Money And Usury
( Originally Published Early 1900's )
"MONEY and Usury" is a subject that has perhaps been more extensively discussed than any other within the sphere of trade and finance, and usury has been the fertile theme of a great amount of both sense and nonsense, as well as of a large number of foolish laws. In times gone by the word "usury " was employed in the same sense as " interest" is now, and Lord Bacon, in his essay on usury, evidently attaches this signification to it, as he makes a distinction between high and low "rates of usury," and the context shows he was unacquainted with the term "interest." He criticizes pretty severely the critics on usury, and says: "Many have made witty invectives against usury. They say that it is a pity the devil should have God's part, which is the tithe, that the usurer is the great Sabbath-breaker because his plough goeth every Sunday." So we see from Bacon's opinion that the prejudice against paying for the use of other people's money is as old as it is unreasonable. We have no record of any period when within the confines of civilization men were not in the habit of paying for the use of the property of other men; in fact, such compensation marks the dawn of civilization -a time when it was discovered to be better to hire another man's goods or lands than to kill him for the sake of becoming their owner. An equivalent for the use of lands or buildings we style rent; for the use of chattels, hire; for the use of money, interest. One of the most noticeable facts about the last-named equivalent is that in almost all communities its amount, as related to the material for the use of which it is paid, has been made the subject of legislation. Laws have never been enacted regulating the prices of rents or of the hire of chattels, but statutes regulating the interest of money are beyond computation as to number, and their existence dates back to epochs beyond which public record and the memory of mankind run not to the contrary. Since this is an undeniable fact, there must be a reason for its origin and its persistent vitality. May not this be the reason? -that money not being a commodity, but the representative of all commodities, capable of passing through all metamorphoses of lands, houses, cattle, grain-in short, of all transferable things whatsoever - may be said to have a value free from such changes as other commodities are constantly undergoing; therefore, while the owner of these may lawfully demand any price he pleases for the use of such property, and take all he can get, the owner of money must not demand or take more than a certain price, which price shall be stated by the lawmakers of the community. This is the probable basis of usury laws, though we should not assert that laws are enacted solely in order to assert a principle. As a matter of fact, they are kept on the statute books in deference to a sentiment which is supposed to pervade the public mind, that poor people must be protected from the rapacity of money-lenders. It will not be difficult to show that the alleged principle on which usury laws are based is illogical; and further, that, as a matter of fact, these laws do not prevent poor borrowers, or borrowers upon hazardous pledges, from paying high prices for the use of money. That money is not a commodity because it is the representative and summary and equivalent of all commodities, is a conclusion which is not only open to doubt, but may be with reason flatly denied. That the greater includes the less is an axiom; and if money includes all commodities, it must itself be the greatest of commodities. It is the nearest approach to an unchangeable measure of values that can be attained, but at the same time it remains a commodity, subject, as are other commodities, to the laws of supply and demand. In the varying conditions of trade, its use may at one time command interest, or usury, at a rate of but three per cent. per annum, while at another it may command six per cent. or more. These terms indicate the altered relation in its supply and demand, consequent upon the variations in production or consumption of other commodities. There is, indeed, no absolute measure of value except it be the general average resulting in society from the continually varying relations which commodities bear to each other in respect of prices. Today a bushel of No. 1 winter wheat shall be exchangeable for a barrel of crude petroleum, or ten yards of sheeting, or one gold dollar; tomorrow it shall be exchangeable for two barrels of crude petroleum, or fifteen yards of sheeting, or one gold dollar and a half. But we must have terms in which these fluctuations may be expressed, which shall form an understandable basis of exchange of products between individuals and among nations; hence the elaboration of this means of facilitating commerce into vast monetary systems. Money is not only an admitted equivalent for all commodities, but is itself a commodity and the greatest of commodities in this respect that it is the most strongly desired, the most widely known, and the most universally possessed. As civilization has progressed, so has the necessity developed for such an equivalent in the most concentrated form, and one capable of easy transmission. Along with the social evolution of the most enlightened nations, has come, by successive steps, the adoption of the most precious available metal, gold, as the basis of this equivalent, and the most compact exchangeable representative commodity. Some writers have asserted that money is not a commodity, because it is neither produced nor consumed. The objection to this statement is that it is not true. Money is both produced and consumed. It is first dug out of the earth, and afterward it undergoes a constant consumption by abrasion. It is estimated that the production of gold keeps but slightly in advance of its consumption year by year, while in the last twenty years the production of silver has been much in excess of the consumption. Therefore the relations of gold and silver have changed. Gold is dearer and silver is cheaper. This one fact shows that the precious metals used as money by the common consent of mankind are, in truth, commodities. Is it logical that the greater, the representative commodity should, in its operations, be bound by restrictive laws which have never been sought to be applied to the lesser commodities? It would seem, therefore, that no reason worth the name exists why a person having money which he is able to spare to the uses of others, should not receive from them such compensation for its use as he and they may by contract agree upon. And all reasons urged against usury will be found to be either wholly sentimental or based upon misconceptions of the true functions of money. History has already passed upon Napoleon's Berlin decrees, and his other laws against the use of, and traffic in, English merchandise; the witchcraft laws of New England have died; Quakers are no longer persecuted in Massachusetts and Connecticut; Great Britain has abolished all usury statutes; Connecticut has done the same, as well as many of her sister States; they never have disfigured the statute books of California; but in New York, the greatest of the States, the most commercial, the richest, the State where the fullest play should be given to the traffic in useful commodities, it is a crime to lend money on time at seven per cent. per annum! Laws that regulate the rate of interest in cases where no contract is made, or on sums that have become overdue, are natural and reasonable; but no legislation can be seriously defended that attempts to prohibit one citizen from making any contract with another, touching useful commodities or services, which both agree to; still less where it brands one of the contracting parties with guilt and enables the other party to rob him with impunity, and even to procure his incarceration. If we are wrong in this way of thinking, we prefer to be wrong in company with the enlightened sense of Great Britain, Connecticut, and California to mention no others rather than to be right in company with the antiquated sense of New York. As to the many devices used to nullify these statutory trammels laid upon the freedom of man's dealings with man, Lord Mansfield, one of the great English judges of the eighteenth century, in delivering an opinion on usury, said: " Where the real truth is a loan of money, the wit of man cannot find a shift to take it out of the statute." Lord Mansfield, in his patriotic admiration of the English law which he, in common with Blackstone and some others, considered the "perfection of human reason," was doubtless sincere in the expression of this opinion, but there are very few judges in the present day who do not know that there never has been an usury law passed which human ingenuity has not found a method of evading. Many instances of such evasions and of a great variety of methods of evasion can be easily cited from the standard law books and reports, even from Lord Mansfield's day down to the present time. Bacon, with his love for systematizing every subject which he handled, divided the arguments that prevailed in his time against and for usury, or interest, and states them as follows in his quaint but terse English. He says: "The discommodities of usury are, first, that it makes fewer merchants, for were it not for this lazy trade of usury, money would not lie still, but would in great part be employed upon merchandizing, which is the vena porta of wealth in a state; the second, that it makes poor merchants, for as a farmer cannot husband his ground so well if he sit at a great rent, so the merchant cannot drive his trade so well if he sit at a great usury." It would seem that the borrowing of money at a high rate in our times works, as a rule, the very contrary to what many people in Bacon's day had estimated as the results. A man seldom borrows money at a high rate, or at any rate, now, without a fair prospect of investing it so as to have a profit after paying the interest. So the merchant never " sits at great usury," to use Bacon's words, unless he sees the means of paying the usury and realizing a surplus besides. Another reason assigned in the catalogue of Bacon's "discommodities" is "that usury doth dull and damp all industries, improvements, and new inventions, wherein money would be stirring if it were not for this slug." This is a peculiar view of the results of borrowing. Consequences seem to be largely the contrary in our day. This power to borrow infuses activity into all the channels of industry and invention in which money is employed. Many of the projectors of our modern "sky-scrapers," for instance, can usually realize three or four per cent. profit between the money borrowed and that expended on the buildings. Of course it changes the nature of the transaction if the interest is larger than the profits of the business, but there are very few so foolish as to borrow under such conditions and at such ruinous rates. Viewing the obverse side of the picture, however, Bacon's theories are more in consonance with present commercial practice and experience. But they all go to show, more or less, how narrow the basis of business, trade, and commerce was in the golden age of Queen Elizabeth and James the First, about three centuries ago, and they bring out in bolder relief the great progress that has been made since that time. Bacon goes on to show that were it not for borrowing, "men's necessities would draw upon them a most sudden undoing;" and he concludes that "it is a vanity to conceive that there would be ordinary borrowing without profit, and it is impossible to conceive the number of inconveniences that would ensue if borrowing be cramped. Therefore, to speak of the abolishing of usury is idle. All states have ever had it, in one kind or rate or other; so that opinion must be sent to Utopia." Such were the opinions of the great philosopher who has gained the credit of creating a revolution in scientific thought and who was chiefly instrumental in reducing the philosophic theories of centuries to the practical basis which has been at the bottom of all modem invention and discovery. "The key to the Baconian system of philosophy," says a great writer, "was utility and progress," and these have brought into being a world of business enterprise, and need for freedom in its transaction, not dreamed of in his time. The day is not far distant, I believe, when money will be bought and sold and rented out with as little restriction upon the parties to the contract as that pertaining to any other commodity.