Lending on Interest

SPECIE is the sign of value. He who has occasion for this sign, should pay for the use of it, as well as for everything else that he has occasion for.

All the difference is, that other things may be either hired or bought; whilst money, which is the price of things, can only be hired, and not bought.*

To lend money without interest, is certainly an action laudable and extremely good; but it is obvious, that it is only a counsel of religion, and not a civil law.

In order that trade may be successfully carried on, it is necessary that a price be fixed on the use of specie; but this should be very inconsiderable. If it be too high, the merchant, who sees that it will cost him more in interest than he can gain by commerce, will undertake nothing; if there is no consideration to be [112] paid for the use of specie, nobody will lend it; and here too the merchant will undertake nothing.

I am mistaken when I say nobody will lend= the affairs of society will ever make it necessary. Usury will be established; but with all the disorders with which it has been constantly attended.

The laws of Mahomet confound usury with lending upon interest. Usury increases in Mahometan countries in proportion to the severity of the prohibition. The lender indemnifies himself for the danger he undergoes in suffering the penalty.

In those eastern countries, the greatest part of the people are secure of nothing; there is hardly any proportion between the actual possession of a sum, and the hope of receiving it again after having lent it= usury then must be raised in proportion to the danger of insolvency.

Chapter 20: Maritime Usury

THE greatness of maritime usury is founded on two things= the danger of the sea, which makes it proper that those who expose their specie, should not do it without considerable advantage; and the ease with which the borrower, by the means of commerce, speedily accomplishes a variety of great affairs.

But usury, with respect to land-men, not being founded on either of these two reasons, is either prohibited by the legislators, or, what is more rational, reduced to proper bounds.

Chapter 21: Lending by Contract, and the State of Usury amongst the Romans

BESIDES the loans made for the advantage of commerce, there is still a kind of lending by a civil contract, from whence results interest or usury.

As the people of Rome increased every day in power, the magistrates sought to insinuate themselves in their favour, by enacting such laws as were most agreeable to them. They retrenched capitals; they first lowered, and at length prohibited interest; they took away the power of confining the debtor’s body= in fine, the abolition of debts was contended for, whenever a tribune was disposed to render himself popular.

These continual changes, whether made by the laws, or by the plebiscita, naturalised usury at Rome; for the creditors seeing the people their debtor, their legislator, and their judge, had no longer any confidence in their agreements; the people, like a debtor who has lost his credit, could only tempt them to lend, by allowing an exorbitant interest; especially as the laws applied a remedy to the evil only from time to time, while the complaints of the people were continual, and constantly intimidated the creditors.

This was the cause that all honest means of borrowing and lending were abolished at Rome, and that the most monstrous usury established* itself in that city, notwithstanding the strict prohibition and severity of the law.

This evil was a consequence of the severity of the laws against usury. Laws excessively good are the source of excessive evil. The borrower found himself under a necessity of paying for the interest of the money, and for the danger the creditor underwent of suffering the penalty of the law.

Chapter 22: Continued

THE primitive Romans had not any laws to regulate the rate of usury.* In the contests which arose on this subject between the plebeians and the patricians, even in the †sedition on the Mons sacer, nothing was alledged, on the one hand, but justice; and on the other, but the severity of contracts.

They then only followed private agreements, which, I believe, were most commonly at 12%.

My reason is, that in the‡ ancient language of the Romans, interest at six per cent. was called half usury, and interest at three per cent. quarter usury. Total usury must therefore have been interest at twelve per cent.

How could such a great interest be established amongst a people almost without commerce?

I answer, that this people, being very often obliged to go to war without pay, were under a frequent necessity of borrowing= and as they incessantly made happy expeditions, they were commonly very able to pay. This is visible from the recital of the contests which arose on this subject; they did not then disagree concerning the avarice of creditors, but said, [115] that those who complained might have been able to pay, had they lived in a more *regular manner.

They then made laws, which had only an influence on the present situation of affairs= they ordained, for instance, that those who enrolled themselves for the war they were engaged in, should not be molested by their creditors; that those who were in prison should be set at liberty; that the most indigent should be sent into the colonies= and sometimes they opened the public treasury. The people, being eased of their present burthens, became appeased; and as they required nothing for the future, the senate were far from providing against it.

At the time when the senate maintained the cause of usury with so much constancy, the Romans were distinguished by an extreme love of frugality, poverty. and moderation: but the constitution was such, that the principal citizens alone supported all the expences of government, while the common people paid nothing.

How then was it possible to deprive the former of the liberty of pursuing their debtors, and at the same time to oblige them to execute their offices, and to support the republic amidst its most pressing necessities?

Tacitus† says, that the law of the twelve tables fixed the interest at one per cent. It is evident that he was mistaken, and that he took another law, of which I am going to speak, for the law of the twelve tables. If this had been regulated in the law of the twelve tables, why did they not make use of its authority in the disputes which afterwards arose between the creditors and debtors? We find not any vestige of this law upon lending at interest; and let us have but never so little knowledge of the history of Rome, [116] we shall see that a law like this could not be the work of the decemvirs.

The Licinian law, made* eighty-five years after that of the twelve tables, was one of those temporary regulations of which we have spoken. It ordained, that what had been paid for interest should be deducted from the principal, and the rest discharged by three equal payments.

In the year of Rome 398, the tribunes Duellius and Menenius caused a law to be passed, which reduced the interest to† one per cent. per annum. It is this law which Tacitus‡ confounds with that of the twelve tables, and this was the first ever made by the Romans to fix the rate of interest. Ten years after,§ this usury was reduced one-half;∥ and in the end entirely abolished;** and if we may believe some authors whom Livy had read, this was under the consulate of†† C. Martius Rutilius and Q. Servilius, in the year of Rome 413.

It fared with this law as with all those in which the legislator carries things to excess; an infinite number of ways were found to elude it. They enacted, therefore, many others to confirm, correct, and temper it. Sometimes they quitted‡‡ the laws to follow the common practice, at others, the common practice to follow the laws; but in this case, custom easily prevailed. When a man wanted [117] to borrow, he found an obstacle in the very law made in his favour; this law must be evaded by the person it was made to succour, and by the person condemned. Sempronius Asellus, the prætor, having permitted the* debtors to act in conformity to the laws, was† slain by the creditors for attempting to revive the memory of a severity that could no longer be supported.

I quit the city, in order to cast an eye on the provinces.

I have somewhere else‡ observed, that the Roman provinces were exhausted by a severe and arbitrary government. But this is not all, they were also ruined by a most shocking usury.

Cicero takes notice,§ that the inhabitants of Salamis wanted to borrow a sum of money at Rome, but could not, because of the Gabinian law. We must therefore enquire into the nature of this law.

As soon as lending upon interest was forbidden at Rome, they contrived∥ all sort of means to elude the law; and as their allies,** and the Latins, were not subject to the civil laws of the Romans, they employed a Latin, or an ally, to lend his name, and personate the creditor. The law, therefore, had only subjected the creditors to a matter of form, and the public were not relieved.

The people complained of this artifice; and Marius Sempronius, tribune of the people, by the authority of the senate, caused a plebiscitum to be enacted†† to this purport, that in regard to loans, the laws prohibiting usury betwixt Roman citizens, [118] should equally take place between a citizen and an ally, or a citizen and a Latin.

At that time they gave the name of allies to the people of Italy properly so called, which extended as far as the Arno and the Rubicon, and was not governed in the form of a Roman province.

It is an observation of Tacitus,* that new frauds were constantly committed, whenever any laws were passed for the prevention of usury. Finding themselves debarred from lending or borrowing in the name of an ally, they soon contrived to borrow of some inhabitant of the provinces.

To remedy this abuse, they were obliged to enact a new law; and Gabinius† upon the passing of that famous law, which was intended to prevent the corruption of suffrages, must naturally have reflected, that the best way to attain this end, was to discourage the lending upon interest= these were two objects naturally connected; for usury always increased at the time of elections,‡ because they stood in need of money to bribe the voters. It is plain, that the Gabinian law had extended the Senatus Consultum of Marcus Sempronius to the provinces, since the people of Salamis could not borrow money at Rome, because of that very law. Brutus, under fictitious names, lent them some money§ at four per cent. a month,∥ and obtained for that purpose two Senatus Consultums; in the former of which, it was expressly mentioned, that this loan should not be considered as an evasion of the law,** and that the governor [119] of Sicily should determine according to the stipulations mentioned in the bond of the Salaminians.

As lending upon interest was forbidden by the Gabinian law between provincials and Roman citizens, and the latter at that time had all the money of the globe in their hands, there was a necessity for tempting them with the bait of extravagant interest, to the end that the avaricious might thus lose sight of the danger of losing their money. And as they were men of great power in Rome, who awed the magistrates, and over-ruled the laws, they were emboldened to lend, and to extort great usury. Hence the provinces were successively ravaged by every one who had any credit in Rome= and as each governor, at entering upon this province, published his edict,* wherein he fixed the rate of interest in what manner he pleased, the legislature played into the hands of avarice, and the latter served the mean purposes of the legislator.

But the public business must be carried on; and wherever a total inaction obtains, the state is undone. On some occasion the towns, the corporate bodies, and societies, as well as private people, were under a necessity of borrowing; a necessity but too urgent, were it only to repair the ravages of armies, the rapacity of magistrates, the extortions of collectors, and the corrupt practices daily introduced; for never was there at one period so much poverty and opulence.

The senate, being possefled of the executive power, granted, through necessity, and oftentimes through favour, a permission of borrowing from Roman citizens, [120] so as to enact decrees for that particular purpose. But even these decrees were discredited by the law; for they might give occasion to the people’s* insisting upon new rates of interest, which would augment the danger of losing the capital, while they made a farther extension of usury. I shall ever repeat it, that mankind are governed, not by extremes, but by principles of moderation.

He pays least, says Ulpian, who pays latest. This decides the question, whether interest be lawful? that is, whether the creditor can sell time, and the debtor buy it.