Chapter XLI: Section CLXXXIV: History of the Rate of Interest

Among barbarous nations, the loaning of capital is wont to happen so seldom, and to be limited so strictly to near relations, that it does not yet occur to any one to stipulate for a regular compensation therefor.[184-1] But, however, when they pass from this state to interest proper, the rate must be, of course, very high.[184-2] The premium for insurance is here very great, the possibility and inclination to accumulate capital exceedingly small. Even of the existing supply of capital, a great part remains idle, because the faculty and the institutions necessary to concentrate it and permit it to flow are wanting. (§ 43.) The unskillfulness of labor is more than overcome by the excess of fertile and naturally productive land, of rich sites still unoccupied, the cream of which, as it were, needs only to be culled. Population is indeed sparse, but the usually prevailing absence of freedom of the lower classes prevents wages claiming the full benefit of competition.[184-3] This last circumstance is especially important.[184-4] For a given amount of the national income and of rent, every depression of wages must obviously raise the rate of interest, and every enhancement of wages lower it.[184-5]

[Footnote 184-1: _Tacit._, Germ., 26; _Marculf_, Form., 18,
25 ff., 35; _Savigny_, Ueber das altrömische Schuldrecht, in
the transactions of the Berlin Academy, 1833, 78 seq.]

[Footnote 184-2: According to the Lex Visig., V, 5, § 8, the
maximum rate of interest allowed on loans of money was
12-1/2 per cent., and on other _res fungibiles_, 50 per
cent. From the 12th to the 14th century, the Lombards and
the Jews in France and England took generally (?) 20 per
cent. a year. (_Anderson_, Origin of Commerce, _a._, 1300.)
Philip V. of France, in 1311, fixed the rate of interest at
the fairs in Champagne at 15 per cent. (a species of
discount) at most, and at a maximum everywhere of 20 per
cent. (Ordonnances de la France, I, 484, 494, 508.) The
legal rate of interest in Verona, in 1288, was fixed at a
maximum of 12-1/2 per cent.; in Modena, 1270, at 20 per
cent. (_Muratori_, Antiquitt. Ital., I, 894); in Bresica,
1268, at 10 per cent. (_v. Raumer_, Geschichte der
Hohenstaufen, V, 395 ff.) Frederick II. wished to reduce it
to 10 per cent. for Naples, but failed. (_Bianchini_, Storia
delle Finanze di Nap., I, 299.) The tables of _Cibrario_,
Economia polit. del medio Evo., III, 380, for 1306-1399,
show for upper Italy interest to have been at 20, 15, 14,
10, and also 5-1/2 per cent. About 1430 the Florentines, in
order to moderate the enormously high rate of interest,
called Jews to their city, and the latter promised not to
charge over 20 per cent. (_Cibrario_, III, 318.) In the
Rhine country, the Kowerzens, during the 14th century, took
from 60 to 70 per cent., for which they had, however, to pay
a heavy tax to the archbishop. (_Bodmann_, Rh. Alterthümer,
716.) Of Jewish maximum rates of interest, in the 14th and
15th centuries, see _Stobbe_, Juden in Deutschland während
des M. Alters, 103, 110, 234 seq.; _Hegel_, Strassb. Chr.,
II, 977, 984.

The rate of interest usual in these countries must not
however be calculated from the data furnished by these
usurious rates and fixed rates of interest, simply. In
Germany, the rate of interest promised by princes in the
13th and 14th centuries was usually 10 per cent. The
Frankfort municipal loans made by Jews in the 14th century
bore interest at the rate of 9, 11-2/3, 13, 18, 26, and even
45 per cent. (_Kriegk_, F.'s Bürgerzwiste, 343, 539.) The
rate of interest in the purchase of annuities continually
declined between 1300 and 1500, especially in the time of
the emancipation of manual laborers. Old Base documents
give, between 1284 and 1580, as the highest rate, 11-3/9,
and as the least, 5 per cent. The latter became more and
more usual later, especially in the sale of house-rents
(_Hauszins_), so that in 1841 all annuities (_Renten_) might
be canceled by a payment of their amounts multiplied by 20.
Until the beginning of the 15th century, in the city, the
rule was 6 to 7 per cent.; outside of it, 8 to 10 per cent.
(_Arnold_, Geschichte des Eigenthums in den deutschen
Städten, 222 seq., 227 seq.) According to the Bremen Jahrb.
of 1784, 164 seq., the rate of interest in the case of
_Handfesten,_ in 1295, = 10 per cent., gradually sank: in
the 15th century it was never over 6-2/3; after 1450,
generally 5; in 1511 only 4 per cent. In 1441 ff., in
Augsburg, people were satisfied with a business profit of
7-2/3 per cent., while the usual rate of interest paid by
house-rent, etc. was 5 per cent. (_Hegel_, Augsb. Chr., II,
134 seq., 157.) Handsome tables in the rate of interest in
the purchase of annuities for all Germany, from 1215 to
1620, give as the rule, 7 to 10, scarcely ever over 15 per
cent., in _M. Neumann_, Geschichte des Wuchers, 266 ff. For
the upper Rhine, compare _Mone's_ Zeitschr., 26 ff. Among
the Fathers of the councils of Constance and Basil 5 per
cent. was considered equitable. Compare _F. Hammerlin_,
1389-1457, De Emtione et Venditione unius pro viginti.
Russian interest at 40 per cent., according to the laws of
Jaroslaw (ob. 1054 after Christ). _Karamsin_, Russ. Gesch.,
II, 47.]

[Footnote 184-3: The high rate of interest in many countries
at present may be thus accounted for. In the United States,
during the last century, less than 8 per cent. was seldom
paid. (_Ebeling_, III, 152.) According to _M. Chevalier_,
Lettres sur l'Amérique du Nord, 1836, I, 59, the rate of
interest in Pennsylvania was 6, in New York, 7, in most of
the slave states, 8-9; in Louisiana, 10 per cent. In South
Australia (1850) it was, with full security, 15-20 per cent.
(_Reimer_, Südaustralien, 39.) In the West Indies, about the
end of the last century, a strong negro might produce a
revenue equal to one-fourth of his capital value. (_B.
Edwards_, History of the British West Indies, II, 129.) In
Brazil, the lowest rate of interest was at 9 per cent., and
12-18 per cent. was nothing unusual. (_Wappäus_, M. and S.
Amerika, 1871, 1413.) In Cuba, for the government 10, for
private parties, 12 to 16 per cent. (_Humboldt_, Cuba, I,
231.) In Potosi, in 1826, Temple got 30 per cent. interest
on chattel mortgage, and from 2 to 4 per cent. a month was
offered, while the rate of interest in Buenos Ayres amounted
to 15 per cent. per annum. (_Temple_, Travels, II, 217.) In
Russia, _Storch_, Handbuch, I, 262, speaks of 8-10 per cent.
According to _v. Haxthausen_, it was, in the interior, never
less than from 8 to 12 per cent. per annum; at Kiew and
Odessa, 1-1/4, 1-1/2 and 2 per cent. per month. (Studien, I,
58, 467; II, 495.) In _Greece_, the rate of interest on
first mortgages is at least 10, on a second, 15-18 per cent.
(Ausland, 1843, No. 82.)]

[Footnote 184-4: _Nebenius_, Oeff. Credit, I, 55.]

[Footnote 184-5: Only in this particular instance is what
_Ricardo_ so frequently insists on true, viz: that the rate
of wages can be increased only at the expense of the profit
of capital, and _vice versa_.]