Usury Laws. Exorbitant or illegal interest is called usury. All the states except Colorado, Maine, and Massachusetts (except on loans less than $1,000) have laws fixing a maximum rate above which interest charges cannot legally be collected. The penalty for usury in some of the states is merely the loss of the excess of interest, in others it is the loss of all interest. Only in Arkansas, New York, and California, is the penalty a heavy one. In the two former states the penalty is loss of both principal and interest and in California the penalty is $500 fine or imprisonment, or both. Usury laws are not always enforced and are often evaded by charging a "bonus" for making a loan or charging an excessive sum for legal services, such as the drawing up of papers. The usury laws are for the protection of borrowers and are presumed to protect them against lenders who would take an undue advantage of their need for money. The usury laws do afford some protection and are valuable in fixing the rates of interest to be allowed on funds in the custody of the courts.

Interest Not the Only Inducement to Saving. The desire to profit by savings is a great inducement to thrift. It is not the only inducement. There would be savings if there were no such thing as interest. The conviction that future income will be less than present leads people to provide for the future. A thousand dollars that now might be spent on luxuries may at some future time be needed for necessities. Wise people would save even if they had to rent a safe-deposit vault or pay a bank for keeping their money.

Summary. Interest is paid for the use of capital. The owner of wealth may consume it or may put it to work.

If he puts it to work there is a sacrifice of present pleasure for future reward. From one point of view interest is a reward for waiting. Gross interest includes payment for risk. There is no risk in lending money to the United States, but in lending money to most persons or corporations there is an element of risk. The owner of capital must be paid for the risk he is taking or he will not part with his funds.

The rate of pure interest varies with demand and supply. If there is a great demand for capital, the rate of interest will rise. A rise in the rate of interest induces more people to save and thus increases the amount of capital.

Generally, capital is desired by borrowers and not money. But in short-time loans money is often wanted. Call loans are payable on demand and the rate of interest varies with the demand and supply of money. The rate of interest on long-time loans does not vary with changes in the amount of money in circulation.

Although interest is an inducement to saving, prudent people would save even if there were no such thing as interest. Savings provide for future wants.

TOPICS FOR DISCUSSION, DEBATE, AND SPECIAL REPORTS I. Aristotle said that interest is immoral since money does not beget money. In Aristotle's time there were no opportunities to invest money such as exist to-day, and borrowers of money generally sought loans in order to provide funds for meeting some misfortune. Interest was also condemned by the church in the Middle Ages. Show why interest is moral now. Show the modern difference between interest and usury. When may a high rate of interest be immoral?

2.

3.

Why is the rate of interest for loans secured by mortgages on farm lands higher in North Dakota than in New York? Some socialists would abolish interest. What would be the result of the abolition of interest?

4. Savings-banks, as a rule, paid to depositors 4 per cent during the year 1920-1921. A larger rate of interest could be secured by investing in Liberty Bonds or in stocks and bonds of many corporations. Why should any one deposit money in savings-banks under these circumstances?

5. What are the advantages of the postal savings-banks in encouraging savings?

6. Some parents think that school savings-banks are not worth while. Do you agree with them? Why? What may be the benefits of school savings-banks?

CHAPTER XXIX

PROFITS

Nature of Profits. Rent, wages, and interest must be paid before the organizer of a business can get any return for himself. In other words, they are expenses of production. After all expenses are paid, whatever remains is profits. The person who organizes a business may or may not take an active part in conducting that business. If the organizer furnishes his own capital, uses his own land, and himself conducts his business, he must deduct interest, rent, and wages for himself before he can consider that he has made a profit.

The Entrepreneur as a Risk Taker.-The entrepreneur is the person who is responsible for conducting a business. If the business succeeds he receives profits; if it fails he is the loser. For example, a man decides to open a creamery. He secures capital, rents land, constructs a building, hires men, and begins to operate the creamery. If the business succeeds he makes profits. His was the risk and his is the reward.

The work of the entrepreneur may be divided between two or more men. In this case the form of organization is usually a partnership or a corporation. Every member shares the risk and receives a part of the profits, even though the active manager of a business may not be a part

owner and may receive a salary. The wages of the manager depend upon profits. He will not retain his position unless there are profits. What is paid to the business manager may be considered wages and is often called wages of superintendence, or may be considered necessary profits, since the business must produce enough to pay for such services.

The Nature of Business Risks.-In all business there is risk. There may be unfavorable weather, a war, strikes, an epidemic, a fire, a business depression, or a number of other calamities that affect business. For example, in farming there are drought, frost, insects, and blights. These are risks. Again it may be difficult or impossible to secure labor. Prices for produce may be so low as to fail to meet expenses. On the other hand, through a combination of favorable conditions, the farmer may make exceptional profits. Although the prudent farmer anticipates risks and provides against them, risk can never be wholly eliminated.

In the manufacture and sale of clothing, fashions may so change as to favor one line of goods at the expense of another, or stocks may be held in excess of demands. Every business has its risks. Since risk-taking is necessary to the conducting of business, it is a legitimate hazard and has nothing in common with gambling. Nothing is added to the wealth of a country by gambling. Those who take risks are constantly adding to industry.

Classes of Entrepreneurs.-Entrepreneurs differ in ability. The highest class is composed of men of great ability with keen powers for analyzing business conditions, who see opportunities and are not afraid to follow