PART III. CLASS V. 37 Hen. VIII. c. 9. How Offenders in Usury shall be punished. On the general Usury.* [No. I.] 37 Henry VIII. c. 9.-A Bill against Usury. WHERE before this time divers and sundry Acts Statutes and Laws have been ordained had and made within this realm, for the avoiding and punishment of usury being a thing unlawful, and of other corrupt bargains shift and chevisances, which Acts Statutes and Laws 'been so obscure and dark in sentences words and terms, and upon the 'same so many doubts ambiguities and questions have arisen and grown, and the same Acts Statutes and Laws been of so little force or effect In the following note respecting the law of usury, I shall frequently avail myself of Mr. Plowden's Treatise upon the subject, although I very materially differ from him in my opinion of the wisdom and policy of the views upon which that system of laws is founded; conceiving that the general principles so ably and satisfactorily established by Adam Smith, in favour of leaving to contracting parties the care of their own interest, are equally applicable to this subject as to any other-so far at least as regards the question of the general interest of the community, independently of the advantages which may result from the facility of obtaining money for the exigencies of the public, by enabling the Government to obtain the requisite loans, without any impediment from those restraints which are supposed to be a benefit and protection to particular individuals—and that the instances of extortion and oppression which would occasionally result from removing the existing restraints upon the freedom of contract in the loan of money, would be only casual exceptions to the general benefit resulting from the adoption of such a system. Much of the prejudice which has existed against the receiving a compensation for the loan of money or other articles, of which the use is only in the consumption, arises from a mistaken view of the authority of the Scriptures upon the subject, and from drawing general inferences from particular premises and from ordinances applicable to the peculiar situation of the Jewish people-and even in modern times, the existence of any contracts for that purpose has been reprobated in the greater part of Europe, as a violation of those principles of Christian charity and benevolence which inculcate the performance of good offices without any object of personal benefit or remuneration. But the experience of all ages has shewn, that the sacrifice of individual interest, to the purposes of pure disinterested benevolence, is a principle of very partial and limited operation, and that the general intercourse of society can only be maintained by the mutual interchange of services, according to the respective powers and exigencies of the several members of the community; and although the rendering assistance to another, with the view of obtaining a full and adequate remuneration, has no claim to be regarded as a virtue, it certainly by no means follows, that it is therefore to be reprobated as a crime. It is clear, that the true question as to prohibiting or regulating the compensation to be given for the tempo rary use of money, considered in its general effects, is not between the obtaining the benefit of such assistance gratuitously, or upon more favourable terms, and the obtaining it for a particular equivalent; but between the obtaining it upon such equivalent as the lender may deem more advantageous than a different application of his property, and the suffering the loss and inconvenience which may rise from its being totally withheld-and there are very few writers who would now contend for No. I. 'that by reason thereof little or no punishment hath ensued to the of fenders of the same, but rather hath encouraged them to use the same: For reformation whereof, be it enacted by the King our Sove- 37 H. VIII. reign Lord, by the assent of the Lords Spiritual and Temporal and of the Commons in this present Parliament assembled, and by the autho c. 9. rity of the same, That all and every the said Acts Statutes and laws All Statutes heretofore made of for or concerning usury shifts corrupt bargains and concerning chevisances and every of them, and all pains forfeitures and penalties Usury repealed. the absolute prohibition of such a contract, however much they may approve of its being subjected to particular restraints and regulations *. The very acute and masterly disquisitions of Mr. Bentham, (not the less profound and instructive for the lively and amusing manner in which they are conducted,) have greatly contributed to remove the impressions which were previously very general upon the subject—and, so far as my intercourse with society will enable me to form a judgment, an accordance with his sentiments in favour of an unrestricted commerce with regard to the interest of money, has become very prevalent, although certainly very far from universal. A very opposite sentiment is manifested by Lord Redesdale, in several of his judgments, as Lord Chancellor of Ireland. In the case of Molloy u. Irwin, 1 Sch. & L. 312, he expresses himself as follows:-" I consider that transactions of this nature are set aside by courts of equity, not with a view to the individual, but on public grounds, in order to render the lending of money generally beneficial, by facilitating the means of procuring it on reasonable terms. This is the view in which the laws against usury are to be taken, and the principle on which they are to be supported, (particularly in a commercial country,) against the theories of persons who have written on the subject; otherwise there is no reason why a man should not make the most of his money, as well as of any other species of property." And in a preceding case, Drew v. Power, 1 Sch. & L. 182, his Lordship intimates the same views upon the subject, at greater length, observing, that the true reason on which the legislature has said, that in bargains for money no more than a certain fixed sum shall be taken, by way of interest for the loan, is founded on great principles of public policy. First of all, it is more advantageous to the public, that persons who are in possession of money should use their own industry in the employment of their money, than that they should sit idle and take the benefit of it through the industry of others, and therefore the loan of money at any large rate of interest has always been discouraged—and as a State becomes rich the interest of money is always diminished, with a view that a man who sits idle shall receive as low a rate of interest as can induce him to lend to another. But if a consideration of any description beyond that rate of interest can be had, the profit derived from that is just as injurious to the public as if it were taken in the shape of a reservation of higher interest; and therefore the policy of the law would be completely defeated, if Courts were not to be jealous of such transactions as these, and were not to watch them with severity, and be sure that they did not permit persons, under cover of ordinary dealings between man and man, to obtain an advantage beyond the legal interest. If every man could obtain, for the loan of his money, as high a rate of interest, without hazard, as they do who employ it in trade or manufactures, which are hazardous undertakings, no man would employ his money in such hazardous undertakings-the most industrious of the people would be ground down by the usurers; they would get the profits of the trade, and the enterprizing and industrious trader would be ruined: one sees every day, when traders who have been in the habit of borrowing become bankrupts, how large a share of their property is swallowed up by usurers." It is manifest how completely all these observations take it for granted, that there is a certain quantity of money which must necessarily be lent out at interest, Mr. Barrington, after quoting the observation of Tacitus, that amongst the Germans fœnus agitare ignotum, ideoque magis servatur, quam si vetitum esset, admits that the true reason, probably, for its not prevailing amongst them, or our ancestors, was that they had little or no personal property, and those who have landed estates have always been envious of the sudden fortunes raised by commerce, and the improvement and increase of personal estates. Treatise on Treatise may be written to prove, that these interests mutually support and strengthen each other; the prejudice indeed may be somewhat lessened, but cannot be eradicated. He adds, that Sir Edward Fines, afterwards Baron Clinton, opposed a bill drawn by Judge Brooke, and moved in the House of Lords, by saying, "Shew me a State without usury, and I will shew you a State without trade."-Obs. on Statute of Merton, ch. 5. No. I. c. 9. concerning the same and every part thereof, shall from henceforth be 37 H. VIII. utterly void and of none effect to all intents constructions and purposes. II. And be it further enacted by the authority aforesaid, That no person or persons of what estate degree or condition soever he or they be, from and after the last day of January next coming shall by himself factor attorney servant or deputy, sell his merchandises or wares to any person or persons and within three months next after by himself factor attorney deputy or by any other person or persons to his use and behoof, Selling of Wares and buying them again. and which borrowers would certainly obtain at a lower interest, if the lenders were restricted from advancing it at a higher-how completely they take it for granted, that persons exercising their own judgment would be ground down and oppressed by contracts which they voluntarily enter into with their eyes open, for the accommodation of money, to which they have no more claim than to any other property of the person advancing it. It is very true, that as countries advance in opulence, the rate of interest usually diminishes,t but this is not so much the effect of law as of the nature and order of things, by which the surplus money becoming greater in proportion to the demand for its temporary use, the competition among lenders reduces the rate of accommodation to borrowers; and it is in this as in almost all the other cases evident, that the check upon the motives of supply is rather an impediment to than a mean of facilitating the acquisition. By the Statute 28th Henry VIII. c. 14. no French wines are to be sold for more than eightpence a gallon; but nobody can suppose that the quantity of Burgundy or claret would be increased by carrying this Statute into execution :-as little will the loan of money, for the purposes of commerce, be promoted by restricting the interest of it to five per cent. when, upon a free competition of contract between borrower and lender, it would purchase a much larger sum-and if in the nature of things it might be had for four, there would be no great practical effect in restricting it to five. The mention This is not by any means universally the case, as modern experience abundantly testifies. The commerce and opulence of the country have been incalculably greater since money could not be generally obtained at five per cent, and upon indisputable security than they were when loans at four per cent. were more general, and the receiving five per cent. was considered as an advantage. The difference arises from the great value attached to the command of ready money as an instrument of commerce, increasing in proportion to the extent and magnitude of the commercial engagements to which that instrument can be applied; in the same manner as the rent of a house, in a busy towa, will exceed the rent of one, similar in other respects, in a remote and unfrequented situation. Another important circumstance in the examination of this subject, is the magnitude of the National Debt; in itself no doubt a considerable evil, but which furnishes strong evidence of the resources of the country, in which so large a capital could be withdrawn from the ordinary source of employment, in order to be invested upon permanent annuities, or more generally speaking, to be placed out at interest. The great advantage of this mode of investment, with respect to confidence in its security, punctuality in obtaining the stipulated payments, and facility of transfer, would extend to give it a decided advantage over every other mode of investment, not connected with active employment. But the extent of the property of this description is so great as necessarily to reduce the proportionate number of competitors for its acquisition, and consequently to diminish the price paid for its acquisition; in other words, to produce a higher interest than would be otherwise obtained, in case the amount of funded property bore a similar proportion to the surplus funds, which are applicable to the acquisition of it; while the grounds of preference already adverted to, sufficiently account for the smaller proportion of surplus capital invested in private securities, the competition for the benefit of such capital as is so employed, and consequently for the advanced rate of interest, without furnishing any reasonable ground for the inference of a declining state of national prosperity, in respect of the useful application of capital employed in the pursuits of industrious enterprize; or for an unfavourable comparison, in these respects, contrary to the clear indisputable testimony of historical fact, with those periods when a much smaller rate of interest was generally received. Considering, therefore, how extensively the subject may be influenced by extrinsic circumstances, it does not appear that there is such a connection between a low and depressed state of interest, and a general state of national prosperity, as to render the legal restriction of the rate which would naturally follow the existing exigencies of society, and the consequent direction of capital employed into other channels more advantageous to its possessor, a beneficial and politic exercise of legislative authority. No. I. buy the same merchandises or wares or any part or parcel thereof, upon a lower price, knowing them to be the same wares or merchandises that he before did so bargain and sell upon the pains and forfeitures 37 H. VIII. hereafter limited in this estatute. c. 9. III. And be it also enacted by the same authority, That no person or persons of what estate degree quality or condition soever he or they be, No Person at any time after the said last day of January next coming, by way or shall take above mean of any corrupt bargain loan eschange chevisance shift interest of 51. for the Forbearance of 100l. for one Year. Altered 21 Jac. 1. c. 17. of the theories of persons who have written upon the subject is evidently intended to allude to the work of Mr. Bentham-and it certainly is very fashionable among those who think that political economy cannot be too extensively made a subject of positive regulation, to apply the appellation of speculators or theorists to others who argue in favour of the utility of leaving traffic of any given description to its natural course, and think that the interests of individuals may be safely confided to their own judgment and discretion. When it is admitted that, but for the sake of giving a greater facility to the advance of money upon reasonable terms, there is no reason why a man shall not make the most of his money as well as of any other species of property, it seems to be overlooked that men have various ways of disposing of their money besides the lending it upon interest-and if that particular mode is rendered less advantageous than it would naturally be, while many other modes are left without restraint, a very small portion of discernment is sufficient to enable the party to exercise that choice in such an application of his property which will be most productive of his own advantage. And when it is remarked how large a share of the property of bankrupts is swallowed up by usurers, it is clear that the observation cannot be intended to apply to the case of usury, in a legal sense-for creditors, whose debts are really usurious, cannot have any part of the property at all-and the fact, that leaders of money receive the greatest proportion of the property, only proves, that they are the persons who sustain the greatest proportion of the loss. But I admit, that any observations upon this subject, however correct, as applicable to the general question of political economy, are not likely to reach beyond speculation-or to be attended with any practical effect in the alteration of the law. The conviction, that the State alone can receive pecuniary assistance, unfettered by legal protection, and that thereby all competition is excluded from those whose mistaken views of their own advantage would induce them to go beyond the pale of protection which encompasses them, will in all probability be a lasting impediment to any material change of system; and while the law continues to subsist, and while, in the language of Lord Mansfield, it is considered as affording to persons a protection against themselves, there can be but one opinion upon the propriety of carrying it fairly into execution, according to its real object and intention.t §. 2. It seems to be agreed, that at common law usury was only lawful when practised by the Jews, and that when committed by Christians, it was an offence See some important observations by Mr. Sugden, in a pamphlet published in 1812, on the Annuity Act, and on raising the legal rate of interest, which are incorporated in the last edition of his Treatise on Vendors and Purchasers. His examination of the comparison of the actual rate of interest usually taken when the restriction was imposed, with the legal rate which was considerably higher, and the distinctions which he makes from that circumstance is very material. Since the above note was completed, the Proposal for the Abolition of the Laws of Usury was introduced in Parliament, and met with a reception by which I was agreeably disappointed. The measure was unsuccessful, and was given up by the proposer; but the ground of opposition was the inconvenience which would arise from the sudden relinquishment of the existing system of law, an inconvenience which I am perfectly ready to admit, and should therefore prefer seeing the measure carried with adequate provisions for the obviating such inconvenience, which would but be done by fixing a distant period, not less than two years, for the commencement of the actual operation of the measure, if adopted. But a great progress was evidently made, when it appeared that of all the opponents to the measure, one only could be found who ventured to express an approbation of the existing law, as depending upon its proper merits. The member referred to has published a pamphlet in favour of the reduction of the present rate of interest, and is reported, in delivering his sentiments in Parliament, to have undertaken to confute the positions of Mr. Bentham, point by point. It did not however seem, that there was any desire to call for the performance of this undertaking. Of the History and Progress of the Laws. No. I. 37 H. VIII. c. 9. any wares merchandises or other thing or things whatsoever, or by any cognizable in the Spiritual court. The extent of the common law upon this sub- By the Statute of Merton, 30 Hen. VIII. c 5, it was provided, that usury In the 3d of Henry VII. an Act passed against chevisance and usury, (c. 5.) prohibiting any bargain by way of dry exchange, the object of which was the suppression of bargains grounded in usury, coloured by name of new chevisance. This wa followed by two other Acts of the same reign; viz. An Act against Exchange and Re-exchange, Chevisance, Usury, and Brokers-3 Henry VII. c. 6—and an Act for repealing the Act last mentioned, and making more effectual provisions against usury. By these Acts the term Usury is applied to all loans upon interest, and which were prohibited under certain penalties. The Statute 37 Henry VIII. c. 9. (No. 1 of this Class,) repeals all preceding Acts, Statutes, and laws respecting usury, and is the foundation of the subsisting law upon the subject. This Act renders void all bargains for taking more for giving day of payment than ten per cent. per annum. The Act against usury, 5 & 6 Edward VI. c. 20. referring to the preceding Act of Henry VIII. states in the preamble, "The which Act was not meant or intended for the maintenance and allowance of usury, as divers persons, blinded with inordinate love of themselves, have and do mistake the same, but rather was made and witnessed against all sorts and kinds of usury, as a thing unlawful, as by the title and preamble of the said Act it doth plainly appear, and yet nevertheless the same was by the said Act permitted for the avoiding of more evil and inconvenience that before that time was used and exercised :—But forasmuch as usurie is by the word of God utterly prohibited as a vice most odious and detestable, as in divers places of the Holy Scripture it is evident to be seen, which thing by no godly teachings and persuasions can sink into the hearts of divers greedie, uncharitable, and covetous persons of this realm, nor by any terrible threatenings of God's wrath and vengeance that justly hangeth over this realm, for the great and open usurie therein dayly used and practised, they will forsake such filthy gain and lucre, unless some temporal punishment be provided and ordained in that behalf." The Act, therefore, proceeding upon this accurate and judicious view of the subject, prohibits, under pain of imprisonment, fine, and ransom, the taking of any interest whatever. In the 13th of Elizabeth, (see No. 2 of this Class,) it was found, that this Act had not done so much good as it was hoped it should, and therefore the Act was repealed, and the prohibition of 37 Henry VIII. against taking more than ten per cent. was revived; the vice of usury still continuing the principal object in contemplation. The preamble of 21 Jac. I. c. 17. [No. 3.] proceeds upon more moderate views of the subject, stating reasons for deeming ten per cent. too high a rate of interest, and therefore reduces it to eight, and concludes its enactments, as Paley observes, with the sage provision, "that no word in this law contained shall be construed or expounded to allow the practice of usury, in point of religion or conscience;" and the subsequent Acts of 12 Charles II. c. 13. and 12 Anne, c. 16. reducing the rate of interest successively to six and from that to five per cent. where it has been left, leave all spiritual views upon the subject out of the question, stating reasons of public policy, which, whether wise or otherwise, must be considered as evincing the spirit and principles, according to which the construc. tion of the subsisting law is to be chiefly regulated. |