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Anyone seeking to utilize +this eBook outside of the United States should confirm copyright +status under the laws that apply to them. diff --git a/README.md b/README.md new file mode 100644 index 0000000..6558026 --- /dev/null +++ b/README.md @@ -0,0 +1,2 @@ +Project Gutenberg (https://www.gutenberg.org) public repository for +eBook #62459 (https://www.gutenberg.org/ebooks/62459) diff --git a/old/62459-0.txt b/old/62459-0.txt deleted file mode 100644 index 921ee85..0000000 --- a/old/62459-0.txt +++ /dev/null @@ -1,1053 +0,0 @@ -The Project Gutenberg EBook of Usury, by S. H. Crittenden - -This eBook is for the use of anyone anywhere in the United States and most -other parts of the world at no cost and with almost no restrictions -whatsoever. You may copy it, give it away or re-use it under the terms of -the Project Gutenberg License included with this eBook or online at -www.gutenberg.org. If you are not located in the United States, you'll have -to check the laws of the country where you are located before using this ebook. - -Title: Usury - Interest, Premium and Discount - -Author: S. H. Crittenden - -Release Date: June 23, 2020 [EBook #62459] - -Language: English - -Character set encoding: UTF-8 - -*** START OF THIS PROJECT GUTENBERG EBOOK USURY *** - - - - -Produced by deaurider, David E. Brown, and the Online -Distributed Proofreading Team at https://www.pgdp.net (This -file was produced from images generously made available -by The Internet Archive) - - - - - - - - - - USURY: - OR - INTEREST, PREMIUM AND DISCOUNT. - - A LECTURE - DELIVERED - BEFORE THE STUDENTS - OF - CRITTENDEN’S - Philadelphia Commercial College, - - BY - S. H. CRITTENDEN, - Attorney at Law, - CONSULTING ACCOUNTANT AND PRINCIPAL. - - PHILADELPHIA: - RINGWALT & BROWN, STEAM-POWER BOOK AND JOB PRINTERS, - Nos. 111 & 113 SOUTH FOURTH STREET. - 1863. - - - - - USURY: - OR - Interest, Premium and Discount. - - A LECTURE[A] - DELIVERED BEFORE THE STUDENTS OF - CRITTENDEN’S PHILADELPHIA COMMERCIAL COLLEGE, - - BY - S. H. CRITTENDEN, ATTORNEY AT LAW, - PRINCIPAL. - - -Our subject to-day is USURY. - - -We will first speak of this subject in its direct relation to -Book-Keeping. That is, as to its treatment under different forms, on -the Ledger, since this is in reality the phase in which it is of most -importance for us to consider it. Afterwards we will glance at the -matter in the view of utility, economy and legality. - -The ledger titles which embrace this subject, are Interest, Discount -and Premium. These are all often, and indeed generally, embodied in one -account, headed Interest, yet they are radically different divisions of -the account, both in their nature and manner of computation; although -all tending to one point, when placed upon the merchant’s books, viz: -to add to his total gains or losses. - -McCullock’s Commercial Dictionary has the following definitions of -Interest and Discount: - -“_Interest_, is the sum paid by the borrower of a sum of money, or of -any sort of valuable produce, to the lender, for its use.” - -“_Discount_, is an allowance made on account of an immediate advance of -a sum of money, not due till some future period.” - -_Premium_, according to Webster’s Dictionary, is “a bounty, or -something offered or given for the loan of money, _usually_ a sum -beyond the interest.” - -These definitions, though not full, will yet serve as a foundation -on which to construct an explanation that may make these terms more -easy of comprehension. You perceive that in order to apply the -definition of Interest, which I have quoted, we must look upon every -person who is indebted to another, as a borrower; that is, as having -in his possession, certain property which belongs of right to that -other person; and for retaining the use of which he must pay him an -equivalent. If you consider in this light all transactions in which -Interest is demanded and paid, this portion of the subject will perhaps -be sufficiently plain without additional comment. - -It is in relation to the second division of the account that most -confusion usually arises. There are not less than three distinct -transactions, which are all included in the usual language of business -men, under the single term _Discount_. They are: - -1st. When a deduction is made for payment of a note or account before -due; 2d. When a per centage is taken off from a sale, in consideration -of ready money; 3d. When money is remitted from one country to another, -at an additional expense or at a loss. - -If at an expense, it is sometimes called Premium. - -For illustration, under the 1st division; suppose A holds a note -against B for $500 due in four months, and B comes to-day and proffers -payment; the custom is, for A to deduct the interest on $500 for four -months, from the face of the note; and to accept the balance as payment -in full: thus considering the use of the remainder of the amount, -sufficient to compensate for the deficiency in the payment of the face -of the bill. But this is manifestly incorrect, if we take the existing -law of this State, which declares the value of the money to be but six -per cent. per annum, to be founded on just principles. For the interest -on the remainder of the note, after deducting the interest on the face -of the note therefrom, is not sufficient at the same rate per cent. to -make up the original sum. So that B, by paying thus in advance, secures -a larger rate of interest than is lawful. Yet this is the usage, and -it is an old adage, and well established, that _usage makes law_. This -is what is termed _Bank Discount_. _True Discount_, is such a sum, as, -when deducted from the original debt, the interest on the balance will -just equal the amount deducted. The method of ascertaining this is by -proportion, or, as it is called in arithmetics, _rule of three_. Thus -we would say, as the amount of $100. and interest for the given time -and rate is to the interest on $100. for the same time and rate, so -is the total sum to the amount of discount to be deducted therefrom. -Stated thus,-- 102.00 : 2.00 :: 500.00 : the answer. - -2d. If C sells goods to D and within a certain limited time, usually -among the jobbing trade of our city 30 days after purchase, D pays for -them in cash, usage again allows him a deduction from the face of the -invoice of say 5 per cent. This is also _called_ Discount, but it is -not properly such. For it is only a deduction of such a proportion or -per centage of the bill, on fulfillment of certain conditions; while -Discount is reckoned with reference to time to run, as well as rate per -cent.; in fine, Discount is simple Interest paid beforehand. - -3d. The term _Discount_ is also applied to that sum which is advanced -beyond or deducted from the amount of a debt, in remitting money from -one country to another. - -Thus, if I wish to remit a sum of money to any foreign country, it is -needful for me to ascertain what is the difference of valuation at the -present time between money of the denominations used and ordinarily -obtainable here, and those in the country to which the remittance is -to be made. This valuation I suppose you all understand is a merely -arbitrary one, fixed at the will of the supreme power in any State, and -varying according to circumstances and the ideas of the law makers. If, -for instance, owing to the different amounts of alloy used in coining -pieces of corresponding value in different countries, there is say 5 -per cent. more precious metal in the coin of that country to which I -wish to remit than in that of our own country, I must necessarily pay -this difference in addition to the original sum, in order to render -the account of my correspondent good according to the valuation in his -country. If on the other hand the intrinsic value of our coin is 5 per -cent. the greater, then one hundred dollars of our coin will pay one -hundred and five dollars of the other. - -The proper term for this is _Exchange_, and if this name were -universally adopted, there would be far less of confusion in the ideas -associated with such transactions, in the minds of most persons. - -We will now turn to a consideration of the peculiar nature of Interest, -or more properly Usury, and the reasons assigned for a limitation of -its rate by law. Formerly, the amount received in payment for the loan -of capital, was denominated Usury; that is to say, rent for its use and -enjoyment. - -This is the correct term, for Interest is only the rent, or price paid -for the enjoyment of an object of value. - -But this word has acquired an odious meaning, and is now understood to -express an illegal and oppressive rate of interest only, the milder but -less expressive term being substituted by common usage. - -In earlier times, before the advantage and utility of a reserve -capital was known and appreciated, the demand of a rent for its use -by lenders, was looked upon as an abuse of power, and an oppression -towards the needy. And, more still, it seems from the accounts handed -down to us by the writers of those days, that even that frugality, -without which capital cannot be amassed, was looked upon as parsimony, -and deemed a public injury, by the populace, who looked upon all sums -not spent by the great proprietors, as lost to themselves. They could -not comprehend that money laid by, as a capital for some profitable -employment, was to all intents equally spent; and that to in a way -far more beneficial to the poor. For a laboring man is never sure of -earning a subsistence save where there is a capital in reserve for -him to work upon. This inability to understand its use gave rise to -strong prejudice against rich individuals, who do not spend their whole -income as it comes in; such a feeling still exists to a great extent: -formerly it was universal. Lenders themselves were infected by it, and -were so much ashamed of the part they were acting as to employ the most -disreputable agents in the collection of profits perfectly just, and -highly useful to society. - -There have been from time to time various species and modifications of -statutes, and enactments for the promotion of public liberty, and the -advancement of happiness, both private and public. - -Yet, though these ordinances have been provided in all good faith, by -the legislators, it is evident to every person who observes closely, -and compares causes and effects, that oftentimes their operation is -inefficient for the end aimed at; and often directly the reverse in -effect from the original intention of their makers. Especially, it -seems to me, is this the case in the matter of those laws relating to -Usury. - -There exists almost universally, a sort of hereditary prejudice against -the very name of _Usury_. Almost every one will plead guilty to such -feelings as these: “Usury is a bad thing, and as such ought to be -prevented; Usurers are a bad sort of men, a _very_ bad sort of men, and -as such ought to be punished and suppressed.” Now, it is not wonderful -that men fall into such opinions, and become firmly grounded in them, -when they hear them handed down and repeated by those to whom they are -in the habit of looking with confidence for correct ideas. - -For it cannot be expected that the mass of mankind should find leisure, -even had they the ability, to examine into the grounds of a hundredth -part of the rules and maxims which they find themselves compelled to -follow and observe. The fact is, that wherever it has been attempted to -limit the rate of Interest, or to abolish it altogether by law, there -the practice of Usury has uniformly revived. And, as might naturally -be expected, the more severe the penalties, and the more rigid their -execution, the higher the rate of interest was sure to rise. Because -the risk being so much greater, the lender must needs have a larger -premium of insurance to tempt him to incur it. It is a matter of -history, that at Rome, during the continuance of the republican form of -government the rates of interest were enormous. The simple and plain -reason of this was, that the debtors who were always plebeians, were -continually threatening their patrician creditors. - -So also, in those Christian countries where Interest on loans has been -forbidden, or what is equivalent, where it has been placed by law -at so low a point as would not suffice to pay the risk of loss to a -lender, the practice has been made over almost entirely to the Jews; -while at the same time so great has been the extortion, oppression, and -humiliation to which this people were exposed that nothing short of a -very heavy rate of Interest could indemnify them for such risks and -repeated losses. - -Thus in any case the ratio of the Premium of insurance, which -frequently forms the greater portion of what is called Interest, will -depend upon the degree of security presented to the lender. The greater -the risk, the higher will be the rate of Interest. When we detach from -the rate of interest all that is paid as a security to the lender -against the risk of partial or total loss of his capital, it remains to -consider that part which is purely and simply Interest: that is to say, -rent paid for the use of capital. - -This is the point upon which many wise legislators have endeavored to -lay down laws as infallible guides, and many learned economists have -advocated such restrictive enactments, as even to this day obtain in -most civilized countries. The Romans seem, according to _Cato_, to -have considered an Usurer, as worse than a thief. For, says he, “Our -Ancestors, enacted in their laws, that a _thief_ should be condemned to -pay _double_, but an _Usurer_, _quadruple_.” - -Even that most learned commentator on law, Sir Henry Blackstone, -pronounces that a legal limit ought to be placed to this branch of -trade. - -I will quote from Blackstone, on this subject. He says, when speaking -of the general points in the contract of hiring and borrowing: [2 Com., -p. 454,] “There is one species of this price or reward, the most usual -of any, but concerning which many good and learned men have in former -times very much perplexed themselves, and other people, by raising -doubts about its legality _in foro conscientie_. - -“That is, when money is lent on a contract, to receive not only the -principal sum again, but also an increase by way of compensation for -the use; which is generally called _Interest_ by those who think it -lawful, and _Usury_ by those who do not so; for those enemies to -Interest, in general, make no distinction between that and Usury, -holding any increase of money to be indefensibly usurious. And this -they ground, as well on the prohibition of it by the law of Moses among -the Jews, as also upon what is said to be laid down by Aristotle, that -money is naturally barren, and to make it breed money is preposterous -and a perversion of the end of its institution, which was only to serve -the purposes of Exchange, and not of increase. Hence the school divines -have branded the practice of taking Interest as being contrary to the -divine law, both natural and revealed: and the canon law has proscribed -the taking any, the least, increase for the loan of money, as a mortal -sin. - -“But in answer to this it hath been observed, that the Mosaical precept -was clearly a political, and not a moral precept. It only prohibited -the Jews from taking Usury from their brethren, the Jews: but in -express words, _permitted_ them to take it of a stranger; which proves -that the taking of moderate Usury, or a reward for the use, for so the -word signifies, is not _malum in se_, (a sin in itself considered,) -since it was allowed where any but an Israelite was concerned. And -as to the reason given by Aristotle, and deduced from the natural -barrenness of money, the same may with equal force be alleged of -houses, which never breed houses; and twenty other things, which nobody -doubts it is lawful to make profit of, by letting them to hire. - -“And though money was originally used only for the purposes of -exchange, yet the laws of any State may be well justified in -permitting it to be turned to the purposes of profit, if the -convenience of society, (the great end for which money was invented,) -shall require it. And that the allowance of moderate Interest tends -greatly to the benefit of the public, especially in a trading country, -will appear from that generally acknowledged principle, that commerce -cannot subsist without mutual and extensive credit. Unless money, -therefore, can be borrowed, trade cannot be carried on: and if no -Premium were allowed for the hire of money, few persons would care to -lend it; or, at least, the ease of borrowing at a short warning, (which -is the life of commerce,) would be entirely at an end. - -“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.” - -“And in this case so much goes away as every man in his own calling -might, and usually does, make of his money; allowance being made for -hazards, which in some cases are more, and in others less. With this, -I so far agree: that no man can complain, if his debtor makes a vast -and unexpected return of his money; but yet there is no doubt but I may -demand higher Interest of him that makes a very gainful trade, than I -can of another who drives a poor one.” - -These are the opinions of men learned in the science of political -economy; and are entitled to weighty consideration; but it seems to me, -they do not, any of them, reach quite far enough into the subject. All -of them appeared to be fettered by the pressure of that same generally -recognized opinion to which I have before adverted. - -The proposition I am inclined to favor on this much mooted point is -aptly expressed in the words of Jeremy Bentham. It is, “that no man of -ripe years, and of sound mind, acting freely, and with his eyes open, -ought to be hindered, with a view to his advantage, from making such a -bargain in the way of obtaining money, as he thinks fit, nor, (what is -a necessary consequence,) anybody hindered from supplying him, upon any -terms he thinks proper to accede to.” - -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. - - -[Illustration: _CRITTENDEN’S PHILADELPHIA_ - -_COMMERCIAL COLLEGE._ - -_Established, 1844. Incorporated, 1855._] - - - - -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. - - - - - - -End of the Project Gutenberg EBook of Usury, by S. H. Crittenden - -*** END OF THIS PROJECT GUTENBERG EBOOK USURY *** - -***** This file should be named 62459-0.txt or 62459-0.zip ***** -This and all associated files of various formats will be found in: - http://www.gutenberg.org/6/2/4/5/62459/ - -Produced by deaurider, David E. 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Crittenden. - </title> -<link rel="coverpage" href="images/cover.jpg" /> - <style type="text/css"> - -body { - margin-left: 10%; - margin-right: 10%; -} - - h1, h2 { - text-align: center; - clear: both; -} - -p { - margin-top: .51em; - text-align: justify; - margin-bottom: .49em; -} - -div.titlepage {text-align: center; page-break-before: always; page-break-after: always;} -div.titlepage p {text-align: center; font-weight: bold; line-height: 1.5; margin-top: 2em;} - -.ph1 {text-align: center; font-size: large; font-weight: bold;} - -hr { - width: 33%; - margin-top: 2em; - margin-bottom: 2em; - margin-left: 33.5%; - margin-right: 33.5%; - clear: both; -} - -hr.chap {width: 65%; margin-left: 17.5%; margin-right: 17.5%;} - - -div.chapter {page-break-before: always;} -h2.nobreak {page-break-before: avoid;} - -.pagenum { - position: absolute; - left: 92%; - font-size: smaller; - text-align: right; -} - -.frac {font-size: 10px;} - -.center {text-align: center;} - - -.smcap {font-variant: small-caps;} - -.xlarge {font-size: 150%;} -.large {font-size: 125%;} - -.antiqua { - font-family: Blackletter, Fraktur, Textur, "Old English Text MT", "Olde English Mt", "Olde English", Gothic, serif, sans-serif;} - -.caption {font-weight: bold; text-align: center;} - - -.figcenter { - margin: auto; - text-align: center; -} - - - - - - -.footnote {margin-left: 10%; margin-right: 10%; font-size: 0.9em;} - -.footnote .label {position: absolute; right: 84%; text-align: right;} - -.fnanchor { - vertical-align: super; - font-size: .8em; - text-decoration: - none; -} - -.transnote {background-color: #E6E6FA; - color: black; - font-size:smaller; - padding:0.5em; - margin-bottom:5em; - font-family:sans-serif, serif; } - </style> - </head> -<body> - - -<pre> - -The Project Gutenberg EBook of Usury, by S. H. Crittenden - -This eBook is for the use of anyone anywhere in the United States and most -other parts of the world at no cost and with almost no restrictions -whatsoever. You may copy it, give it away or re-use it under the terms of -the Project Gutenberg License included with this eBook or online at -www.gutenberg.org. If you are not located in the United States, you'll have -to check the laws of the country where you are located before using this ebook. - -Title: Usury - Interest, Premium and Discount - -Author: S. H. Crittenden - -Release Date: June 23, 2020 [EBook #62459] - -Language: English - -Character set encoding: ASCII - -*** START OF THIS PROJECT GUTENBERG EBOOK USURY *** - - - - -Produced by deaurider, David E. Brown, and the Online -Distributed Proofreading Team at https://www.pgdp.net (This -file was produced from images generously made available -by The Internet Archive) - - - - - - -</pre> - - -<div class="figcenter"><img src="images/cover.jpg" alt="" /></div> - -<hr class="chap" /> - - -<div class="titlepage"> - -<h1> -USURY:<br /> -<small>OR</small><br /> -<small>INTEREST, PREMIUM AND DISCOUNT.</small></h1> - -<p><span class="xlarge">A LECTURE</span><br /> -DELIVERED<br /> -<span class="large">BEFORE THE STUDENTS</span><br /> -OF<br /> -<span class="large">CRITTENDEN’S</span><br /> -<span class="xlarge"><span class="antiqua">Philadelphia Commercial College,</span></span></p> - -<p>BY<br /> -<span class="large">S. H. CRITTENDEN,</span><br /> -Attorney at Law,<br /> -CONSULTING ACCOUNTANT AND PRINCIPAL.</p> - -<p><span class="large">PHILADELPHIA:</span><br /> -RINGWALT & BROWN, STEAM-POWER BOOK AND<br /> JOB PRINTERS,<br /> -Nos. 111 & 113 SOUTH FOURTH STREET.<br /> -1863.</p> -</div> - -<hr class="chap" /> - - - -<div class="chapter"> -<span class="pagenum"><a name="Page_1" id="Page_1">[1]</a></span> -<p class="center"> -<span class="xlarge">USURY:</span><br /> -<br /> -OR<br /> -<br /> -<span class="xlarge"><span class="antiqua">Interest, Premium and Discount.</span></span><br /> -<br /> -<br /> -A LECTURE<a name="FNanchor_A_1" id="FNanchor_A_1"></a><a href="#Footnote_A_1" class="fnanchor">[A]</a><br /> -<br /> -DELIVERED BEFORE THE STUDENTS OF<br /> -<br /> -<span class="large">CRITTENDEN’S PHILADELPHIA COMMERCIAL COLLEGE,</span><br /> -<br /> -BY<br /> -<br /> -<span class="large">S. H. CRITTENDEN, <span class="smcap">Attorney at Law</span>,</span><br /> -<br /> -PRINCIPAL.</p> -</div> -<p> </p> - -<p>Our subject to-day is <span class="smcap">Usury</span>.</p> - -<p> </p> - -<p>We will first speak of this subject in its direct relation to -Book-Keeping. That is, as to its treatment under different -forms, on the Ledger, since this is in reality the phase in which -it is of most importance for us to consider it. Afterwards we -will glance at the matter in the view of utility, economy and -legality.</p> - -<p>The ledger titles which embrace this subject, are Interest, -Discount and Premium. These are all often, and indeed -generally, embodied in one account, headed Interest, yet they -are radically different divisions of the account, both in -their nature and manner of computation; although all tending -to one point, when placed upon the merchant’s books, viz: to -add to his total gains or losses.</p> - -<p><span class="pagenum"><a name="Page_2" id="Page_2">[2]</a></span>McCullock’s Commercial Dictionary has the following definitions -of Interest and Discount:</p> - -<p>“<i>Interest</i>, is the sum paid by the borrower of a sum of -money, or of any sort of valuable produce, to the lender, for its -use.”</p> - -<p>“<i>Discount</i>, is an allowance made on account of an immediate -advance of a sum of money, not due till some future period.”</p> - -<p><i>Premium</i>, according to Webster’s Dictionary, is “a bounty, -or something offered or given for the loan of money, <i>usually</i> a -sum beyond the interest.”</p> - -<p>These definitions, though not full, will yet serve as a foundation -on which to construct an explanation that may make these -terms more easy of comprehension. You perceive that in order -to apply the definition of Interest, which I have quoted, we -must look upon every person who is indebted to another, as a -borrower; that is, as having in his possession, certain property -which belongs of right to that other person; and for retaining -the use of which he must pay him an equivalent. If you -consider in this light all transactions in which Interest is -demanded and paid, this portion of the subject will perhaps be -sufficiently plain without additional comment.</p> - -<p>It is in relation to the second division of the account that -most confusion usually arises. There are not less than three -distinct transactions, which are all included in the usual -language of business men, under the single term <i>Discount</i>. -They are:</p> - -<p>1st. When a deduction is made for payment of a note or -account before due; 2d. When a per centage is taken off from -a sale, in consideration of ready money; 3d. When money is -remitted from one country to another, at an additional expense -or at a loss.</p> - -<p>If at an expense, it is sometimes called Premium.</p> - -<p>For illustration, under the 1st division; suppose A holds a -note against B for $500 due in four months, and B comes -to-day and proffers payment; the custom is, for A to deduct -the interest on $500 for four months, from the face of the note; -and to accept the balance as payment in full: thus considering<span class="pagenum"><a name="Page_3" id="Page_3">[3]</a></span> -the use of the remainder of the amount, sufficient to compensate -for the deficiency in the payment of the face of the bill. But -this is manifestly incorrect, if we take the existing law of this -State, which declares the value of the money to be but six per -cent. per annum, to be founded on just principles. For the -interest on the remainder of the note, after deducting the -interest on the face of the note therefrom, is not sufficient at -the same rate per cent. to make up the original sum. So that -B, by paying thus in advance, secures a larger rate of interest -than is lawful. Yet this is the usage, and it is an old adage, -and well established, that <i>usage makes law</i>. This is what is -termed <i>Bank Discount</i>. <i>True Discount</i>, is such a sum, as, -when deducted from the original debt, the interest on the -balance will just equal the amount deducted. The method of -ascertaining this is by proportion, or, as it is called in arithmetics, -<i>rule of three</i>. Thus we would say, as the amount of $100. -and interest for the given time and rate is to the interest on -$100. for the same time and rate, so is the total sum to the -amount of discount to be deducted therefrom. Stated thus,— -102.00 : 2.00 :: 500.00 : the answer.</p> - -<p>2d. If C sells goods to D and within a certain limited time, -usually among the jobbing trade of our city 30 days after purchase, -D pays for them in cash, usage again allows him a -deduction from the face of the invoice of say 5 per cent. -This is also <i>called</i> Discount, but it is not properly such. For -it is only a deduction of such a proportion or per centage of -the bill, on fulfillment of certain conditions; while Discount is -reckoned with reference to time to run, as well as rate per cent.; -in fine, Discount is simple Interest paid beforehand.</p> - -<p>3d. The term <i>Discount</i> is also applied to that sum which is -advanced beyond or deducted from the amount of a debt, -in remitting money from one country to another.</p> - -<p>Thus, if I wish to remit a sum of money to any foreign -country, it is needful for me to ascertain what is the difference -of valuation at the present time between money of the denominations -used and ordinarily obtainable here, and those in the -country to which the remittance is to be made. This valuation<span class="pagenum"><a name="Page_4" id="Page_4">[4]</a></span> -I suppose you all understand is a merely arbitrary one, fixed -at the will of the supreme power in any State, and varying -according to circumstances and the ideas of the law makers. If, -for instance, owing to the different amounts of alloy used in -coining pieces of corresponding value in different countries, -there is say 5 per cent. more precious metal in the coin of that -country to which I wish to remit than in that of our own -country, I must necessarily pay this difference in addition to -the original sum, in order to render the account of my correspondent -good according to the valuation in his country. If -on the other hand the intrinsic value of our coin is 5 per cent. -the greater, then one hundred dollars of our coin will pay one -hundred and five dollars of the other.</p> - -<p>The proper term for this is <i>Exchange</i>, and if this name were -universally adopted, there would be far less of confusion in the -ideas associated with such transactions, in the minds of most -persons.</p> - -<p>We will now turn to a consideration of the peculiar nature of -Interest, or more properly Usury, and the reasons assigned for -a limitation of its rate by law. Formerly, the amount received -in payment for the loan of capital, was denominated Usury; that -is to say, rent for its use and enjoyment.</p> - -<p>This is the correct term, for Interest is only the rent, or price -paid for the enjoyment of an object of value.</p> - -<p>But this word has acquired an odious meaning, and is now -understood to express an illegal and oppressive rate of interest -only, the milder but less expressive term being substituted by -common usage.</p> - -<p>In earlier times, before the advantage and utility of a reserve -capital was known and appreciated, the demand of a rent for -its use by lenders, was looked upon as an abuse of power, and -an oppression towards the needy. And, more still, it seems -from the accounts handed down to us by the writers of those -days, that even that frugality, without which capital cannot be -amassed, was looked upon as parsimony, and deemed a public -injury, by the populace, who looked upon all sums not spent by -the great proprietors, as lost to themselves. They could not<span class="pagenum"><a name="Page_5" id="Page_5">[5]</a></span> -comprehend that money laid by, as a capital for some profitable -employment, was to all intents equally spent; and that to in a -way far more beneficial to the poor. For a laboring man is -never sure of earning a subsistence save where there is a capital -in reserve for him to work upon. This inability to understand -its use gave rise to strong prejudice against rich individuals, who -do not spend their whole income as it comes in; such a feeling -still exists to a great extent: formerly it was universal. Lenders -themselves were infected by it, and were so much ashamed of -the part they were acting as to employ the most disreputable -agents in the collection of profits perfectly just, and highly -useful to society.</p> - -<p>There have been from time to time various species and modifications -of statutes, and enactments for the promotion of public -liberty, and the advancement of happiness, both private and -public.</p> - -<p>Yet, though these ordinances have been provided in all good -faith, by the legislators, it is evident to every person who -observes closely, and compares causes and effects, that oftentimes -their operation is inefficient for the end aimed at; and often -directly the reverse in effect from the original intention of their -makers. Especially, it seems to me, is this the case in the -matter of those laws relating to Usury.</p> - -<p>There exists almost universally, a sort of hereditary prejudice -against the very name of <i>Usury</i>. Almost every one will plead -guilty to such feelings as these: “Usury is a bad thing, and as -such ought to be prevented; Usurers are a bad sort of men, a -<i>very</i> bad sort of men, and as such ought to be punished and -suppressed.” Now, it is not wonderful that men fall into such -opinions, and become firmly grounded in them, when they hear -them handed down and repeated by those to whom they are in -the habit of looking with confidence for correct ideas.</p> - -<p>For it cannot be expected that the mass of mankind should -find leisure, even had they the ability, to examine into the grounds -of a hundredth part of the rules and maxims which they find -themselves compelled to follow and observe. The fact is, that -wherever it has been attempted to limit the rate of Interest, or<span class="pagenum"><a name="Page_6" id="Page_6">[6]</a></span> -to abolish it altogether by law, there the practice of Usury has -uniformly revived. And, as might naturally be expected, the -more severe the penalties, and the more rigid their execution, -the higher the rate of interest was sure to rise. Because the -risk being so much greater, the lender must needs have a larger -premium of insurance to tempt him to incur it. It is a matter -of history, that at Rome, during the continuance of the republican -form of government the rates of interest were enormous. -The simple and plain reason of this was, that the debtors who -were always plebeians, were continually threatening their patrician -creditors.</p> - -<p>So also, in those Christian countries where Interest on loans -has been forbidden, or what is equivalent, where it has been -placed by law at so low a point as would not suffice to pay the -risk of loss to a lender, the practice has been made over almost -entirely to the Jews; while at the same time so great has been -the extortion, oppression, and humiliation to which this people -were exposed that nothing short of a very heavy rate of Interest -could indemnify them for such risks and repeated losses.</p> - -<p>Thus in any case the ratio of the Premium of insurance, which -frequently forms the greater portion of what is called Interest, -will depend upon the degree of security presented to the lender. -The greater the risk, the higher will be the rate of Interest. -When we detach from the rate of interest all that is paid as a -security to the lender against the risk of partial or total loss of -his capital, it remains to consider that part which is purely and -simply Interest: that is to say, rent paid for the use of capital.</p> - -<p>This is the point upon which many wise legislators have -endeavored to lay down laws as infallible guides, and many -learned economists have advocated such restrictive enactments, -as even to this day obtain in most civilized countries. The -Romans seem, according to <i>Cato</i>, to have considered an Usurer, -as worse than a thief. For, says he, “Our Ancestors, enacted -in their laws, that a <i>thief</i> should be condemned to pay <i>double</i>, -but an <i>Usurer</i>, <i>quadruple</i>.”</p> - -<p>Even that most learned commentator on law, Sir Henry -Blackstone, pronounces that a legal limit ought to be placed to -this branch of trade.</p> - - - -<p><span class="pagenum"><a name="Page_7" id="Page_7">[7]</a></span>I will quote from Blackstone, on this subject. He says, when -speaking of the general points in the contract of hiring and -borrowing: [2 Com., p. 454,] “There is one species of this -price or reward, the most usual of any, but concerning which -many good and learned men have in former times very much -perplexed themselves, and other people, by raising doubts about -its legality <i>in foro conscientie</i>.</p> - -<p>“That is, when money is lent on a contract, to receive not only -the principal sum again, but also an increase by way of compensation -for the use; which is generally called <i>Interest</i> by those -who think it lawful, and <i>Usury</i> by those who do not so; for those -enemies to Interest, in general, make no distinction between that -and Usury, holding any increase of money to be indefensibly -usurious. And this they ground, as well on the prohibition of -it by the law of Moses among the Jews, as also upon what -is said to be laid down by Aristotle, that money is naturally -barren, and to make it breed money is preposterous and a -perversion of the end of its institution, which was only to serve -the purposes of Exchange, and not of increase. Hence the -school divines have branded the practice of taking Interest as -being contrary to the divine law, both natural and revealed: -and the canon law has proscribed the taking any, the least, -increase for the loan of money, as a mortal sin.</p> - -<p>“But in answer to this it hath been observed, that the Mosaical -precept was clearly a political, and not a moral precept. It -only prohibited the Jews from taking Usury from their brethren, -the Jews: but in express words, <i>permitted</i> them to take it of a -stranger; which proves that the taking of moderate Usury, or -a reward for the use, for so the word signifies, is not <i>malum in se</i>, -(a sin in itself considered,) since it was allowed where any but -an Israelite was concerned. And as to the reason given by -Aristotle, and deduced from the natural barrenness of money, -the same may with equal force be alleged of houses, which never -breed houses; and twenty other things, which nobody doubts it -is lawful to make profit of, by letting them to hire.</p> - -<p>“And though money was originally used only for the purposes -of exchange, yet the laws of any State may be well justified<span class="pagenum"><a name="Page_8" id="Page_8">[8]</a></span> -in permitting it to be turned to the purposes of profit, if the -convenience of society, (the great end for which money was -invented,) shall require it. And that the allowance of moderate -Interest tends greatly to the benefit of the public, especially in -a trading country, will appear from that generally acknowledged -principle, that commerce cannot subsist without mutual and -extensive credit. Unless money, therefore, can be borrowed, -trade cannot be carried on: and if no Premium were allowed -for the hire of money, few persons would care to lend it; or, -at least, the ease of borrowing at a short warning, (which is the -life of commerce,) would be entirely at an end.</p> - -<p>“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.”</p> - -<p>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 -<i>with Usury</i>.”</p> - -<p>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,<span class="pagenum"><a name="Page_9" id="Page_9">[9]</a></span> -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.”</p> - -<p>“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.”</p> - -<p>“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.”</p> - -<p>“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.”</p> - -<p>“The legal rate, it is to be observed, though it ought to be -somewhat above, ought not to be <i>much</i> 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,<span class="pagenum"><a name="Page_10" id="Page_10">[10]</a></span> -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.”</p> - -<p>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 <i>loan</i>, the other a <i>letting</i>. 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<span class="pagenum"><a name="Page_11" id="Page_11">[11]</a></span> -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.</p> - -<p>“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.</p> - -<p>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.”</p> - -<p>“And in this case so much goes away as every man in his own -calling might, and usually does, make of his money; allowance -being made for hazards, which in some cases are more, and in -others less. With this, I so far agree: that no man can complain, -if his debtor makes a vast and unexpected return of his -money; but yet there is no doubt but I may demand higher -Interest of him that makes a very gainful trade, than I can of -another who drives a poor one.”</p> - -<p>These are the opinions of men learned in the science of -political economy; and are entitled to weighty consideration; -but it seems to me, they do not, any of them, reach quite far -enough into the subject. All of them appeared to be fettered -by the pressure of that same generally recognized opinion to -which I have before adverted.</p> - -<p>The proposition I am inclined to favor on this much mooted -point is aptly expressed in the words of Jeremy Bentham. It -is, “that no man of ripe years, and of sound mind, acting freely,<span class="pagenum"><a name="Page_12" id="Page_12">[12]</a></span> -and with his eyes open, ought to be hindered, with a view to his -advantage, from making such a bargain in the way of obtaining -money, as he thinks fit, nor, (what is a necessary consequence,) -anybody hindered from supplying him, upon any terms he -thinks proper to accede to.”</p> - -<p>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 <i>legal</i> or, <i>political</i> definition. The other is taking -more Interest than is usual for other people to give and take; -this is the <i>moral</i> 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 <i>fix</i> that point.</p> - -<p>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 <i>therefore</i> -(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.</p> - -<p>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?”</p> - -<p>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?</p> - -<p>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<span class="pagenum"><a name="Page_13" id="Page_13">[13]</a></span> -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.</p> - -<p>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 <i>take</i> more than the fixed maximum of interest -for the use of money, why not make it a penal offence to <i>offer -less</i> than that amount, as well as to accept more?</p> - -<p>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 <i>prevent</i> -prodigality, and protect the poor and simple from extortion -and imposition.</p> - -<p>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 <i>promise</i> 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.</p> - -<p>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.</p> - -<p>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.<span class="pagenum"><a name="Page_14" id="Page_14">[14]</a></span> -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.</p> - -<p>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.</p> - -<p>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 <i>he</i>, 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.</p> - -<p>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?</p> - -<p>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,<span class="pagenum"><a name="Page_15" id="Page_15">[15]</a></span> -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.</p> - -<p>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 -<i>idiots</i>.</p> - -<p>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.</p> - -<p>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.</p> - -<p>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.</p> - -<p>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,<span class="pagenum"><a name="Page_16" id="Page_16">[16]</a></span> -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 -<i>borrowing</i>, upon terms too disadvantageous, it does not forbid -him from <i>selling</i> at any, even the most ruinous rates.</p> - -<p>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.</p> - -<p>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<sup class="frac">1</sup>⁄<span class="frac">3</span> 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.</p> - -<p>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.</p> - -<p>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.</p> - -<hr class="chap" /> - -<div class="figcenter"><img src="images/i_20.jpg" alt="" /></div> -<p class="caption"><i>CRITTENDEN’S PHILADELPHIA</i><br /> - -<i>COMMERCIAL COLLEGE.</i><br /> - -<i>Established, 1844. Incorporated, 1855.</i></p> - - - -<hr class="chap" /> -<div class="chapter"> - -<h2 class="nobreak">FOOTNOTE:</h2></div> - -<div class="footnote"> - -<p><a name="Footnote_A_1" id="Footnote_A_1"></a><a href="#FNanchor_A_1"><span class="label">[A]</span></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.</p></div> - -<hr class="chap" /> - -<div class="transnote"> -<p class="ph1">TRANSCRIBER’S NOTES:</p> - - -<p>Obvious typographical errors have been corrected.</p> - -<p>Archaic or alternate spelling has been retained from the original.</p> -</div> - - - - - - - - - -<pre> - - - - - -End of the Project Gutenberg EBook of Usury, by S. H. 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