Usury and Interest Rates

MANY have made witty invectives against usury. They say that:

• it is a pity, the devil should have God’s part, which is the tithe
• the usurer is the greatest Sabbath-breaker, because his plough goeth every Sunday
• the usurer is the drone, that Virgil speaketh of: “Ignavum fucos pecus a praesepibus arcent.”
• the usurer breaketh the first law, that was made for mankind after the fall, which was, in sudore vultus tui comedes panem tuum; not, in sudore vultus alieni.
• usurers should have orange-tawny bonnets, because they do judaize
• it is against nature for money to beget money; and the like.

I think that usury is a concessum propter duritiem cordis. There must be borrowing and lending. Men are so hard of heart, as they will not lend freely, and so usury must be permitted.

Some others, have made suspicious and cunning propositions of banks, discovery of men’s estates, and other inventions. But few have spoken of usury usefully.

It is good to set before us, the incommodities and commodities of usury, that the good, may be either weighed out or culled out; and warily to provide, that while we make forth to that which is better, we meet not with that which is worse.

Disadvantages of usury

1. It makes fewer merchants.

The lazy trade of usury makes money stand still. Without usury, money would in great part be employed on merchandizing which is the vena porta of wealth in a state.

2. It makes poor merchants.

A farmer cannot tend his ground so well if he has to pay a great rent. Likewise, the merchant cannot drive his trade so well, if he has to pay for great usury.

3. The decay of customs of kings or states, which ebb or flow, with merchandizing.

This is incident to the other two.

4. It brings the treasure of a realm, or state, into a few hands.

The usurer is at certainties, while others are at uncertainties. At the end of the game, most of the money will be confined in the box.

A state flourishes when wealth is more equally spread.

5. It beats down the price of land

The employment of money is chiefly either:

• merchandizing or
• purchasing

Usury waylays them both.

6. It dulls and damps all industries, improvements, and new inventions, wherein money would be stirring, if it were not for this slug.

7. It ruins many men’s estates

This breeds a public poverty in time.

Advantages of usury

1. It advances merchandizing in some respects even while it hinders it

The greatest part of trade is driven by young merchants who borrow at interest.

If the usurer either call in, or keep back, his money, there will ensue, presently, a great stand of trade.

2. It reduces the most sudden undoing

The easy borrowing on interest draws men’s necessities, causing a most sudden undoing. This forces them to sell their means (be it lands or goods).

Usury on the other hand merely gnaws on them. Bad markets would swallow them quite up.

As for mortgaging or pawning, it will little mend the matter: for either men will not take pawns without use; or if they do, they will look precisely for the forfeiture.

A cruel moneyed man in the countryside would say: The devil take this usury, it keeps us from forfeitures, of mortgages and bonds.

3. The third and last is, that it is a vanity to conceive, that there would be ordinary borrowing without profit; and it is impossible to conceive, the number of inconveniences that will ensue, if borrowing be cramped.

Therefore, it is useless to speak of abolishing usury. All states have had it always, in one kind or rate, or another. So that opinion must be sent to Utopia.

Reformation of usury

How can the disadvantages of usury be best avoided? How can its advantages be retained?

The tooth of usury should be grinded that it does not bite too much.

Moneyed men should be invited to lend to merchants to continue and quicken trade. This can only be done if you introduce 2 rates of usury:

• a lesser usury
• a greater usury

If you reduce usury to a low rate, it will ease the common borrower.

• But the merchant will be to seek for money.

The trade of merchandize is the most lucrative.

• It may bear usury at a good rate; other contracts not so.

This is under license only to certain persons, and in certain places of merchandizing.

1. General interest rates, as free and current, should be reduced to 5%

This is free and general for all.

The state should obey this rate. This will preserve borrowing and prevent a general stop or dryness.

This will ease infinite borrowers in the country.

This will raise the price of land, because land purchased at 16 years’ purchase will yield 6% or more whereas this rate of interest, yields but five.

This by like reason will encourage, and edge, industrious and profitable improvements, because many will rather venture in that kind, than take 5%, especially having been used to greater profit.

2. Certain persons should be licensed to lend to known merchants at a higher interest rate

It should have cautious terms. The rate be, even with the merchant himself, should be somewhat more easy than that he used formerly to pay.

This lending is not done by a bank or common stock, but by private lenders. This is because banks are risk averse.

Let the state be answered some small matter for the license, and the rest left to the lender. If the abatement is but small, it will no whit discourage the lender.

For example, a licensed lender who earned 9-10% in the past will quickly accept 8% instead of borrowing from hazardous borrrowers.

Let these licensed lenders be indefinite in number, but restrained to certain principal cities and towns of merchandizing.

In this way, they will be hardly able to color other men’s moneys in the countryside. In this way, the license of 9% will not suck away the current rate of 5% for no man will send his moneys far off, nor put them into unknown hands.

If it be objected that this doth in a sort authorize usury, which before, was in some places but permissive; the answer is, that it is better to mitigate usury, by declaration, than to suffer it to rage, by connivance.

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