Chapter LI: Section CXCIV

INTEREST-POLICY.--REPEAL OF THE USURY LAWS.

However, the complete repeal of the usury laws[194-1] has not under all circumstances accomplished what it was supposed it would; and the state should take great care, lest by an incautious framing of its laws, it should put judges in such a position that they may be compelled to coöperate in the execution of immoral contracts.[194-2] In the lowest strata, so to speak, of the loaning business, the medieval condition continues to exist (§ 190) after it has disappeared in the upper. Here, the loan is effected scarcely ever for the purposes of production, but most generally because of the most urgent necessity; and the debtor is not in a condition, from want of education, and especially from his ignorance of arithmetic, to estimate the magnitude of the burthen he has undertaken. The business of loaning is, under such circumstances, considered dishonorable, to some extent, by the public. And when a business necessary in itself is held disreputable by public opinion, the usual result is that bad men alone engage in it.[194-3] Real competition which would but fix the natural price is wanting here in proportion as the debtor is anxious for secrecy.[194-4]

Abuses in this respect are best guarded against by the establishment of government loan-institutions, and by the publicity of the administration of justice to debtors.[194-5] Besides, every contract might be prohibited the terms of which were such that an inexperienced borrower could not from them obtain a clear conception of the burthen he accepts, or which hindered him from paying the debt at a proper time.[194-6]

Lastly, there should be a rate of legal interest fixed by the state to be charged in such cases as interest is found to be in justice due, but in which none is provided for by contract; and this rate should approximate as nearly as possible to the rate usual in the country.[194-7] [194-8]

[Footnote 194-1: In 1787, Joseph II. abolished the penalties
for usury, but allowed the provisions denying a legal
remedy, in cases of usurious demand of over 4 per cent. for
hypothecations, 6 per cent. for bills and 5 per cent. for
other loans, to remain. Compare the prize essay by
_Günther_, Versuch einer vollständigen Untersuchung über
Wucher und Wuchergesetze, 1790; _v. Kees_, über die
Aufhebung der Wuchergesetze, 1791; _Vasco_, Usura libera,
1792. The opposite view represented by _Ortes_, E. N., II,
24, and _v. Sonnenfels_, Ueber Wucher und Wuchergesetze,
1789, and zu Herrn _von Kees_, Abhandlung, etc., 1791. The
debates on the repeal of the usury laws in the French
Chamber of Deputies, after which _Lherbette's_ motion in
favor of their repeal was rejected. In France they were,
during the assignat-period of bewilderment virtually, and in
1804-1807 expressly (C. C., Art. 1907), but only
provisionally repealed. In Würtemberg, all those having the
right to draw bills of exchange were exempted from them in
1839. Since the law of 1848, governing bills of exchange,
gave all persons capable of contracting, the right to draw
bills of exchange, the usury laws have ceased to have any
existence; without much noise before and without much
complaint after. (A. Allgem. Ztg., 24 März, 1857.) Recent
complete or partial repeal of the usury laws: in England, in
1854; in Denmark, in 1855; in Spain, in 1856; Sardinia,
Holland, Norway and Geneva, 1857; Oldenburg, 1858; Bremen,
1859; in the kingdoms of Saxony and Sweden, in 1864;
Belgium, 1865; Prussia, the North German Confederation, and
to some extent Austria, in 1867.]

[Footnote 194-2: Compare _F. X. Funck_, Zins und Wucher,
1868, a moral theological treatise which rightly demands a
more rigid popular morality in relation to real usury, after
the repeal of the usury laws. The recent cases in which
courts have juridically acquitted usurers because they could
not do otherwise, but have branded them morally, are of very
questionable propriety, in view of the facility with which
high and usurious rates of interest may be confounded. _R.
Meyer_, Emancipationskampf, I, 78, advises that the
capitalist be allowed to ask whatever interest he wishes,
but that the state, as judge and executor of the laws,
should enforce payment only at a certain rate determined by
law.]

[Footnote 194-3: Many laws seem to purposely permit this,
inasmuch as they allow a rate of interest, higher in
proportion as the position of the creditor is less
respectable. Thus, formerly, in some places, the Jews might
require higher interest than the Christians. Justinian
allows _personis illustribus_ only 4 per cent.; ordinary
private persons, 6 per cent.; money-changers, etc., 8 per
cent. (L. 26, Cod. IV, 32.) On the other hand, according to
the Indian legislation of Menu, the Brahman is obliged to
confine himself to 2, the warrior to 3, the _vaysya_ to 4,
the _sudra_ to 5 per cent. per month at most. (Cap. 8.)]

[Footnote 194-4: _Turgot_ considered that only the _prêteurs
à la petite semaine_, pawnbrokers who loaned to hard-pressed
people on the confines of the middle class and artisans, and
the infamous characters who advanced money to the sons of
rich men to spend in dissipation, still passed for usurers.
Only the latter are injurious; not, however, because of the
high rate of interest they charge, but because they help in
a bad cause. (Sur le Prêt d'Argent, § 32.) According to
_Colquhoun_, Police of the Metropolis, 167, there are women
in London from whom the hucksteresses borrow 5 shillings
every day and return them every evening with 1/2 shilling
interest. Something analogous happens much more frequently
in the country, especially in the loaning in kind of
productive capital to poor persons. Thus, in Tessin, there
are many "iron cattle" which the borrower is obliged to
return at their original value, plus an interest of about 36
per cent. (_Franscini_, C. Tessin, 152.) On the Rhine,
frequently as much as 200 per cent. a year, is stipulated
for in such contracts. _Morstadt_, der N. Oekonom. Heft., IX,
727.]

[Footnote 194-5: Compare _J. J. Becher_, Polit. Discurs,
1668, 219; _v. Schröder_, F. Schatz- und Rentkammer, Bd. §§
123, 133 ff. The first _montes pictatis_ were expressly
intended to check the usury of the Jews. Thus, in Florence,
in 1495, after the expulsion of the Jews, voluntary
contributions were made to found a municipal loaning
establishment. Similarly, _Tiberius_, Tacit. Ann., VI, 16
seq. _Count Soden_, Nat-Oek., IV, 57; V, 319, advises that
all contracts for interest should be recorded in a public
registry, under pain of their being held not actionable.]

[Footnote 194-6: _Günther_, loc. cit., thinks that, in every
contract in which the rate of interest is masked, its real
rate should be expressed under penalty of invalidity. In
addition to this, he would have those who have attained
their majority put in full control of their fortune only
after they had undergone an examination.

It seems opportune that the old prohibition against interest
on interest (_Cicero_, ad. Att., V, 21, and L, 26, Digest,
XIV, 6) and the provision that the interest should not be
permitted to be greater than the _alterum tantum_ (Digest,
l. c.) should be permitted to continue. (Digest, l. c.) Both
of these measures were first decreed by Lucullus, for the
protection of Asia Minor. Compare § 115. Florentine law, of
1693, that interest in arrears, or that interest on interest
beyond 7 years, should not be added to the principal without
an express contract to that effect. (_Vasco_, Usura libera,
§ 155.) In England, the usury laws were by 2 and 3 Victor.,
c. 37, repealed, but only to the extent of excepting from
their provisions bills of not over 12 months, and money
loans not over £10. Compare _Rau_, Lehrbuch II, § 323.]

[Footnote 194-7: Compare _Locke_, Considerations: Works, 10,
32 ff. In Spain, the Council of State is required to
regulate the rate of legal interest yearly (law of 1856,
art. 8); a thing which, according to _Braun_, would be
better done in each individual case by the judges
themselves. (_Faucher's_ Vierteljahrsschrift, 1868, II,
13.)]

[Footnote 194-8: In Athens, the rate of interest in general
was voluntary from the time of Solon, who, however, did away
with slavery for debt. (Lysias adv. Theomn., 360.) Yet there
was a legal rate of interest of 18 per cent. for the case in
which a divorced husband delayed the return of his wife's
dowry. Compare _Böckh_, Staatshaushalt der Athener, I, 148.]