Part 2

There are but two definitions which can be given to Usury. One is, taking a larger rate of Interest than the law allows; this is the _legal_ or, _political_ definition. The other is taking more Interest than is usual for other people to give and take; this is the _moral_ one. And now, in order that the law may touch the point, and actually prohibit Usury, it is needful first that the law should supercede morals, or conventional custom, and _fix_ that point.

One thing is certain, that antecedently to custom, which has grown to be established conventionally, there could not be such a thing as Usury. For what rate of interest is more right than another? In one land ten per cent. is the legal and _therefore_ (as the advocates of limitation would say) the proper rate; in an another five per cent. is the utmost which the tender consciences of the legislators will allow. Even in the same country, from time to time, the rates are and have been varied as the wants of the community, the exigencies of the times, or the whims of the legislators prompted.

It is, then, convenience which has produced whatever there is of custom in the matter. “And what, (asks Bentham appropriately,) is there in custom, to make it so much more deserving of observance than convenience, which first gave it birth?”

It is convenient for me to give 8 per cent. for money. “No,” says the law, “you shall not.” Why? “Because it is not convenient for your neighbor to give more than 6 per cent. for it.” Can anything be more absurd?

Then again, as to the opprobrious name. No appellation or particular stigma of disrepute affixes to a man who being the owner of a house, gets as high a rent for it as he can. Indeed this is the common practice with such persons, and nobody is ashamed to do so, or professes to do otherwise. Now, why a man who possesses money, and takes as much as he can get for it, say 8, 10 or 12 per cent. should be loaded with vile epithets, any more than if he had bought a house with it, and then made the same profit from renting the house, is more than I can see.

Another point, in which the good policy of the existing restrictive laws upon this subject, seems doubtful, is that they operate in only one direction. If it is wrong, and worthy of punishment, to _take_ more than the fixed maximum of interest for the use of money, why not make it a penal offence to _offer less_ than that amount, as well as to accept more?

There are divers reasons given by the advocates of the laws restricting the rates of Interest why they are beneficial and ought to be enforced. Among these are: that they _prevent_ prodigality, and protect the poor and simple from extortion and imposition.

As to preventing prodigality: does not every one know that so long as a person has money, or property of any sort, with which it is possible for him to display prodigality, no Usury laws will stop him from expending it; and, that after his property is gone and he has no more to expend, none are more ready to _promise_ the largest Interest, providing he can thereby obtain additional money to spend? for what he gets is clear gain, he having nothing to lose. This, it would seem is a hopeless class, for whose protection or advantage to legislate.

Besides prodigals, there are three other classes, to whose benefit such restrictive laws are supposed by their authors to insure. They are the indigent, the rashly enterprising, and the simple. That is to say, those whose pecuniary necessities are so pressing, as to render them willing to pay an Interest, above the ordinary rate, rather than not to have the money; those who from rashness, may be disposed to venture upon the giving such a rate without duly considering the consequence; and those whose natural carelessness combined with ignorance would lead them to acquiesce in it.

Let us look at the conditions of these classes a few moments. Here is a small trader we will say, whose stock in trade consists of only a small amount of property, combined with an, as yet, perfectly untarnished reputation for punctuality in payments. This last, all who know anything of business, will at once admit to be the principal, and most important item of his stock. For with such a character, no merchant will refuse to credit him for articles needful to carry on his business; and thus all goes well with him.

But now his carefully cherished credit is in danger. He has been disappointed in his expectations of a ready sale for some part of his goods, or in obtaining money promised him for a debt, and finds himself without the means to promptly meet an obligation falling due to-morrow.

His position is such in the matter of property as not to render it worth anybody’s while to lend him at the legal rate; in short he cannot raise money to meet this obligation at that rate, and must do one of two things--either lose his credit, which will ruin utterly his prospects of making a comfortable subsistence for his family; or he must obtain the means of saving this cherished treasure intact, by paying somewhat more for the use of the money. We can at once see what _he_, who has every motive and means for judging rightly in the matter, would decide to be the wisest course, and the one nearest the path of rectitude. As a matter of course, if he could obtain the money at a low rate, he would not pay the higher one. But now the legislator who knows nothing of any of these circumstances, but whose heart overflows with prudence, and loving kindness for the poor man, steps in, and says: “It signifies nothing; you shall not have the money, for it would be doing you a mischief to allow you to borrow on such terms.” There might be worse cruelty, but not easily greater folly.

Next, in regard to the ignorant and simple, for whose protection from imposition or fraud, these laws are enacted. First, could any degree of simplicity or want of tact be greater or more evident than that displayed in such a case as we have just spoken of; where a legislator could confine a man under such circumstances, to a given rate of Interest?

Second, suppose the wisdom of the legislator to be never so much greater than that of the individual, no matter how weak that may be, how useless is the exertion of it in this case only, while there remains so many other occasions where the simplicity of the sufferer would make him the victim of injustice, and where the legislator cannot interpose to protect him. In every day affairs, in the matter of buying and selling, whether with money, or on credit, such persons are liable to be overreached; and yet none have thought that for this reason, a legal price ought to be set upon all goods, of whatever description. Nor, supposing that even this endless undertaking were accomplished by the legislator, would it avail anything unless he also should regulate the exact amount of each article which each man should buy.

When matters arrive at this point, we find the person in the position of those for whom the law provides entirely, as not being fit to take care of themselves: such are usually denominated _idiots_.

And now, as we have considered at some length the needlessness and inefficiency of such legislation, let us for a few moments, look at some of its evil results.

We will speak at first of those who are by this means virtually prohibited from obtaining money on loans. Consider for a moment, what distress and inconvenience it would produce were the privilege of borrowing denied to everybody. Just that inconvenience is occasioned to those people whose security would, if they were allowed to add a little of the rate of Interest, be sufficient to obtain the needed funds, but is not sufficient for that purpose when such liberty is denied. Thus the misfortune of not happening to be possessed of that amount of property which is considered a sufficient security, is made the ground, under such legislation, of inflicting hardships upon a man, which those who are so fortunate as to have such security do not suffer.

The only point of distinction between the two classes, is that the necessity of one is greater than that of the other. For were this not the case, they would not be willing, as we have supposed, to pay more to be rid of it.

Another ill effect, is that of rendering the terms of obtaining money so much the worse for many whose circumstances are such that they are not altogether precluded from obtaining it, at some rate. Those who cannot borrow, may get what they want, so long as they have anything to sell. But, while out of loving kindness, or other motive, the law precludes a man from _borrowing_, upon terms too disadvantageous, it does not forbid him from _selling_ at any, even the most ruinous rates.

Everybody knows that forced sales are attended with loss: and to this loss an amount of Interest, which would at first seem exorbitant, would bear but a small proportion.

When a man’s goods are taken, and sold under an execution, it is considered a good sale if the net amount reaches two-thirds what it would take to replace them again. In this way the kindness of the law, costs him directly 33-1/3 per cent. at least; supposing, what is seldom the case, that no more property was taken than just enough to satisfy the claim. Now, if he had been permitted to hire the money at, say 12 per cent. per annum it would require nearly three years for the same amount to accrue, as interest, while the probabilities are that he would be able to pay off the whole debt long before the expiration of that period.

To the laws prohibiting Usury, too, we may look, as the prime cause of the establishment, and the strongest supporter of that branch of business, which is ordinarily looked upon as so disreputable, and at whose door are laid so many and grievious complaints of oppression, &c., viz: pawn-broking:--a business based only on the unsatisfied wants and necessities of that very class for whose protection from imposition such laws are made.

So we might multiply cases and arguments, but perhaps sufficient has already been said to lead those who think, to the conclusion that is embodied in our proposition: viz: that every man ought to have the same right to buy and sell money at a profit, as he has to do so with merchandise or other property.

FOOTNOTE:

[A] Entered according to Act of Congress, in the year 1863, by S. H. Crittenden, in the Clerk’s Office of the District Court, for the Eastern District of Pennsylvania.

TRANSCRIBER’S NOTES:

Italicized text is surrounded by underscores: _italics_.

Obvious typographical errors have been corrected.

Archaic or alternate spelling has been retained from the original.