc. cit., I, 62 ff.), and Besold, Quaestiones aliquot de Usuris, 1598, was as near the truth as Salmasius.[TN 24] Compare supra, note 4. How earnestly North and Locke labored against the lowering of interest by governmental interference, see Roscher, Z. Gesch. der engl. Volkswirths., 90, 102 ff. The best writers, in strictly Catholic countries, did violence to themselves in this matter for a long time after. Thus Galiani, Della Moneta, II, I seq.; and one cannot help being greatly surprised at witnessing the subtleties which Turgot, Mémoire sur le Prêt d'Argent, 1769, had to have recourse to, to prove the clearest matters. Thus: at the moment of the loan, a sum of money is exchanged against the mere promise of the other party, which is certainly less valuable. [If it were not, why should he borrow?] This difference must, therefore, be made up in interest, etc. Mirabeau even was a decided opponent of interest. (Philos. rurale, ch. 6.) Compare, however, the theological defense by Viaixnes, 1728, in the Traité des Prêts de Commerce, Amsterdam, 1759, IV, 19 ff.
[191-11] Of course, evaded in a thousand ways in practical life. Thus, for instance, people gave wheat, other commodities, and even uncoined gold and silver as loans, and had what interest they pleased promised them. In alienating the capital, they might stipulate à fonds perdu, as they thought best. (Turgot, I, c. § 29.) When debtors had promised under oath to make no complaint, the church ordered that they should be helped officially. When the temporal power showed itself lax, Alexander III. decreed that such questions should be brought before the spiritual courts. (Decret. Greg. V., tit. 19; 13 Innocent, Epist., VIII, 16; X, 61.) In England, Richard of Cornwall obtained a monopoly of the whole loaning business. (Matth. Paris, ed. 1694, 639: compare, also, 20 Henry III., 5.), from which fact the existence of the custom of taking interest about 1235, is apparent. Cases in which English kings borrowed and promised payment back cum damnis, expensis et interesse: Anderson, Origin of Commerce, a. 1274, 1339.
[191-12] Compare Gioja, Nuovo Prospetto, III, 190. The canon law desired to put an interdict on their taking interest also: Decret. Greg., V, tit. 19, 12, 18. Frequently, also, a minimum of interest was provided for them: Ordonnances de la Fr., L. 53 seq. II, 575. Receuil des anciennes, Lois, I, 149, 152. John of France extended this to four deniers per livre per week, that is, annually 86-2/3 per cent.! (J. B. Say, Traité II, ch. 8.) In Austria, in 1244, 174 per cent. allowed! (Rizy, Ueber Zinstaxen und Wuchergesetze, 1859, 72 ff.)
INTEREST-POLICY.—GOVERNMENT INTERFERENCE.—FIXED RATES.
Instead of the medieval prohibition of interest, most modern states have established fixed rates of interest, the exceeding or evasion of which, by contract or otherwise, is declared null and void, and is usually punishable as usury.[192-1] If the fixing of the rate is intended to depress the rate of interest customary in the country,[192-2] [192-3] ] it uniformly fails of its object. If control were great enough, vigilant and rigid enough, which is scarcely imaginable, to prevent all violations of the law, it is certain that less capital would be loaned than had been, for the reason that every owner of capital would be largely interested in employing his capital in production of his own. More capital, too, would go into foreign parts, and there would be less saved by those not engaged in any enterprise of their own. All of this would happen to the undoubted prejudice of the nation's entire economy.[192-4] [192-5]
If, on the other hand, the control by the government be not great enough, the law would, in most cases, be evaded; especially as each party, creditor as well as debtor, would find it to his advantage to evade it. The latter, who otherwise would not be able to borrow at all, is, as a rule, more in need of obtaining the loan, than the creditor is to invest his capital. How easily, therefore, might he be induced to bind himself by oath or by word of honor![192-6] He would, moreover, be compelled to pay the creditor not only the natural interest and the ordinary insurance premium, but also for the special risk he runs when he violates the law threatening him with a severe penalty.[192-7] Hence the last result is either a material enhancement of the difficulty of obtaining loans or an enhancement of the rate of interest.[192-8] ]
[192-1] This is, historically, the second meaning of the word usury, while in the middle ages, for instance in England, under Elizabeth (D. Hume), the taking of any interest whatever was called usury. Science should employ this word only in the sense used in § 113.
[192-2] In Switzerland, at the end of the 17th century, not only were those punished who took more interest than the law prescribed, but those who took less. (Compare Rechtsquellen von Basel, Stadt und Land, 1865, Bd. II.)