[186-5]According to this, it is easy to tell what influence the increasing skill or activity of the working class (for instance by a decrease in the number of holidays, coöperation of wife and child) must have. Where there has been no accompanying and corresponding elevation of the standard of life, and of the want of the class, the gain soon falls to the lot of the capitalists or landowners.
[186-6]See the very clear but not entirely complete discussion inJohn Stuart Mill, Principles, IV, ch. 3 ff. When new railways, machines, etc., before they are complete, simultaneously increase the rate of interest and the rate of wages, and even sometimes rent, although they do not immediately increase the national income in any way, the phenomena are to be explained, not by a distribution of income, but as the result of an advance of capital made.
[186-7]Comparesupra, § 184. The rise of the rate of interest in Basil, between 1370 and 1393,Arnold(loc. cit.) accounts for by the wars and defeats of the upper German cities. Similarly in Zürich, 1457. (Joh. Müller, Schweizer Geschichte, IV, 211.) During the time immediately following the Spanish war of succession, theusuriers les flus modérésin France got 12-15 per cent. a year. (Dutot, Réflexions, 1866.) In Russia the rate of interest, after the war of 1805-15, rose by 4-5 per cent. (Storch, Handbuch, 35 seq.) Per contra,Nebenius, Oeff. Credit., 70 seq.
[186-8]Thus the Hamburg conflagration, combined with the bad harvests of 1841, raised the rate of interest in Mecklenburg for a long series of years. Similarly in Würtemburg, the many bad harvests from 1845 to 1853, which are said to have caused a deficiency of 50,000,000 florins. (Tübinger Zeitschr., 1856, 568.)
[186-9]In bad times, state loans are usually effected at a disproportionally high rate of interest. This also operates momentarily on the general rate of interest, to the injury of persons engaged in business enterprises; who, by the very fact of the withdrawal of so much capital, become involved in an unfavorable competition. In the long run, indeed, the high or low rates of interest paid by national debts, in so far as the creditor cannot demand reimbursement, has no influence on the rate of interest usual in the country. Such debts as cannot be declared due assume the character of stationary capital, the value in exchange of which is determined by their yearly return, capitalized at the rate of interest usual in the country. (Hermann, Staatswirthschaftliche[TN 22]Untersuch., 223.)
[186-10]The coöperation of most of the causes above mentioned raised the English rate of interest which had sunk to 3 per cent. to an average of 5, from about 1760 to 1816. ThusGauss, in a manuscript work which I have used, relates that the fund for the support of professors' widows in Göttingen was, in 1794, expected to pay only 3 per cent. In 1799, the trustees observed that their capital could often be safely invested at 4 per cent.; somewhat later the rate of interest rose to 5 per cent., at which point it remained for years. About 1843 ff. the rate of interest in old Bavaria was only 4 per cent.; in more highly cultured Rhenish Bavaria, 5 per cent.
SECTION CLXXXVII.
HISTORY OF THE RATE OF INTEREST.—EMIGRATION OF CAPITAL.
Midway between these classes of obstacles lies the very usual proceeding of highly civilized nations whose rate of interest is low, to transfer their capital into countries with a higher rate of interest, where the production of raw material is predominant.[187-1]This is most thoroughly accomplished by theemigration for good of the capitalists themselves; but also least frequently, because the natural attachment of man to his native country is usually too powerful, among the well-to-do classes, to be overcome by the attraction of a higher rate of interest. Temporary settlements in foreign countries are by far more frequent. Either the capitalist removes there himself, for a time, to return enriched, at farthest, in his old age; or he establishes a permanent branch of his business there, and superintends it through the agency of a trusted representative. The inhabitants of northern Italy, during the last centuries of the middle ages, maintained such establishments, not only for the purpose of carrying on commerce in merchandise along the shores of the Levant, but also the money trade in the principal countries of the west.[187-2]Similarly, the Hanseaticcities contemporaneously in the north and northeast of Europe; and, to-day, the English in almost all the important seaport cities in the world.[187-3]Such enterprises are always somewhat dangerous, especially in countries but little advanced in civilization.[187-4]
The best means to facilitate the migration of capital is credit. It is, indeed, true, that in international trade, ordinary private loans are seldom made. To make such loans would be to run too many risks; risks through a want of knowledge of persons or circumstances, on account of the difficulties in the way of continued supervision, and of being able to assert and defend one's rights away from home.[187-5]Loans are much more readily made to foreign states, to great corporations, or joint-stockcompanies, whose condition is well-known; and which, by reason of their perpetuity, have a deep and obvious interest in maintaining an honorable reputation. The issuing of certificates of stock, etc., has greatly facilitated international trade in capital.[187-6]But the mode of loaning in foreign parts preferred is to sell them commodities, and to require payment for them only after some time has elapsed, of course, with interest. Purchases, on the contrary, are paid for immediately, possibly even in advance.[187-7]The lower the rate of interest in acountry is, the longer and more cheaply can it give credit to others; a new reason why the less civilized countries are particularly fond of trading with the most civilized.[187-8][187-9]
[187-1]Nebenius, Der öffentliche Credit, 83 ff. After the end of the Napoleonic war, English capital flowed, by way of preference, towards South America, afterwards towards Spain and Portugal; after 1830, to North America; after 1840, towards Germany and France, to be invested in the construction of railways in the latter countries.
[187-2]The inhabitants of Asti began in 1226 to carry on the trade in money in trans-Alpine counties. In 1256,Louis IX. ordered 150 Asti money-changers to be thrown into prison, and he confiscated the money they had loaned in France, to the amount of over 800,000 livres. They were afterwards turned over to their enemy, the Count of Savoy, as usurers. (Muratori, Scr. Rerum Ital., XI, 142 seq.) About 1268, Louis IX. banished all money-changers of Lombard or Cahors origin: they were allowed only three months in which to collect their debts. (Sismondi, Histoire des Fr., VIII, 112.) About 1277, again all Italian money dealers were imprisoned, and 120,000 gold guldens extorted from them. (Giov. Villani, VII, 52.) After the Lombards had lost their freedom, the business passed into the hands of the Florentines and of the inhabitants of Lucca. (Sismondi, Gesch. der ital. Republiken, IV, 602;Dante, Inferno, XXI, 38.) Great part played by the brothers Franzesi as dealers in articles of luxury, and loaners on pledge etc., at the court of Philip IV. They seem to have instigated the persecution of other Italian money dealers, in 1291, from jealousy. (Sismondi, Histoire des Fr., VIII, 429 seq.) Great losses of the Florentines by the English-French war in 1337: Edward III. remained in the debt of his bankers Peruzzi and Bardi to the amounts respectively of 135,000 and 184,000 marks sterling; so that they and many others failed. France imprisoned all the Italian money dealers, and compelled them to pay a large amount of ransom-money. (G. Villani, XI, 71.) In 1376, the Pope who was engaged in a struggle with Florence, called upon all princes to despoil all Florentine merchants within their jurisdiction of their wealth, and to sell them as slaves; and France and England actually did so. (Sismondi, Geschichte der ital. Republiken, V, 257 seq., VII, 74.)
[187-3]Shortly before the French Revolution, Cadiz had over 50 wholesale merchants against 30 retail, 30 modistes and at least 100 tradesmen from France. (Bourgoing, Tableau, III, 130.) Commercial colonies!
[187-4]Thus even the emperor Paul of Russia caused the property of English factors to be confiscated. The galleons which Holland and England captured in the Spanish war of succession belonged mostly to Amsterdam houses. (Ranke, Franz. Gesch., IV, 226.) EvenGaliani, Della Moneta, IV, 3, thinks that, on this account, such commerce is incompatible with the warlike spirit. It is certain, however, that a government like the English would do well not to permit a war with such countries as Russia or the United States to break out too suddenly, that their subjects might have time to collect all their outstanding dues. When, in 1855, it was reported in London that all Russian drafts were dishonored, people looked upon that fact as the surest sign of coming war. English merchants had called in their advances to Russia during the preceding economic period, and refused to make new ones.
[187-5]This of course disappears when the borrowing country is dependent on the loaning country. Thus, the Canton of Uri formerly prohibited the inhabitants of the Livinerthal to borrow capital except from them. It is said that, at the beginning of this century, the Uri capital then loaned amounted to one-half a million florins, that is, an average of 250 per householder. Now it is not over one-fifth of that amount. (Franscini, Canton Tessin, 126.) Think also of the plantation colonies! But even the East Indies may be looked upon as a species of colony for England. HenceFawcett, Manual, 105, is rightly of the opinion that no other country has the possibility of being as useful to the East Indies as England. And in fact, the East Indian railways obtained of their capital of £82,500,000, only a very small part, £800,000, in India itself, a very small proportion of which latter sum was subscribed by the native population. (Ausland 24, Juli, 1869.)
[187-6]What England is to-day, the Italian commercial cities were in the 16th and 17th centuries, viz.: the chief market for foreign loans. (CompareMun,England's Treasure, 1664, ch. 4.) The Genovese loaned money in foreign countries at 2 and 3 per cent. (Montanari, Della Moneta, 1867, cap. 2.) It is said that the Dutch, in 1778 invested 1,500 millions of livres in foreign national debts, especially those of France and England. (Richesse de Hollande, II, 178.) According toJ. G. Forster, Schriften, III, 335, in 1781 alone, in Europe, 800 millions loaned capital. The Niederl. Jaerboek of 1789, p. 729, estimates the amount of interest coming from abroad, English and French not included, at from 50 to 60 millions of florins. About 1844, according to official estimates, 1,000 million florins in foreign loans, that is one-third of whole national income. (Allgemeine Zeitung, 1844, No. 35.) Now, Belgium, 300 million florins, in Austrian evidences of indebtedness. (Quarterly Review, October, 1862, 402.) According toBaumstark, Staatswissensch. Versuche über Staatscredit, etc., 1833, 77, foreign nations, between 1818 and 1825, borrowed in England £49,000,000; and, about the same time, England participated in Russian, French and North American loans to the extent of £55,500,000. It is said that there were, in 1843, £25,000,000 English capital in the canals, railroads and banks of the United States. (Porter, Progress of the Nation, III, 4, 634.)
[187-7]It is evident, from many of Demosthenes' orations on private matters, that Athens was in the habit of advancing the commercial capital needed by a great part of the inhabitants of the Mediterranean coast. Many colonial cities, Phaselis, for instance, had the very worst reputation in this respect. They were virtually pirates as regards Athens. (Adv. Lacrit., 931.) Here also it seems that the goods taken for the loan had to be brought to Athens. (941.) On the regular advances of Prussian merchants to their Lithuanian and Polish vendors, in the 15th century, while the former were forbidden even to buy on credit, seeHirsch, Geschichte des Danziger Handels, 167, 177. In Colbert's time, the Dutch gave 12 months credit in Europe. (J. De Wit, Mémoires, 184.) In England,Childperceives a great advance in this: that in 1650, in all business in the interior, there was a credit of 3 to 18 months given; and in 1669, everything was paid for in cash. (Discourse on Trade, 45.) Concerning previous times, seeW. Raleigh, Observations touching Trade and Commerce with the Hollander and other nations, 1603. (Works, VIII, 951 ff.) In North America, merchants in the interior frequently purchase their goods of importers on 6 months credit. (Tellkampf, Beiträge, I, 52.) In the West Indies, about the end of the last century, the English gave a credit, generally, of from 12 to 16 months. (B. Edwards, History of the British West Indies, II, 383.) In Brazil, in the case of imports, 4, 8 and even 12 months credit; payment in monthly installments, and frequently even longer delay, without interest. In the case of exports, when cash payments are not made, 1 per cent. a month, (v. Reden, Garn und Leinenhandel, 332.) Recently only about 40 per cent. of foreign advances are made at 12 to 20 months, 60 per cent. at from 50 to 70 days. (Tübing. Zeitschr., 1864, 517.)
In Buenos Ayres, the producer or collector of export articles required the price to be paid usually a long time in advance (habilitacion), a very bold but necessary procedure, on account of his poverty. (Robertson, Letters on S. America, I, 174 ff.) In the corn trade in South Russia, at least one-half of the purchase money was required to be paid in advance, and even before shipment, the other half as soon as the corn arrived in the harbor, and, hence, sometimes, long before it was put on board. (W. Jacob, On the Corn Trade of the Black Sea, 23.) CompareTooke, View of the Russian Empire, I, 339, Richesse de Hollande, II, 43,Storch, Handbuch, II, 61 seq. Russia was, about 1770, a credit-giving nation to the still poorer Persians. (Gmelin, Reise, III, 413.) The Spaniards also, in their American colonies, had always an expedition ready and waiting, the payment for which was made on the arrival of the second. (Depons, Voyage dans la Terre Firme, II, 368.) Moreover, active commerce simply, especially when circuitous, may be considered as in some way an international loan; and thus it is that the favorable "balance," by means of which claim-rights are obtained in foreign countries, is secured.
[187-8]Notwithstanding the gratitude of the United States towards France, and spite of all the French ambassador could do, the English immediately after the conclusion of peace, attracted the greatest part of American trade to themselves. (Chaptal, de l'Industrie Fr., I, 103.) Countries with a low rate of interest have an advantage in this respect, which grows after the manner of compound interest, when the duration of the advance of capital is prolonged. (Senior, Outlines, 195.)
[187-9]How capitalists may, by the giving of international credit, fall into an injurious habit, is shown by the late and troublesome building up of the Dutch railway system, while so many foreign railway enterprises were provided with Dutch capital.
SECTION CLXXXVIII.
HISTORY OF THE RATE OF INTEREST.—EFFECT OF A LOW RATE ON STATIONARY NATIONS.
Beneficial as the spur of a low rate of interest is for countries capable of development, it is a heavy drag on a stationary people, and more so on those who have lost a portion of the field for the investment of their capital by the competition of too powerful rivals.[188-1]A real superabundance of capital is attended with cares and temptations for the middle classes very similar to those caused by a so-called over-population, especially to dishonesty and extravagance.[188-2]When capital, population and the skillfulness of labor remaining the same, continues to increase, the enlarged capital may very readily have every succeeding year only the same return to divide among its owners, that the smaller had in previous years.[188-3]Hence additional saving here would produce no real enrichment of the people; and it might even happen that the instinct to accumulate capital might inthe future become torpid to a greater degree than the capital itself had increased. In any case, however, the decline of the rate of interest can continue only to a certain point. There are numberless persons who would rather consume their capital, or invest it in hazardous speculations than put it out at interest at one per cent. a year.[188-4]At least, the tendency of a decline in the rate of interest is, in the case of the richer, to increase the amount of capital consumed as compared with productive capital. The more moderate, sober and provident a people are, the lower may the rate of interest decline without producing this effect. And so, the more the capital of a nation is concentrated in the hands of a few; because then the owners of capital are all the later forced to break in upon it, for the sake of subsistence.[188-5][188-6]
Among nations which have totally declined, the rate of interest is wont to reach a high point once more; the natural result of great losses of capital and men, while, at the same time, the freedom of the lower classes and the security of property have been either curtailed or lost. The weakness of age is, in many respects, even in the case of nations, a second childhood.[188-7]
[188-1]Temple, Works I, 102, assures us that the Dutch in his time considered the payment of the principal of a public debt a real misfortune: "they receive it with tears, not knowing how to dispose of it to interest with such safety and ease." On Italy, seeBandini(ob. 1760), Sopra le Maremme Sienese, 154 seq.; earlierMontanari, Della Moneta, 57. In the England of the present time, small capitalists especially belong to the so-called "uneasy" classes.
[188-2]Numberless bankrupts and unbounded extravagance in Holland. (Richesse de Hollande, II, 168.) In England, the hazardous enterprises of 1825 were very much promoted by the action of the government which a short time before reduced the interest on its state debt. (Tooke, History of Prices, II, 148 ff.)
[188-3]J. S. Mill, IV, ch. 4, 4. WhenRicardo, ch. 6, says that every increase of productive capital must enhance the value in use, and still more the value in exchange, of a nation's property, but under such circumstances only to the advantage of the working class, and still more of the land owning class, he at least apparently presupposes an improvement, or increase of labor.
[188-4]Think only of the so-called commercial crises, the speculation-rage preceding which is excited by the lowness of the rate of interest, the destruction of capital in which makes the rate of interest to retrograde materially. However, this very decline is, in itself, only a spur to speculation in evidences of national indebtedness, stocks, etc., in commodities, only where, without such speculation, a rise in prices was to be expected. Thus, for instance, the great English periods of speculation: 1796 ff., in colonial products; 1808 ff., in raw materials in general; 1814, in articles of export, were times in which there was not the slightest facility in obtaining credit. (Tooke, History of Prices, III, 159.)
[188-5]Between 1829 and 1849, the highest rate of interest paid by English capital employed in cotton industries was little over 2½ per cent. (Edinb. Rev., April, 1849, 429.)
[188-6]As the symptoms of a condition are very frequently mistaken for its cause, there have been many writers who, blinded especially by the contemplation of Holland, considered the lowness of the rate of interest as thecausa causansof all wealth, and who promised really magical results from its legislative regulation by the state. ThusSir Thomas Culpeper, A Tract against the high Rate of Usury, 1623; continuation 1630;Sir J. Child, Brief Observations concerning Trade and the Interest of Money, 1668; Discourse of Trade, 1690.Anderson(ob. 1765), was of a similar opinion: Origin of Commerce, a. 1601, 1651; and evenGanilh, Dictionnaire analytique, 99 seq. (Infra, § 162.) Percontra, the anonymous essay, Interest of Money mistaken, 1668, andLocke, Considerations of the Consequences of the Lowering of Interest and Raising the Value of Money, 1691. Most moderns have considered the decline of the rate of interest an evil. Thus, for instance,Canard,Principes, ch. 5, who uniformly makes this the starting point of a nation's downfall. See alsoMcCulloch, Principles, III, 8.Malthusdraws a comparison between the saving of capital and the generation of children: only a high rate of interest makes the former really useful, and a high rate of wages the latter.
Even great destruction and disturbances of capital by war, by loans to the state, for instance, are soon made good, provided the sources of the saving of capital are not dried up. (Principles, III, 370 ff., 401, ff.)John Stuart Millexpressly counsels rich and highly civilized nations not to neglect beneficent enterprises, although economically unproductive, because capital might be lost in them. The result of such a loss would, under certain circumstances, simply be that less capital would be exported or wasted in speculation. (Principles, II, ch. 5, 1.) SimilarlyCanard, who, therefore, compares state loans with blood-letting, as a remedy for a plethoric disease. (Ch. 9.)Turgotconfounded cause and effect when he compared a high rate of interest to an inundation, below the level of which nothing can be produced; and which, the lower it became, the more dry ground there was for men to work on. (Sur la Formation, etc., § 89.)
[188-7]Rate of interest in Persia from 40 to 50 per cent. a year. (Ausland, 1844, No. 208.) In Tripoli, Christians and Jews alike loan the Arabs at the rate of 5 per cent. a month; at least 1½ or 2. (Rohlfs, von Tripolis nach Alexandrien, 1871, I, 22.) In most of the East Indian kingdoms, the rate of interest is so high for the government itself that when the creditor, even without a return of the capital, gets the interest only for a few years, he is considered passably well indemnified. (J. S. Mill, II, ch. 15, 2.) In China, 12 to 15 per cent.; 36 nothing unheard of. (Barrow, China, 562.)
SECTION CLXXXIX.
INTEREST-POLICY.—LEGITIMATENESS OF INTEREST.
The legitimateness of interest is based on two unquestionable grounds: on the real productiveness of capital, and on the real abstinence from enjoyment of it by one's self.[189-1]Let ussuppose a nation of fishermen with no private ownership in land and no capital, living naked in caverns, on sea-fish which the ebb of the ocean has left in the puddles along the shore, and which are caught only with the hand.[189-2]All workmen here may be equal, and each catch and consume three fish a day. Let us again suppose that some clever savage reduces his consumption to two fish a day, for one hundred days, and uses the stock of one hundred fish collected in this way to enable him to devote all his strength and labor, during fifty days, to the construction of a boat and a net. With the aid of this capital he, from the first, catches thirty per day. What now will his fellow tribesmen, who are not capable of such intelligent and systematic self control to do as he has done, do? What will they offer him for the use of his capital? In discussing this question both parties will very certainly consider not only the fifty days' labor spent in the construction of the boat, etc., but also the one hundred and fifty days during which its maker had to abstain from his full ration of food. If the borrower, of the thirty fish which may be caught daily with the aid of his capital, gives twenty-seven away, his condition is at least no worse than it was at first. On the other hand, the lender, if compensated only for the wear and tear of his capital, would reap no profit whatever from his loan. The interest to be paid will be fixed somewhere between these two extremes by the relation between demand and supply. A loan which pays no interest is a donated useof capital. (Knies.)[189-3]Interest may be called the reward of abstinence (Senior), in the same way as wages is called the reward of industry.[189-4]With the abolition of interest, exchange would be limited to the mere present, without any mediation between the past and the future. A great number of services would bring no equivalent in return, and, therefore, as arule, never be performed. Most of the charges commonly made in our day against the "tyranny of capital" are, at bottom, only a complaint that capital is not inexhaustible; and even those workmen who are obliged to pay most to capital would be much worse off without it.
[189-1]The Greeks very appropriately call interest τόκος,[TN 23]i. e., that which is born. In the loaning of capital productively invested, the creditor, in the interest received, consumes the real produce of his property. If the debtor has consumed the property unproductively, the creditor indeed lives on the debtor's other returns or supplies; which, however, without his intervention would probably have been consumed by their owner.
[189-2]We here, for the time being, make abstraction of all entangling surrounding circumstances. However,Diodor., III, 15 ff., andStrabo, XVI, 773, describe a very similar condition of things among the Ichthyographs; alsoHildebrand, Reise, um die Erde, III, 2, in China. In the Sudan, whole generations fetch water every day from a distant town, instead of working for a few weeks to dig a deep well nearer home. (Barth, Afr. Reise, III, 297.)
[189-3]The most recent relapse into the old error of the unproductiveness of capital, viz.: that ofKarl Marx(Das Kapital; Kritik der polit. Oekonomie, I, 167) is a turning round and round of the author in the vicious circle of his demonstration. If the value of every commodity depends simply on the labor necessary to bring it into existence, or on the time of labor required to produce it, it is self-evident that the value of the capital consumed for the purpose of its production, can at most be only preserved in the new product, and that all the additional value (Mehrwerth) of the latter should be ascribed to labor. (172, and passim.) Hence, strictly speaking, the capitalist who advances capital to workmen, is still bound in duty to be grateful to the latter when the value of his advance is preserved to him undiminished, (§ 173) and all interest levied by him should be considered as a payment towards the extinguishment of the capital [debt] itself. (556.) Relying on such theories, many socialists admit private property and even the right of inheritance to means of enjoyment and use capital (Gebrauchskapitalien) provided only that land and productive capital should pass over into the "collective property" of society, with compensation, however, to their former owners. Considering the short duration of most goods used in enjoyment or consumed, the evil consequences of a community of goods mentioned in § 81, could not be avoided to any extent by this means.
How entirely fallacious the above assumption is, is seen most strikingly in the case of such goods as cigars, wine, cheese, etc., which, without the least addition of labor, by merely postponing the consumption of them, obtain a much larger value both in exchange and in use. Or, how would it be possible, for instance, to reduce the value of a hundred-year-old tree, over and above the cost of planting it, to labor alone? Similarly, the fact that on a Chilianhacienda, 25 per cent. of the cattle can be slaughtered and no diminution of the herd take place. (Wappäus, M. und S. Amerika, 784.)Strassburgerrightly inquires: if all the profit of capital is based on a cheating of workmen by capitalists, who is cheated in the case in which a manufacturer without workmen earns more with an increased capital than before with a small capital? (Hildebrand'sJahrb., I, 103.)
[189-4]In a time full of nabobism and pauperism, when some can, without the least abstinence, make immense savings, and others none at all even with the greatest abstinence, we may comprehend where the socialists find food for their derision of the expression, "reward of abstinence."
SECTION CXC.
INTEREST-POLICY.—AVERSION TO INTEREST.
At the same time, there is a strong aversion to the taking of interest prevalent among nations in a low stage of civilization. Industrial enterprises of any importance do not as yet exist here at all, and agriculture is most advantageously carried on by means of a great many parcels of land, but with little capital. The purchase of land is so rare, and hampered by legal restrictions to such a degree, that loans for that purpose are almost unheard of. And just as seldom does it happen, by reason of the superabundance of land, that the heir of a landowner borrows capital to effect an adjustment with his co-heirs, and thus enter alone into the possession of the estate. Here, as a rule, only absolute want leads to loaning.[190-1]If, in addition to this, we consider the natural height of the rate of wages in such times, the small number and importance of the capitalist class (§ 201), the tardy insight of man into the course and nature of economic production,[190-2]it will not be hard to understandthe odium attached in the middle age of every nation to so-called interest-usury[190-3](Zinswucher).
Most religions, the Christian excepted (the universal religion!), have been founded in the earlier stages of the nations who profess them, and have there, at least outwardly, exercised their greatest influence. No wonder, therefore, that so many religions have prohibited the taking of interest. Thus, for instance, the Jewish which, indeed, allows interest to be taken from foreigners, but raises loaning without interest among Jews in their commerce with one another, to the dignity of a duty binding on the conscience of the beneficent rich.[190-4][190-5]Similarly in the Koran.[190-6]The Fathers of the Church,also, on the whole, look with disfavor on the taking of interest, relying upon well-known passages in the Old Testament, and, in part, on misunderstood expressions in the New.[190-7]This is especially true of the Fathers of the Church from the beginning of the fourth century, when the Roman empire was frightfully impoverished by the devastations of the barbarians, and as a consequence the conditions as to interest which prevail in the lowest stages of civilization had returned. Mercy towards the poor usually occupies the foreground in the demonstrations of the Fathers.[190-8]
[190-1]Distress-debts in contradistinction to acquisition-debts. (Schmalz, Staatswirthsch. Lehre in Briefen, I, 227.) CompareHesiod., Opp., 647; alsoHerodot., I, 138.
[190-2]ThusAristotle, calls the taking of interest a gain against nature, since money is only a medium of exchange, and cannot produce its like. (Polit., 3, 23, Schn.) Similarly,Plato, De Legg., V, 742, andSeneca, De Benef., VII, 10. Compare, however,Tacit., Annal, XIII, 42 seq. As late a writer asForbonnais,1754, accounts for interest thus: Some people hoard their money instead of spending it; hence a scarcity or want of money, and those who need it are obliged, in order to draw it out, to promise to pay interest. (Eléments de Commerce, II, 92 ff.)
[190-3]Numerous disturbances on account of debt, during the first centuries of the Roman Republic, until finally (compareLivy, VII, 42), the taking of interest was in the year 349 (?) before Christ, entirely prohibited. (Tacit., Annal. VI, 16.) The public opinion in such matters may be understood from the words of Cato:majores ita in legibus posuerunt, furem dupli condemnari, foeneratorem quadrupli. (De Re rust.) Thefoeneraricompared with thehominem occidere. (Cato, inCicero, De Off., II, 25.) In the higher stages of civilization little heed was paid to the law, in practice (compareLivy, XXXV, 7;Plut., Cato, I, 21.), although the democratic party always held fast to the legal perpetuation of the prohibition of interest. (Mommsen, Römisch. Gesch., III, 493.)
[190-4]Exod., 22, 25; Levit., 25, 35 ff.; Deuteron., 15, 7 seq.; 23, 19 seq.; Psalms, 15, 5; 109, 11; 112, 5; Proverbs, 28, 8; Jerem., 15, 10;Hes., 18, 8. After the return from exile, the prohibition was restored. (Net. 5, 1 ff.) Was there, in the long duration of such prescriptions, an educational measure having reference to the peculiar fault towards which the Jewish national character had a special tendency? In Josephus's time even, usury practiced on one's country people was universally despised (Antiq. Jud., IV, 8, 25.), and the Talmud continues it. CompareMichaelis, De Mente ac Ratione Legis M. Usuram prohibentis. In Russia, the orthodox Jews are wont to evade the legal rate of interest by exacting one-half the profit, and estimating it approximately in advance at a probable sum. If, afterwards, the debtor declares under oath that he made no profit, the creditor has no more to say; but then the borrower would lose all credit in the future. (Bonav. Mayer, Die Juden unserer Zeit, 1842, 13 seq.)
[190-5]The Mosaic passages, however, only prohibit the taking of interest from poor people of one's own country.
[190-6]The prohibition in the Koran, ch. 2, 30, is regularly evaded in Persia, by deducting the proper amount at the moment the loan is made. (Chardin, IV, 157 ff.) Under the Mongolian rulers, it was done by way of preference, by a fictitious sale for cash, at prices out of all proportion. "Why cannot capitalists either buy land or carry on trade?" asked Sultan Gazan, on an occasion when the prohibition of interest was strongly insisted on. (d'Ohsson, Histoire des Mongols, IV, 397.)
[190-7]For instance,Luke, 6, 34 ff., where interest is no more prohibited than inLuke, 14, 12 ff., the mutual invitation of friends to a feast. Not less groundless is the supposed allegorical allusion (Matthew, 21, 12) to interest-creditors. Rather might an approval of interest be inferred fromMatthew, 25, 27.
[190-8]Origen, for instance, would have the creditor take no interest; but exhorts the debtor to return double the amount unasked. (Homil., III, ad. Ps., § 37.) Hence there is here no condemnation of interest, but only an effort to transform all legal relations into relations of love. Quite the reverse inLactant., Instit., VI, 12;Basil, ad. Matth., 5 ff.;Ambrose, De Off., III, 3;Chrysost., ad. Matth. Hom., 56; Tim., VII, 373 ff. (Paris, 1727);Hieronym., ad. Ezech., V, 367 c. (Francof, 1684);Augustin., Epist., 54. EvenCyprian, 183, 318 (Paris, 1726).
SECTION CXCI.
INTEREST-POLICY.—THE CANON LAW, etc.
The canon law, from the first, endeavored to prevent contracts for interest. We may even say that the prohibition of interest-usury is the key-stone of the whole system of the political economy of theCorpus Juris Canonici. The development of that law coincides, as to time, with the senility of the Roman Empire and the childhood of modern nations.[191-1]In thegolden age of papal power, every interest-creditor was refused the communion, thetestamenti factioand the right of ecclesiastical burial. Proceedings at law could not be instituted for the recovery of the principal debt until the creditor had restored all the interest obtained. In the council of Vienna, in 1311, it was declared heresy to defend the taking of interest. The universal antipathy of the church towards the growing importance of thebourgeoisie,[191-2]and the desire to give the spiritual courts an extensive jurisdiction in litigated cases, may have contributed largely to the adoption of these measures. In later medieval times, the secular power offered its services to execute these laws;[191-3]and, to judge of what publicopinion in this matter was, we need only call to mind the decided disapproval of interest by Dante, Luther and Shakespeare.[191-4]
TheWeddeschat, a species of pledge or loan on security, constituted the transition from this state of things to the modern economic system of interest. TheWeddeschatwas a sale with a reserved right of redemption, by which the debtor gave his creditor the use and enjoyment of a piece of land a sort of interest in kind, but which he could at any time recover back, by payment of the principal. This was not very oppressive on the debtor, as he was the only party who could recall the contract.[191-5]In a higher stage of civilization,indeed the continuance of this species of land-pledge would be exceedingly disadvantageous, since the momentary possessor of a piece of land which might be bought back by another person at any time at a price fixed in advance, would scarcely think of improving it.[191-6]
And so, the introduction of rent-purchase (Rentekauf) was an important step in advance: the incumbrancing of a piece of land which remained in the possession of the debtor with an interest in kind paid to the creditor. The latter could never claim anything further, while the debtor and his heirs might redeem the land from this interest-incumbrance by paying back the purchase money.[191-7]As the Pope, on the 19th of January, 1569, renewed, in express terms, the prohibition of all interest not based on rent-purchase, so did the police ordinances of the Empire, of the sixteenth century, declare it to be the only lawful form of loaning at interest; provided, always, that only the debtor could demand the cancellation ofthe contract.[191-8]We find, however, that, on the whole, at least Protestant countries had, before 1654, adopted the modern Roman law relating to interest.[191-9][191-10]
However, the long persistence of the prohibition of the canon law in relation to interest, even with the refuge afforded by the introduction of the rent-purchase system, and of dormant partnerships (Commanditen) etc., so common in the sixteenth century,[191-11]would be unintelligible, if, contemporaneously, the Jews did not carry on an important and somewhat free trade in capital,[191-12]precisely as the Armenians, Hindoos and Jews do in the Mohammedan world of to-day.
[191-1]The apostolic canons and several decrees of councils of the fourth century prohibit the taking of interest by the clergy. A Spanish provincial council dared, in 313, to extend the prohibition to the laity. Pope Leo I. condemned the taking of interest by the laity also, but only in the form of a moral law. (443.) The synod of Constantinople (814) punished the violation of the prohibition with excommunication. SeeThomas Aquin.(ob. 1274.) De Usuris, in the Quæstiones disputatae et quod libetales. The canon law, however, always permitted delay-interest (Verzugszinsen), and Gregory IX, allowedjusta et moderata expensa et congruam satisfactionem damnorumto be taken into account, (c. 17, X.) De Fora Comp. II, 2. A tacit recognition of the productiveness of capital is to be found in c. 7, X. De Donatt. inter. Virum. cett. IV, 20; and the later schoolmen,AntoninandBernhardin, (ob. 1459 and 144) are pretty clear on the point. ButAlbertus Magnushad already recognized thedamnum emergensandThomas Aquinasthelucrum cessansas causes of interest. (Tübinger Zeitschr., 1869, 151, 159, 161.) The essentially modern character of Roman law, which, in the form it has finally assumed, is in harmony with a high development of national economy, accounts for the fact that the glosse ofAccursiusrelying onIrneriusandBulgarusentirely ignores the prohibition of interest. For a similar reason, in the 16th century,DonellusandCujaciusstand entirely on Roman ground. In the interval, indeed, men likeBartolusandBalduswere not disquieted by the canon law. (Endemann, Studien in der Römisch-Canonischen Wirtchaftsund Rechtslehre, I, 18, 27 seq. 61.) Compare the rich historical material inSalmasius, De Usuris, 1638; De Modo Usurarum, 1639, and De Mutuo, 1640.
[191-2]A. Thierry, Lettres sur l'Histoire de France, éd. 2., 248 ff.
[191-3]Thus the emperor Basil, in the year 867, asJustinianhad before him, forbade the further payment of interest, once the amount already paid equaled the principal. (L. 29 seq.; Cod. IV, 32, Nov., 121, 2.) Compare Sachsenspiegel, I, 54.Edward the Confessoris said to have issued the first prohibition of interest. (Anderson, Origin of Commerce, a. 1045.)Edward III.forbade all interest as the ruin of commerce. (Idem a., 1341.) About 1391, the lower House had its zeal aroused against the "shameful vice of usury;" and again, in 1488, all interest on money and all rent-purchases stipulated for on unlawful conditions, were threatened with a fine of £20, the pillory, and six months imprisonment. (Anderson, a., 1488.) In France, the edict of Philip IV. of 1312. CompareBeaumanoir, Coûtumes, ch. 67, des Usures, No. 2.
[191-4]Dante, Inferno, XI, 106 ff., suggests that interest-creditors had violated the command ofMoses, I, 3.Macchiavelliseems to judge otherwise: Compare Istoria Fior., VII, a, 1464; VIII, a, 1478. Very interesting discussions on the legitimateness of the taking of interest in 1353 seq., in which the Dominicans, up to the time ofSavonarola, defended the strictest opinion. (M. Villan, III, 106.)Luther, Tract on Trade and Money, 1524, and Sermon on Usury, 1519. Later still,Lutherbecame more moderate. Thus, in his letter to the Danzig counsel, 1525, inNeumann, Geschichte des Wuchers in Deutschland, 617 ff., in which, for instance, he blames the forcible carrying out of interest-prohibitions, draws a distinction between rich and poor, etc. So, too, in his letter: An die Pfarrherren, wider den Wucher zu predigen, 1540.Melanchthon, Phil. moral., 137 ff., is also more moderate.Calvinwas clearer in this matter, and no longer recognized the canonical prohibition of interest. (Epistolæ et Responsa, Hanov., 1597, epist. 383.) SimilarlyZwinglius, who will not praise interest, but considers it a natural consequence of property (Opp. ed. Tugur., 1530, I, 319 ff.), and evenErasmus, ad. Evang. Luc., 6, 44. Adagia v. Usuræ nautt. InShakespeare, compare Merchant of Venice.Bodinusalso rejects on principle, even Roman interest, which he held to be 1½ per cent. a year: De Republ., 1584, V. 2. Even the practical Dutch excluded the so-called "table-keepers," from the communion up to 1657. Compare the contests hereon inLaspeyres, Gesch. d. volkswirthsch. Ansich. d. Niederl., 258 ff.
[191-5]The mutual right of cancellation (Kündbarkeit) in the case of these contracts during periods poor in capital and credit, would easily have ruined the debtor. CompareJ. Möser, Patr. Ph., II, No. 18. Hence municipal rights in the latter part of the middle ages, which in many other respects are so antagonistic to Rome, have seldom anything to object to its measures in this matter.
[191-6]A reason why, asA. Strüverremarks, the Church which was more a creditor than a debtor, never approved the Weddeschat above mentioned.
[191-7]The institution of rent-purchase (Rentekauf) was already developed in the Hanse cities at the beginning of the fourteenth century. (Stobbe, in the Zeitschr. f. deutsches Recht, XIX, 189 ff.) About 1420, the bishops of Silesia inquired of the Pope, whether such contracts which had been the practice in Silesia for a century were lawful. The answer was a favorable one, although he left the rate of interest free in this particular case (Extr. Com. III, 5, 1, 2); afterAlexander IV., however, as early as 1258, had instructed inquisitors not to take part in litigations concerning usurious contracts. Formerly all such contracts were prohibited in express terms. (Decret. Greg., V. 19, 1, 2), although, in France, the ordinances of Louis IX. and Louis X. (1254 and 1315) had established fixed rates of interest therefor. Between pledge and rent-purchase, the right of the (virtual) loaner to expel the (virtual) borrower, which after fell into disquietude, occupies, so to speak, a middle place. (CompareEichhorn, D. St.- und R.-Gesch., II, § 361, a III, § 450.) It was decreed, in France, in 1565, that all rent in kind should be converted into money rent. (Warnkönig, Franz., St.- und R.-Gesch., II, 585 ff.)
[191-8]Magnum Bullar. Roman., II, 295.
[191-9]A Prussian law allowing interest even without a contract of rent-purchase as far back as 1385. (Voigt, Geschich. von Preussen, V, 467.) In Marseilles, in 1406, a rate of interest of ten per cent. allowed. (Anderson, Origin of Commerce, s. a.) Likewise in England, 37 Henry VIII., c. 9. In Brandenburg, 1565, 6 per cent. (Mylius, C. C., March, II, 1, 11.) A retrograde step by 5 and 6 Edward VI., c. 20; by which all interest was again prohibited. These laws had, practically, the effect of increasing interest to 14 per cent., and were therefore repealed in 1571. How unnatural the prohibition was is apparent from the fact that by 4 and 5 Philip and Mary, c. 2, the possessor of 1,000 marks was estimated equal to a person with £200 annual income. In Denmark, the taking of interest at 5 per cent. was allowed in 1554, since "although it is contrary to God's command, yet [according to an opinion given byMelanchthon] this commerce cannot be entirely abolished." (Kolderup-Rosenvinge'sDänische R. G., inHomeyer, § 142.) Similar views of the elector Augustus, 1583. (Cod. August 1, 139 ff.)
The German Empire, in 1600, allowed the debtor to contract that, in case of delay, the contract might be declared annulled. In France, on the other hand, even during the 18th century, nearly all loans were made in the form ofrent-purchase(Law, Trade and Money, 127), and the creditor could declare the contract void only in case the debtor did not pay him the rent. (Warnkönig, Franz. R. G., II, 585 ff.) For strictly Catholic countries, the prohibition relating to the taking of interest still really remains. However,Leo X.'sbull, Inter multiplices, exempts the so-calledmonti di pietà, and by this means put obstacles in the way of saving, and promoted real usury. Of this last,Niebuhr, Briefe, II, 399, adduces very striking instances from the Pope's own temporal dominion. In the case of pledge, even 12 per cent. per annum is required. (Rom im Jahr, 1833, 163.) Yet, in 1830, the Poenitentiaria Romana instructed the clergy, without, however, deciding the chief question, not to disquiet people any longer in the confessional who had taken interest. (Guillaumin, Dictionnaire de l'Economie politique, art. usure.) On the Russian Sect,Staroverzen, which still condemns the taking of interest, seeStorch, Handbuch, II, 19. By the Russian government it was permitted very early.Ewers, Ältestes Recht der R., 323 seq.
[191-10]The first scientific defense of interest is generally considered to be that ofSalmasius, loc. cit. YetBacon, Sermones fideles, C. 39 (after 1539), and at bottom alsoH. Grotius, De Jure Belli et Pacis, 1626, taught that it was lawful to take interest in so far as it was not against the love due to one's neighbor (Endemann, loc. cit., I, 62 ff.), andBesold, Quaestiones aliquot de Usuris, 1598, was as near the truth asSalmasius.[TN 24]Comparesupra, note 4. How earnestlyNorthandLockelabored against the lowering of interest by governmental interference, seeRoscher, Z. Gesch. der engl. Volkswirths., 90, 102 ff. The best writers, in strictly Catholic countries, did violence to themselves in this matter for a long time after. ThusGaliani, Della Moneta, II, I seq.; and one cannot help being greatly surprised at witnessing the subtleties whichTurgot, Mémoire sur le Prêt d'Argent, 1769, had to have recourse to, to prove the clearest matters. Thus: at the moment of the loan, a sum of money is exchanged against the mere promise of the other party, which is certainly less valuable. [If it were not, why should he borrow?] This difference must, therefore, be made up in interest, etc.Mirabeaueven was a decided opponent of interest. (Philos. rurale, ch. 6.) Compare, however, the theological defense byViaixnes, 1728, in the Traité des Prêts de Commerce, Amsterdam, 1759, IV, 19 ff.
[191-11]Of course, evaded in a thousand ways in practical life. Thus, for instance, people gave wheat, other commodities, and even uncoined gold and silver as loans, and had what interest they pleased promised them. In alienating the capital, they might stipulateà fonds perdu, as they thought best. (Turgot, I, c. § 29.) When debtors had promised under oath to make no complaint, the church ordered that they should be helped officially. When the temporal power showed itself lax, Alexander III. decreed that such questions should be brought before the spiritual courts. (Decret. Greg. V., tit. 19; 13Innocent, Epist., VIII, 16; X, 61.) In England,Richard of Cornwallobtained a monopoly of the whole loaning business. (Matth. Paris, ed. 1694, 639: compare, also, 20 Henry III., 5.), from which fact the existence of the custom of taking interest about 1235, is apparent. Cases in which English kings borrowed and promised payment backcum damnis, expensis et interesse:Anderson, Origin of Commerce, a. 1274, 1339.
[191-12]CompareGioja, Nuovo Prospetto, III, 190. The canon law desired to put an interdict on their taking interest also: Decret. Greg., V, tit. 19, 12, 18. Frequently, also, a minimum of interest was provided for them: Ordonnances de la Fr., L. 53 seq. II, 575. Receuil des anciennes, Lois, I, 149, 152. John of France extended this to fourdeniersperlivreper week, that is, annually 86-2/3 per cent.! (J. B. Say, Traité II, ch. 8.) In Austria, in 1244, 174 per cent. allowed! (Rizy, Ueber Zinstaxen und Wuchergesetze, 1859, 72 ff.)
SECTION CXCII.
INTEREST-POLICY.—GOVERNMENT INTERFERENCE.—FIXED RATES.
Instead of the medieval prohibition of interest, most modern states have established fixed rates of interest, the exceeding or evasion of which, by contract or otherwise, is declared null and void, and is usually punishable as usury.[192-1]If the fixing of the rate is intended to depress the rate of interest customary in the country,[192-2][192-3]it uniformly fails of its object. Ifcontrol were great enough, vigilant and rigid enough, which is scarcely imaginable, to prevent all violations of the law, it is certain that less capital would be loaned than had been, for the reason that every owner of capital would be largely interested in employing his capital in production of his own. More capital, too, would go into foreign parts, and there would be less saved by those not engaged in any enterprise of their own. All of this would happen to the undoubted prejudice of the nation's entire economy.[192-4][192-5]
If, on the other hand, the control by the government be not great enough, the law would, in most cases, be evaded; especially as each party, creditor as well as debtor, would find it to his advantage to evade it. The latter, who otherwisewould not be able to borrow at all, is, as a rule, more in need of obtaining the loan, than the creditor is to invest his capital. How easily, therefore, might he be induced to bind himself by oath or by word of honor![192-6]He would, moreover, be compelled to pay the creditor not only the natural interest and the ordinary insurance premium, but also for the special risk he runs when he violates the law threatening him with a severe penalty.[192-7]Hence the last result is either a material enhancement of the difficulty of obtaining loans or an enhancement of the rate of interest.[192-8]
[192-1]This is, historically, the second meaning of the word usury, while in the middle ages, for instance in England, under Elizabeth (D. Hume), the taking of any interest whatever was called usury. Science should employ this word only in the sense used in § 113.
[192-2]In Switzerland, at the end of the 17th century, not only were those punished who took more interest than the law prescribed, but those who took less. (Compare Rechtsquellen von Basel, Stadt und Land, 1865, Bd. II.)
[192-3]Fixed rates of interest of this kind are to be accounted for in part by a still continuing aversion of the legislator for interest in general; in part, by the opinion which prevails that precisely the most useful and most productive classes might be elevated by an artificial lowness of the rate of interest. (But most especially the government itself, which borrows more than it lends.) When Louis XIV. about 1665, lowered the rate of interest to 5 per cent., he claimed in the preamble to his decree that it would have the effect of promoting the welfare of landowners and business men, and of preventing idleness. SimilarlySully, Economies royales, L, XII. And soJ. Child, Discourse of Trade, 69 ff., says that every lowering of the rate of interest, by law, produced a completely corresponding increase of the national wealth. He says, since the first reduction (?) of interest in 1545, the national wealth increased six fold; since the last, in 1651, the number of coaches increased a hundred fold; chamber-maids wore now better clothes than ladies formerly; on 'Change there were more persons with a fortune of £10,000 than before with £1,000. SimilarlyCulpeper: compareRoscher, Z. Geschichte der eng. Volkswirthsch., 57 ff. Later, the French generally thought that a lowering of the rate of interest would prove injurious to thenoblesse de la robe; hence even in 1634, parliament was opposed to it. (Forbonnais, Recherches et Considérations, I, 48, 226.)Darjessays that information of all loans of capital should be made to the police authorities, and that the authorities might compel payment and the loaning of the principal over again to parties in need of capital. (Erste Gründe, 426 seq.) Something analogous[TN 25]practically provided for by the WürtembergLandesordnungenof the 16th century. (Compare alsovon Schröder, F. Schatz- und Rentkammer, XXV, 3.)
[192-4]Precisely a high rate of interest is a powerful incentive to saving, and to the importation of capital.
[192-5]Usurae palliatae, interest taken out of the capital, or stem-interest, called also money-usury in contradistinction to patent interest-usury. To this category belong the written acknowledgments of indebtedness to a larger amount than that actually received; acknowledging it in a higher kind of money than that in which the loan was made; the compulsory taking by the debtor of commodities at a disproportionately high price, in the place of money, or at a disproportionately low one, by the creditor. See the enumeration of such things in the police regulations of the empire, 1530, art. 26, and 1548, art. 17. Thus, in Paris, jewels are "sold" to students hard-pressed for money, which immediately find their way to themonts de piété, and have to be paid for some time after to the usurious "seller," at a most exorbitant price. The person who loans $100 at 6 per cent., and retains the interest for the next following year from the date of the loan, takes in reality nearly 6.4 per cent. Fraudulent accessory expenses of all kinds,faux frais, expenses of registration, for prolongation, and extinguishment, etc. Here belong, also, the provisions introduced into contracts to make redemption more difficult, the fixing of terms of payment in such a manner that the debtor is almost forced to let them slip by—called "usury in the conditions" in Austria. Remarkable instances from the 16th century inVasco, Usura libera, § 57 ff. Recently,BraunundWirth, Die Zinswuchergesetze, 1856, 190 ff. In view of the manifold business transactions behind which the interest-usurer may take refuge, the complete prevention of the latter would break the legs of commerce (loc. cit., 145 ff.).
[192-6]If the state, by annulling such promises, should incite the people to violate them, it would be a frightful step towards the demoralization of the nation: "thus rewarding men for obtaining the property of others by false promises, and then, not only refusing payment, but invoking legal penalties on those who have helped them in their need." (J. S. Mill, Principles, V, ch. 10, 2.) Besides, the Austrian usury law of 1803 punishes the borrower also as a spendthrift, and imprisons him for six months (§ 18), or else it designates where he shall make his domicile (Ortsverweisung). Modern loaning on drafts and bills of exchange, the acceptance of which is forged with the knowledge of the creditor, corresponds to whatPlutarch, Quaest., Gr., 53, relates of the Cretans, who had, especially in later times, the worst possible reputation for avarice and dishonesty. (Polyb., VI, 46.Paulto Titus, I, 12.)
[192-7]He must insure him against the usury laws. (Adam Smith.) According toKrug, Staatsökonomie, the usury laws should be called so because they promote usury, not because they prevent it. Compare to some extent,Montesquieu, Esprit des Lois, XXII, 18 ff.
[192-8]When Catherine II. reduced the rate of interest in Livonia, in 1785, from 6 to 5 per cent., it soon became impossible, even on the best security, to borrow at less than 7 per cent. (Storch, Handbuch, II, 26.) And so, when in New York, in 1717, the rate of interest was reduced to 6 per cent., it became necessary, the following year, to raise it again to 8 per cent. The merchants, themselves, petitioned that it might be so raised, because they found it impossible to get any loans whatever. (Ebeling, Geschichte und Erdbeschreib. von Nord Amerika, III, 152.) In Chili, the legal rate of interest is 6 per cent., the actual rate, however, never under 12 per cent., and frequently 18 to 24 per cent. In Peru, on the other hand, the repeal of the usury laws rapidly reduced the rate of interest from 50 to 24 per cent., and finally to 12. (Pöppig, I, 118.)