The Kaleidoscope; or, Literary and Scientific Mirror/Series 2/Volume 4/Number 198/The Political Economist

by Publius

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The Political Economist.

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IN FAVOUR OF THE REPEAL OF THE USURY LAWS.

TO THE EDITOR.

Sir,—As I think the arguments of Prenez Garde, in a late number of the Mercury, against the proposed repeal of the usury laws exceedingly weak and inconclusive, I beg leave to make them the subject of a few remarks. His two propositions are,

1. That the repeal will check the rise in the world of industrious men, unprovided with capital.

2. That it will so unhinge the present established forms of trade as to embarrass and iniure the national prosperity.

1. That a large portion of our national wealth originates in the active intelligence and industry of men originally without capital, or with capital disproportionate to their spirit of enterprize, is very obvious, and has been powerfully insisted on as an argument for free trade in money, by those very political economists whom P. G. insinuates to be ignorant of it. If the repeal, then, would really increase the expense of borrowed capital, and so limit the number, and cramp the exertions of those who want it, this writer’s first proposition would be proved: but, in respect to such of this class as are commencing business, he adduces nothing in support of his opinion; and, of those already established, his whole reasoning is confined to the query, “What shall prevent the banker, who now lends at five per cent. from then requiring double that rate of interest?” I should have thought it a plain and satisfactory answer, that, if it were not both safe and profitable to lend to such persons at five per cent. it would not now be done; that while it continues to be so lenders will abound; and that, as there is nothing in the repeal of the usury laws which can diminish the prudence of such loans, they will be as cheaply attainable when money transactions are unfettered as at the present moment. It is further probable, that, if the repeal have any effect at all on established rates of interest, its influence must be to lower them; for, without increasing the number of men already accommodated at four or five per cent. a free trade in money will induce other capitalists to enter the market, to meet the demands of those whom the usury laws have either excluded from accommodation or forced to obtain it on extravagant terms. The number of bankers, &c. will thus be increased; and cheapness in the commodity they deal in result from their competition. In reference to this latter view of the subject, we see a solid benefit opposed to a visionary apprehension. The law, at present, excludes those from the advantages of capital whose trades, &c. as they involve more risque, justify the lender in requiring, and the borrower in granting, a larger interest than five per cent. This injustice once removed, additional wings will be added to commercial industry, to the manifest increase of private enjoyment and the public welfare.

2. But the proposed repeal “will so unhinge established forms as to embarrass and injure the national prosperity.” These very general apprehensions are subsequently explained to mean, that the buyer and seller will have their bargain to make on the bills to be given in payment, and that a second bargain must be made with the banker for discounting them. I beg to ask whether this is not the case at present? Whether the terms are not always regulated by the relation of price to credit, that is, to the period when payment is supposed to be cash? Commercial men soon understand each other, and regulate the transactions of every day and hour by customs of easy application, which, once established, become matters of course, occasioning embarrassment to nobody. If some difference in the respectability of bills be now consistent with a pretty uniform rate of discount, thereis no reason why it should not continue so, competition among capitalists keeping down the profits on money as on other things, and experience having already demonstrated the rate at which bills in general may be profitably discounted. As to keeping credits of the same level or value, and thus patting the moneyless man on an equal footing with the great capitalist, it is sufficient to reply,—1st, That it is an error to suppose it now done. 2dly, That it cannot occur while the distinctions of rich and poor, safe and unsafe, remain: and 3dly, That if practicable, it would be injurious, and therefore undesirable.

The repeal of the usury laws seems, then, highly expedient for every class of persons among us, and not the least so for our manufacturers, tradesmen, and merchants; but, were the measure more exposed to speculative objection, it is surely well worth a trial, whether the same freedom which gives animation to all other trades may not be advantageously extended to the most important,—in short, to the life’s blood of the commercial world; a measure, too, alike suggested by common sense, and the decision of the most enlightened minds which have hitherto deliberated on our commercial interests.

March 10, 1824. PUBLIUS.