Page images
PDF
EPUB

consider the question. If money, in the shape of loan, differ in nothing from commodities of trade, there can not possibly be any difference between the lending and borrowing of money, and the selling and buying of commodities the lenders and borrowers of money must of necessity stand in precisely the same relative circumstances as the sellers and buyers of commodities. What is the truth?

The sellers and buyers of commodi ties form one body; the seller is commonly a buyer likewise, and he can gain in the one capacity, if he lose in the other. The lenders and borrow ers of money form distinct classes; the borrower cannot lend, therefore he cannot gain from lending what he may lose from borrowing.

The seller and buyer of commodities are on an equality; they both act from choice; the one can make his needs public, and go from man to man in search of an advantageous bargain, in as much security as the other. There is no more discredit in wanting to buy, than there is in wanting to sell; and the seller has no more means of taking advantage of the buyer, than the buyer has of taking advantage of the seller. There is commonly an abundance of commodities in the market, and competition favours not the seller more than the buyer. The seller can make nothing of his commodities until he sells them; he can only hold them for a short period, and it is as necessary for him to sell, as it is for the buyer to buy. If the buyer have to pay a higher price, he can still obtain the same rate of profit; and he is not compelled to buy, if he cannot do it without loss. The bargains are the work of a moment, and they are attended with no cost and trouble. Prices are the same to the poor man as to the rich one. This forms the general rule; when the case is different, it is the exception.

The reverse forms the general rule to the lender and borrower of money. They are not on an equality; but the one has very great advantages over the other. The lender gains credit and respectability from making it public that he has money to lend; the borrower suffers in both from making it public that he wants to borrow. The former can select his customer, the latter is often bound to one individual, whatever terms may be demanded

from him. The supply of money is very irregular, and competition is greatly in favour of the lender. The latter can vest his money in public securities, &c. until he finds a bor rower to his mind; and if he keep it so vested for years, he suffers comparatively nothing; he is free from the compulsion which rests on the borrower. If the borrower have to pay a higher rate of interest, he can neither raise the profits of his business, nor do without borrowing. At the time when his profits are the worst, his need for borrowing is the greatest, and he must pay the highest rate of interest. The borrowing of money, in various cases, occupies much time, and is attended with much expense and trouble. The rate of interest varies greatly, and it is the highest to the poor man, and the lowest to the rich one. It is not regulated by the profits of business, and its variations clash with the weal of the community. In respect of both time and person, it is the highest when public good prescribes that it should be the lowest ; and the contrary. When the case is different, it forms the exception to the rule.

If the price of the commodity become very high, this creates its own remedy, by enlarging production and foreign supplies. In most cases it cannot sensibly injure the body of the community; and in others it cannot produce any large and lasting portion of public evil. But if the price of the loan become very high, this creates what will perpetuate and increase the advance; it paralyses and destroys agriculture, manufactures, commerce, and domestic trade; it diminishes public revenue and raises taxes; it has the most pestilential effects on the whole community.

Much more we could say on this point, but more is not necessary. The single truth, which no man living can impugn, that a very high rate of interest for borrowed money must have the most destructive effects on all the best interests of the empire, is of itself sufficient to demonstrate that money, as a loan, differs essentially and wholly from any commodity of trade. The fact, therefore, of the usurers is worthless fable, and the inference we must necessarily cast to the winds.

The Usury Laws take their stand upon the difference between money

as trading capital and money as a loan. They interfere not with money, in so far as it resembles commodities; the man who employs it in buying and selling may draw from it twenty, fifty, or eighty per cent, and they will give him no molestation. But when it ceases to resemble commodities, they take it under their regulation. Why do they do this? To make it as far as possible a commodity like other commodities. The difference is created, not by them, but by the nature of things; and their object is to remove it. It is acknowledged by the most competent judges, that they have always taken the natural rate of interest for their guide-that they have never made the legal rate lower than that at which people of good credit could borrow. That rate of interest which people of good credit could borrow at, if they were not in existence, they make the rate for the whole community; in order that the loan may bear the same price to all, as the commodity bears the same price to all. They endeavour to preserve money as a loan from scarcity, pernicious monopoly, and an injuriously high price; and to establish that equality between borrowers and lenders of money which exists between buyers and sellers of commodities.

As a subsidiary reason, the usurers urge, that, from the altered circumstances of the country, nothing of what the Usury Laws were intended to prevent could take place, should these laws be abolished. This is equivalent to asserting, that there would be no extortion, and that there would be no injurious variations in the rate of interest, in respect of either time or person.

The question now arises-Are lenders so changed in disposition, that, possessing the means, they will scrupulously abstain from extortion on principle; or are borrowers so changed in circumstances, that they can effectually protect themselves from extortion? With regard to lenders, it will, we imagine, be generally conceded, that they are wholly unchanged in disposition; every man will admit that they are as anxious as ever to make the most of their mo ney. We say not that they are a whit more mercenary and rapacious than other people; but we say that they are not less so. The truth is, that - VOL. XXIV.

merchants, manufacturers, farmersall who are in business, constantly labour to obtain the highest price possible; and if they had their cus tomers at their mercy, they would be as ready to extort from them a profit of 40, 60, or 100 per cent, as any usurer whatever. They are content with moderate profits, only because they are compelled to be so. It may be safely taken for granted, that if no such compulsion rested on the money-lender, he would grind the borrower to powder, by extorting from him exorbitant profit, just as men in other lines of business would do in similar circumstances. In fact, the usurers maintain that they have a right to obtain the highest rate of in terest in their power.

Are then borrowers so changed in circumstances, that they can never be at the mercy of lenders? The question, of course, refers to more than the present moment; legislation must have something to stand upon beyond the state of things in a particular year, or term of years; it must be based upon what will be, as well as what is; its regulations must be of a nature to suit all times and circumstances. The borrowers are practically divided into three great classes, which differ widely from each other in the mode of borrowing; in giving a reply, we will look at these separately. One consists of those traders and others who constantly require to have bills discounted, and who frequently need loans for a short period. Another consists of landowners, &c. who borrow for a long term upon mortgage. And the third consists of farmers, tradesmen, &c. who borrow upon bond or note for a period of considerable and uncertain duration.

The first class borrows almost exclusively of the Banks, except in London, where it borrows to a considerable extent in other quarters. At present, money is as plentiful as it can ever be expected to be, and a few members of the class can borrow at 2 or 3 per cent in London, but not elsewhere. They cannot do this from the Banks and the money-lenders generally; they can only do it from a few individuals. The money lent at this low rate belongs to certain capitalists, who wish to keep it loose for speculation, and who lend it in heavy sums for the moment, to those only whose K

solidity is above question. It is not constantly employed in lending, and the body of borrowers cannot have access to it. This low rate may therefore be thrown out of the question, as the trifling accidental exception to the rule. In London, and some parts of the country, the Banks discount at 4 per cent, and in many parts of the country they discount at 5 per cent. In the metropolis, and the other places where 4 per cent has been adopted, 5 per cent is still charged on bills which are not of undoubted respectability, unless they are discounted under the banking account; and 5 per cent is still charged on direct loans, if the security be not of a very high description. Even in those places, the most numerous part of this class of borrowers has to pay 5 per cent; and in many parts of the country the whole class has to pay the same.

There is never much competition amidst money-lenders in London. The bill-brokers and capitalists keep up a little with the Banks in respect of discounting; but the banks act to a great degree in concert. In the country, the Banks have the market to themselves, and they do not compete with each other. Money-lending is not of a nature to admit of competition and underselling. The competition, soli citation, and tempting with terms, must be confined to the borrowers of money. While the Bank suffers comparatively nothing if it refuse to lend, the merchant, manufacturer, or trades man, must almost daily have his bills discounted, and he must frequently have his temporary loan, to save him from heavy loss, or perhaps ruin. He cannot hawk about his bills, and go from Bank to Bank to borrow at the cheapest rate; the whole he would draw from this would be, the destruction of his credit. He borrows from necessity, and he must borrow from one source. The laws establish equality on this point. The lender may refuse to lend, but he cannot make his refusal an instrument of extortion; the borrower may solicit, but he can not bribe with high terms. The price is fixed, neither of them can alter it, and the lender must take it, or keep his money.

If the laws should be abolished, competition would have precisely that effect here, which it has in trade. If the buyers of cotton, sugar, or any other article, compete with each other,

and press upon the sellers, while the latter hold off from selling, the price rises; when the reverse is the case, the price falls. In respect of money, the borrowers would continually press upon the lenders, and of course the price of money would rise. These lenders, like the sellers of goods, would always be anxious to obtain the highest price; and in the first moment they would raise their price to neces sitous borrowers.

Although the Banks at present profess to discount and lend at a certain rate, they still, in many cases, vary the rate according to the credit of the borrower; if the Usury Laws should be abolished, they might, perhaps, to their regular connexions and the opu lent, charge one rate, but to needy borrowers they would have no fixed rate whatever. If they do not like a bill or security, they now refuse to lend: but the case would be widely different, if an offer could be made them on either of ten, fifteen, twenty, or thirty per cent. If the laws be abo lished, they will be constantly solicit→ ed and tempted with high terms by necessitous borrowers; and they will cultivate a trade with such borrowers. They have now a great interest in keeping bad bills out of being; they will then have a great interest in mul, tiplying such bills. They will accommodate many borrowers, who are now unable to obtain discounts and loans, on being offered an exorbitant rate of interest; and to the vast body of those who can now barely borrow at the legal rate, they will raise the rate to eight, ten, or fifteen per cent. If the small merchant, manufacturer, or tradesman, who keeps an account with them, and whom they know to be in their power, take to them a bill, they will tell him it is of a kind which they cannot pass to his credit, without charging a high rate of discount; if he ask for a loan, they will complain that money is scarce, and demand a high rate of interest; and whatever they may charge, he must pay. An immense portion of the smaller, and even middling merchants, manufac turers, and tradesmen, are generally at the mercy of their bankers; from some cause or other they have not the means of closing and removing their accounts; and when they take in bills, or ask for loans, they must have money, no matter what they may pay for it. Amidst a very large and most meritorious por

tion of this class of borrowers, a high rate of interest will become general; and this will raise the rate to other borrowers.

This applies to the present state of the money-market, but how long will it remain in this state, putting the chance of war entirely out of the question? Every one knows-barring perhaps the members of the House of Commons-that the supply of money continually varies, even in times of peace; and that in every two or three years a fit of commercial and manufac turing distress, of several months duration, takes place, which creates a great scarcity of money. If this country remain in peace, it is matter of certainty, according to all experience, that once in every two or three years, there will be for a considerable time a great scarcity of money. As in such a scarcity, the Banks, &c., if the Usury Laws berepealed, will naturally charge the highest rate of interest possible, how will the borrowers be circumstanced? Will they be independent of the lenders? Will they be able to obtain money on fair terms in one place, if they cannot in another; or will they be able to do without it, if they cannot obtain it on such terms? The whole of this class will then be completely at the mercy of the lenders; money it must have, no matter what the terms may be; and it will be compelled to pay any rate of interest they may require.

In time of war there is a constant scarcity of money, and frequently it is very great. In such a time the lenders will almost always have it in their power to charge a scarcity price, and the whole of this class of borrowers will be almost always at their mercy.

We will now look at the second class of borrowers-those who borrow on mortgage. Money can at present be obtained on mortgage at 44, or even 4 per cent; but then the security must be of the first character. Those who borrow on second and third-rate securities must still pay the legal rate. Those who borrowed before interest fell, have, to a very great extent, still to pay the legal rate on first-rate securities. If they apply for a reduction, the answer perhaps is-no, I will sooner have my principal. They must therefore either continue to pay 5 per cent, or be at expenses in transferring, which will swallow the difference of interest for two, four, or six years to

come. They cannot perhaps conveni ently pay these expenses, and they prefer the former. The legal rate is still paid by a large portion of this class of borrowers.

4

This class generally borrows from necessity; from some cause or other the borrower must have money, no matter what the interest may be. We have here a different class of lenders. The Banks do not lend on mortgage. The money is advanced by individuals, who are constantly on the watch to make the most of it; many of them are people of small income, and what' they lend constitutes a large part of what they possess. The large lenders, who are content with the lowest interest, will frequently only lend in large sums, and on first-rate securities. Speaking generally, when a man borrows money on mortgage, he parts with it immediately; and if he be called on for repayment, his only alternative is, borrowing the amount of some other person, or the forced sale of his property. If the Usury Laws be abolished, he must in any scarcity of money pay any price that the lender may think good to demand. If money be abundant as it now is, there must always be a scarcity of it to borrowers whose security is slender, whether they borrow on personal security, or on mortgage; and they must pay for it a scarcity price. On all the inferior securities-the second mortgages, those on leasehold property, &c. &c.-the interest will be raised to 7 or 8 per cent, if the Usury Laws be abolished. In fits of general scarcity, the interest will be pushed up on these securities; and in the fits of abundance, the borrowers will not be able to get it down. Such securities are very numerous; and the rise on them will create a rise on the best. The rise on trading money will operate greatly on mortgage money. In time of war this class of borrowers will be ground to powder by the lend

ers.

The latter, then, knowing that the borrowers must pay whatever they may require, will be continually call ing for an increase of interest, not only from those who may want to borrow at the time, but from those who have borrowed previously.

We will now turn to the third class of borrowers. A vast number of farmers and tradesmen begin business partly with borrowed money: one fourth, one third, or in many cases,

one half of their capital consists of such
money. They borrow it-not of the
Banks, for these will only lend for a
longer period than three months to
such as can keep an account with
them, yielding them adequate profit;
and the body of farmers and various
small tradesmen cannot do this-but
of country neighbours and individuals
to whom they are known. The money
is placed in their hands on personal se-
curity for an uncertain period, but
with an understanding that they will
be suffered to keep it for a few years.
They now pay the legal rate. If they
borrow to begin business with, it is in
a great degree a matter of necessity,
for they cannot begin without; and if
they borrow after they have been some
time in business, it is still from ne-
cessity. The moment they receive the
money they fasten it in stock, fixtures,
&c. and then if they be called on for
repayment, they must borrow of some
other person, or be ruined. To this
class of borrowers there is always a
scarcity of money, although it varies
in degree. If the Usury Laws be
abolished, it will be completely at the
mercy of the lenders, and the rate of
interest to it will be at once greatly
raised. Then if a member of it wish
to begin business, and have not suf-
ficient capital, he will only know per-
haps one man of whom he can borrow;
and he must give any interest that
may be demanded, or be kept out of
business; an individual may lend to
a farmer, or tradesman, and a few
months afterwards, when he sees that
the money is fixed in farming stock,
goods, &c. he may demand double, or
treble interest, with a certainty that
his demand must of necessity be agreed
to. In time of war, the rate of inte-
rest to this class will be ruinous..

The Usury Laws keep money-lending, as a regular trade, in the hands of respectable men out of London, scarcely any one thinks of making such a trade of it save bankers, putting pawnbrokers out of the question. But if they be abolished, unprincipled persons in almost every large place will convert it into a regular trade of extortion and plunder.

We have said sufficient to prove that the lenders of money are still men who will extort the highest rate of interest in their power from borrowers-that putting the Usury Laws out of sight, a very large portion of the borrowers of all kinds are constantly at the mercy

of the lenders-that frequently in times of peace, and almost always in times of war, the whole body of borrowers must be at the mercy of lenders-and that there must be the most violent and ruinous variations in the rate of interest, in regard to both time and person. It proves abundantly that no change has taken place in the circumstances of the country, to render the Usury Laws inoperative for good.

But then the committee of 1818 says in its Report," That it is the opinion of the committee, that the laws regulating or restraining the rate of interest, have been extensively evaded, and have failed of the effect of imposing a maximum on such

rate."

Now, how have these laws been evaded? In war and in peace, when money has been scarce and when it has been abundant, the first class of borrowers up to this hour has never paid more than the legal rate. The Banks have never evaded the laws. The merchants, manufactu rers, and tradesmen-those whose industry and integrity were their allas well as the opulent, have never been asked for more than 5 per cent. We deny not exceptions, but these have been confined in a great degree to London. Never were any laws of any kind so little evaded as the Usury Laws have been, in regard to this class of borrowers. The case has been the same with the third class. The farmers, tradesmen, &c. throughout the country, who borrowed on personal security of individuals, to begin or carry on business with, have never been asked for more than the legal rate, up to this moment. In respect of these two classes, the Usury Laws have constantly had the most complete success in imposing a maximum on the rate of interest.

Touching the second class, those who borrow on mortgage, various individuals during the war borrowed at a high rate by way of annuity; and this forms the evasion discovered by the committee. Could they do this legally? Yes. Then how, in the name of common sense, could the committee call it an evasion of the Usury Laws? These laws prohibited a higher rate than five per cent on money borrowed in the ordinary way on real security; was, then, a higher paid on money so borrowed in spite of

« PreviousContinue »