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OBSERVATIONS TENDING TO SHOW THE INEFFICACY OF LAWS, DESIGNED TO REGULATE THE INTEREST OF MONEY.

THE consideration of every subject, relating to man

in his civil connexion, ought to be interesting, if not entertaining. To investigate therefore the principles, on which laws, regulating the interest of money, are founded, and as far, as possible, ascertain the benefit or disadvantage of such laws to society, may not be useless. A belief, that they are disadvantageous; that they check in a degree that spirit of enterprise, which so justly distinguishes the inhabitants of many parts of our republic; and that they tend, as here established, to weaken the obligation of an oath, has induced us to give them a cursory examination. Though we may be superficial and indistinct, our readers will suggest for us an excuse, when they reflect, that this subject is as abstruse and difficult of elucidation, as many of those, an adequate knowledge of which confessedly requires the unin terrupted and patient attention of years.

To restrain those passions, which in their operation would produce evils in society, seems to have been the object of legislators of every age. Among these passions avarice has appeared to them one of ths most conspicuous. Speculat ing on the nature, and tracing the history of man, they have been induced to consider the desire of wealth in every degree, when under no legal restraint, as the cause of extortion. Imagination then draws her picture. The poor are seen falling by the oppression of the rich; widows and orphans are at the mercy of brokers and scriveners. can be prevented only by seizing the instrument, with which they are effected; and laws are made to fix the uniform price of money, whose natural value must ever fluctuate with circumstances. This principle appears ever to have operated,

These alarming evils

and therefore in all nations, which have so far progressed in civilization, as to make the precious metals the measure of the value of every other commodity, we find laws regulating the value of these metals in use; and settling the price, which one man shall give another for the possession of any portion of them for any certain time.

Do such laws effect the design, for which they are enact→ ed, to defend the poor against the oppressive extortion of the rich? If they do not, it may be safely affirmed, that they are disadvantageous to society; for it is a political maxim well established, that it is better to have no law, than one, which cannot be executed.

To determine this question it is requisite to examine the relation subsisting between the medium of exchange, which universal consent has established, as a measure of the value of all things, and the things themselves.

Originally there was no particular standard, by which to compare the value of various commodities among different nations. In many instances no such standard existed among individuals of the same nation. Each man according to his taste and judgment would give the fruits of his labor, above what he could consume, for so much of the labor of another, as his necessities required. This method of exchange was found so inconvenient, that men were not only prevented from engaging in commercial enterprizes, but could with difficulty acquire so much of each other's labor, as permitted them to live in a state, different from that of mere disconnected individuals. Necessity however, the parent of invention, at last adopted a medium of exchange, by which the individuals of different nations as well, as those of the same, could easily measure the value of the productions of their various countries. This medium of the exchangeable value of all things is the precious metals, principally gold and silver. The use of them, as such a medium, has been established by universal consent, not because they possess an invariable value at different times, but because they are less. Vol. II. No. 2.

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perishable, and can be applied to ascertain the worth of any commodity more easily, than any other substance.

Though a superficial examination might cause an opinion, that a given portion of the precious metals always possesses the same value; yet further reflection must evince, that it is erroneous. Nothing is of the same value so constantly, as the labor of man. As much of it, as will suffice for his subsistence for a given period, must really at all times and places be to him of equal worth. His support however for a given time may require from various circumstances more labor at one period, than at another. Hence though the real value will always be the same, the exchangeable value, or the quantity of labor, which one man must give for an equal quantity of the labor of another, will vary at different times. Hence also it results, that any portion of labor will purchase more money at one time, than at another. If then these principles be correct, the value of money must vary, and at some periods command a greater, at others a less quantity of labor, and consequently is unequally valuable to the possessor at different times. When therefore it requires a greater portion of the precious metals to procure a less quantity of labor, the rate of interest will be high, as there will necessarily be an increased demand for them; when a less quantity of money will command a greater portion of labor, the rate of interest will be low. Different circumstances, as the absolute wants, or fancied necessities of mankind, are constantly varying the relative value of money to labor. Are laws then, which fix an uniform price for the use of a thing, perpetually varying in value, susceptible of execution? We hesitate not to answer in the negative. As proof we shall presently adduce the practice of this and other countries.

Men are not contented with mere subsistence. They extend their views to the acquisition of more property, than is sufficient for their necessities. Proportional to the ardor and perseverance, which they manifest in pursuit of it, they are distinguished by a spirit of enterprize and industry. The more or less prevalent this spirit is, the greater or less will be

the market price of produce, the profits of stock, and rent, These establish the rate of interest notwithstanding laws. The idea may be illustrated in few words.

Individual as well, as national wealth is constantly varying. When agriculture and commerce flourish, the market price of commodities will increase; rent will be enhanced, and therefore the demand for money be proportional, or the value of it greater, compared with that of other things. Lend ers will consequently decrease, and borrowers increase, as it is now the medium of greater advantage, than at former pe riods. Laws may here limit interest; but a man of enterprize will borrow at a rate, greatly exceeding that, prescrib. ed by law, if he have a reasonable prospect of remuneration in the profit of his occupation. No person will lend under the market price, as it is giving away profits, virtually in his possession. The legal however is less, than the market price; consequently lenders, for exposing themselves to the law, will be indemnified in the premium, they receive. Hence then it follows, that such laws are a cause of extortion; for, according to Montesquieu, "when excessively good, 66 they produce excessive evil." Instead therefore of the rate of interest being fixed by avarice without law, it would generally be proportional to rent, the profits of stock, and pride of produce.

If law regulate interest, it ought to make provision for the disadvantage of a present loan, and the hazard of its loss entirely; otherwise it will have no operation, or operate une qually. The disadvantage of a present loan and the hazard of its ultimate loss depend on situation and circumstance. Hence as a law cannot be suited to their constant variation, unknown. till actual existence, it is impossible, that it should operate, or operate justly and equally. What is the declaration of the practice of this country, relative to laws, fixing the rate of interest? Every day witnesses the violation of them, and the violation of them too with impunity. They are no otherwise regarded, than as a cause for exercising ingenuity in the evasion of them. The relation between the

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precious metals and labor, the profits of stock, the market price of produce, and rent, is such, resulting from a particular state of society, that the natural rate of interest is higher, than the legal. The consequence is, that money commands nearly its market price, even in direct violation of law. Indeed it is vain to attempt the execution of any law concerning property against the determined resolution of almost the whole monied part of a community. In England however the natural rate of interest is lower, than the legal. Money is therefore every day loaned for less, than the legal rate of interest. Here there can be no temptation to violate the law; for a violation of it would almost ever include a moral certainty of the ultimate loss of the capital loaned, from the uncertain security, which must be taken to obtain a rate of interest, exceeding the legal. "No law," says Smith, ❝can reduce the common rate of interest below the ordina"ry market rate at the time, when the law is made. Not"withstanding the edict of 1766, by which the French king "attempted to reduce the rate of interest from five to four per cent. money continued to be lent in France at five per "cent. the law being evaded in several different ways."

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Beside the relation of value between the precious metals and labor, and that no statute incapable of execution should ever be enacted, another reason against the limitation of interest by law is, that such limitation is unfavorable to commercial enterprize. The more trade is restricted by municipal regulation, the less active will it be. Commercial speculations frequently require unexpected capitals. To carry them into effect a merchant is frequently obliged suddenly to borrow to the amount of his credit. When the legal rate of interest is lower, than the natural rate, he cannot borrow for the legal. There is an attempt in some way to evade the law, and the violation of the spirit, if not the letter of it, is the consequence.

A system of reasoning, which would show the necessity of establishing the rate of interest by laws, would equally extend to limiting the price of many other things. Money, be

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