USURY. When every one produced nearly everything that he consumed, and commerce consisted in almost accidental exchange, loaning was only a friendly service or charitable act. Morality or religion might then have justly branded the greedy man who made a vile use of the distress of his neighbor. But the relations of men to one another increased, and became complicated; in one way or another capital came into existence. Here, a conqueror took violent possession of lands, houses and animals; there, a pirate came to shore loaded with booty; elsewhere, wealth was accumulated by labor and saving. The surplus thus acquired (whether rightly or wrongly) was transformed into capital by the employment which was made of it. For, it is the use for which an object is intended which constitutes it capital. By the force of things the remunerated loan gradually lost part of the reprobation which attached to it, and interest was enabled to establish itself, but not without a struggle. Unfortunately, capital long remained a monopoly, and the loaning of it was necessarily dear, and all the dearer since loans were made in the beginning less by industry than by luxury and dissipation. The capitalist drew from his possessions all that he could; this he had a right to do, a right which, doubtless, he sometimes abused. Hence governments, having been long accustomed to look upon subjects as minors, believed themselves obliged to fix the rate of interest. Since then times have changed; labor has become more general; the sciences have pointed out the means of increasing its products by rendering it more efficient; wealth has accumulated in the hands of many; there is competition among lenders; and now luxury is scarcely ever, and industry almost always, the borrower: yet in certain countries prejudice has preserved a restrictive legislation. This is much to be regretted. The hiring of capital differs in nothing from that of any other object; and its price, too, depends on the action of demand and supply, as do the prices of all objects. In this world all abundant things are cheap, and all rare things dear. Human laws are powerless to modify this natural law, to which we may apply the words, dura lex, sed lex.
—Restrictive laws on the subject of usury can only aggravate the evil which they propose to prevent. Interest is composed of at least two elements: 1, the remuneration of the service rendered by the loan (or, which is the same thing, the compensation which the lender imposes on himself); and 2, insurance against the risk of loss. Solvent and honest borrowers may, by a combination of unfavorable circumstances, find it impossible to return the principal. There are times in which these circumstances become frequent; and if the law prevents the capitalist from insuring himself against loss by his proportionately raising the rate of interest, one of two things will happen: either the capitalist will abstain from giving credit, or he will raise the rate of interest by the addition of a third element, insurance against the risk of punishment.
—A pretense is made to justify the limitation of the rate of interest, by the obligation of protecting the needy person who borrows. Many objections to this immediately present themselves to the mind. 1. If the borrower agrees to pay the price, the reason is that the service rendered him does not seem to him too dear; a man may borrow at 20 or 30 per cent. if he foresees that he can gain 40 per cent. 2. Is the case that of a spend-thrift? You can not prevent him from wasting his fortune; if he does not do it in one way, he will in another. 3. Why not put one's self at the lender's point of view also? If the return of the funds he loans seems to him more or less doubtful, why should he not have the right to cover his risk? 4. What difference is there between goods and money? and can not the former be sold legally at any price one wishes? 5. Lastly, admitting that some abuses are inevitable (and where is abuse wanting?), must we interfere with the use which is frequent, nay daily, to reach some abuses which are relatively rare? Are these abuses sufficient to warrant the putting of all those under the guardianship of the law, who for one reason or another desire to borrow? It is of general utility that trade in money should be as free as trade in merchandise; fraud alone should be punished. Moreover, to limit the rate of interest we should know what its normal rate is. But who can fix it? The legal rate is 5 per cent. in France, and 10 per cent. in Algeria. What is the legal rate in Turkey? What was the legal rate at Rome or during the middle ages?
—The arguments we have just given have not escaped legislators, and in many countries the crime of usury has been blotted from the penal code, and gradually it will be blotted from the penal codes of all countries. (Compare INTEREST.)