INTEREST-POLICY.—REPEAL OF THE USURY LAWS.
However, the complete repeal of the usury laws[194-1] ] has not under all circumstances accomplished what it was supposed it would; and the state should take great care, lest by an incautious framing of its laws, it should put judges in such a position that they may be compelled to coöperate in the execution of immoral contracts.[194-2] In the lowest strata, so to speak, of the loaning business, the medieval condition continues to exist (§ 190) after it has disappeared in the upper. Here, the loan is effected scarcely ever for the purposes of production, but most generally because of the most urgent necessity; and the debtor is not in a condition, from want of education, and especially from his ignorance of arithmetic, to estimate the magnitude of the burthen he has undertaken. The business of loaning is, under such circumstances, considered dishonorable, to some extent, by the public. And when a business necessary in itself is held disreputable by public opinion, the usual result is that bad men alone engage in it.[194-3] ] Real competition which would but fix the natural price is wanting here in proportion as the debtor is anxious for secrecy.[194-4]
Abuses in this respect are best guarded against by the establishment of government loan-institutions, and by the publicity of the administration of justice to debtors.[194-5] Besides, every contract might be prohibited the terms of which were such that an inexperienced borrower could not from them obtain a clear conception of the burthen he accepts, or which hindered him from paying the debt at a proper time.[194-6]
Lastly, there should be a rate of legal interest fixed by the state to be charged in such cases as interest is found to be in justice due, but in which none is provided for by contract; and this rate should approximate as nearly as possible to the rate usual in the country.[194-7] [194-8]
[194-1] In 1787, Joseph II. abolished the penalties for usury, but allowed the provisions denying a legal remedy, in cases of usurious demand of over 4 per cent. for hypothecations, 6 per cent. for bills and 5 per cent. for other loans, to remain. Compare the prize essay by Günther, Versuch einer vollständigen Untersuchung über Wucher und Wuchergesetze, 1790; v. Kees, über die Aufhebung der Wuchergesetze, 1791; Vasco, Usura libera, 1792. The opposite view represented by Ortes, E. N., II, 24, and v. Sonnenfels, Ueber Wucher und Wuchergesetze, 1789, and zu Herrn von Kees, Abhandlung, etc., 1791. The debates on the repeal of the usury laws in the French Chamber of Deputies, after which Lherbette's motion in favor of their repeal was rejected. In France they were, during the assignat-period of bewilderment virtually, and in 1804-1807 expressly (C. C., Art. 1907), but only provisionally repealed. In Würtemberg, all those having the right to draw bills of exchange were exempted from them in 1839. Since the law of 1848, governing bills of exchange, gave all persons capable of contracting, the right to draw bills of exchange, the usury laws have ceased to have any existence; without much noise before and without much complaint after. (A. Allgem. Ztg., 24 März, 1857.) Recent complete or partial repeal of the usury laws: in England, in 1854; in Denmark, in 1855; in Spain, in 1856; Sardinia, Holland, Norway and Geneva, 1857; Oldenburg, 1858; Bremen, 1859; in the kingdoms of Saxony and Sweden, in 1864; Belgium, 1865; Prussia, the North German Confederation,[TN 27] and to some extent Austria, in 1867.
[194-2] Compare F. X. Funck, Zins und Wucher, 1868, a moral theological treatise which rightly demands a more rigid popular morality in relation to real usury, after the repeal of the usury laws. The recent cases in which courts have juridically acquitted usurers because they could not do otherwise, but have branded them morally, are of very questionable propriety, in view of the facility with which high and usurious rates of interest may be confounded. R. Meyer, Emancipationskampf, I, 78, advises that the capitalist be allowed to ask whatever interest he wishes, but that the state, as judge and executor of the laws, should enforce payment only at a certain rate determined by law.
[194-3] Many laws seem to purposely permit this, inasmuch as they allow a rate of interest, higher in proportion as the position of the creditor is less respectable. Thus, formerly, in some places, the Jews might require higher interest than the Christians. Justinian allows personis illustribus only 4 per cent.; ordinary private persons, 6 per cent.; money-changers, etc., 8 per cent. (L. 26, Cod. IV, 32.) On the other hand, according to the Indian legislation of Menu, the Brahman is obliged to confine himself to 2, the warrior to 3, the vaysya to 4, the sudra to 5 per cent. per month at most. (Cap. 8.)
[194-4] Turgot considered that only the prêteurs à la petite semaine, pawnbrokers who loaned to hard-pressed people on the confines of the middle class and artisans, and the infamous characters who advanced money to the sons of rich men to spend in dissipation, still passed for usurers. Only the latter are injurious; not, however, because of the high rate of interest they charge, but because they help in a bad cause. (Sur le Prêt d'Argent, § 32.) According to Colquhoun, Police of the Metropolis, 167, there are women in London from whom the hucksteresses borrow 5 shillings every day and return them every evening with ½ shilling interest. Something analogous happens much more frequently in the country, especially in the loaning in kind of productive capital to poor persons. Thus, in Tessin, there are many "iron cattle" which the borrower is obliged to return at their original value, plus an interest of about 36 per cent. (Franscini, C. Tessin, 152.) On the Rhine, frequently as much as 200 per cent. a year, is stipulated for in such contracts. Morstadt, der N. Oekonom. Heft., IX, 727.
[194-5] Compare J. J. Becher, Polit. Discurs, 1668, 219; v. Schröder, F. Schatz- und Rentkammer, Bd. §§ 123, 133 ff. The first montes pictatis were expressly intended to check the usury of the Jews. Thus, in Florence, in 1495, after the expulsion of the Jews, voluntary contributions were made to found a municipal loaning establishment. Similarly, Tiberius, Tacit. Ann., VI, 16 seq. Count Soden, Nat-Oek., IV, 57; V, 319, advises that all contracts for interest should be recorded in a public registry, under pain of their being held not actionable.
[194-6] Günther, loc. cit., thinks that, in every contract in which the rate of interest is masked, its real rate should be expressed under penalty of invalidity. In addition to this, he would have those who have attained their majority put in full control of their fortune only after they had undergone an examination.