condition upon which the largest accumulation of wealth can be secured; it presents the only motive that can withstand the impulse to immediate gratification. The desire to gain and the desire to spend are both in human nature, and are conflicting passions. What one takes, the other must relinquish. If, therefore, the desire to spend is unchecked, all wealth and physical well-being disappear in riot and wastefulness. There is the further consideration, that, since to loan capital is to incur risk, that risk should be compensated. It has been a favorite idea with many visionary writers, that interest can be entirely done away with. Proudhon and others have speculated and theorized much on this subject; but nothing can be more idle. We can no more get rid of interest than value: both are in the laws of nature. Yet this has been, in the view of many, the philosopher's stone, that was to transmute all baser metals into gold. It is akin to the idea that credit can be made to take the place of value, and is sustained by the same sort of reasoning as that" property is a crime; a monopoly that must be destroyed."

We will notice briefly a few of the main principles that govern the rate of interest the world over.

1st, Interest, in its general rate, will be determined by the productiveness of labor in the community where it is employed. It is evident the reward of capital cannot be larger than the total profits of business, because it would no longer be used; nor can it be equal to these profits, for no one would be disposed to employ it and pay out his whole profits for its use. Interest must, therefore, be less than the aggregate amount of the returns of production; and finding, as it does, a competitor in the power of present labor, capital will be obliged to submit to an equitable division.

If, then, the productiveness of labor is very great, if the industry of the community yields easily and richly, capital will naturally obtain a large reward; while, if Nature be nig

gardly in her gifts, each of the parties must be content with a pittance.

2d, Interest will be governed by the law of supply and demand This is so evident as not to require argument or proof, hardly illustration. Old countries abound in accumulations of capital. Interest is there found cheap. In all new countries, there is a youthfulness of capital; there has not been time to develop the powers of production; and hence interest is high. The United States of America afford a most striking example in point. There is a vast amount of uncultivated but fertile land, while the amount of capital with which to cultivate it is comparatively small. So of its manufacturing capacities. Hence there is a high general rate of interest. This is governed by the supply and demand, i.e. by the laws of value alone, and should never be interfered with by legal enactments.

This is a lesson mankind have been slow to learn; yet the most commercial nation in the world (Great Britain) has abolished all usury laws. The experiment was at first made with great caution, limiting the exemption to a particular kind of paper, and the time in which it should operate to a few months; but it was found so perfectly satisfactory to the community, that, after a fair trial, the abolition of the usury laws was made final and complete.

But, upon a question so much in dispute, it may be desirable to give the principal reasons why the matter of interest should not be interfered with by law.

(a) When it is made a penal offence to take over a certain per cent interest (say six), if money is worth more, as it often will be, it must be obtained by some indirect process. Most persons do not like to directly violate a law, however foolish or unjust they may deem it to be; consequently, they will attempt to evade it. There is no difficulty in this. A note may be sold to a broker for what it will bring; and the broker buys it with funds furnished by the capitalist, who stands behind the curtain while the borrower

pays the broker for getting the money he might otherwise have obtained directly of the capitalist himself. The law has not prevented the usury, only increased the rate. The broker feels no responsibility; for he is only an agent between the parties. The capitalist has no scruples; for he is not known in the transaction. Instead of this, the borrower and lender should be brought face to face, in an open market, where each could be protected by law in the transaction; and then a fair, unrestricted competition would assure the lowest rate of interest, obtained most economically.

But for usury laws, the current rate of interest would be as well known as the price of stocks or corn or wool, and would, like them, be determined by the laws of trade; and men would act as intelligently and as freely as in the purchase of merchandise. Freedom is as essential in the disposal of money as in the intercourse of nations. To hamper it with laws regulating the rate at which it shall be loaned, is as absurd, and as repugnant to the laws of wealth, as to fix the price of wheat or cotton.

(b) Usury laws create an injurious distinction between different kinds of mercantile paper, and thus occasion embarrassment and loss to borrowers.

For example, the law says in Massachusetts that only six per cent interest shall be taken by the banks.* But money may be worth twelve per cent; and there are ten applications for it, at that rate, to one that can be supplied. What is the result? Why, the bank will make no loans except upon such paper as it can charge for exchange. Exchange is legal, whether it is real or fictitious. A and B apply for discount at a bank in Boston. A offers notes of the most undoubted character, payable in Boston; B offers notes or drafts payable in New York, and he gets accommodated. His drafts have sixty days to run; he is charged one per cent exchange, and thus pays twelve per cent interest. A, having only notes on which no such exchange can be legally

This law was abolished in 1867.

charged, must "go into the street," and employ a broker to sell the notes for him at the best rates he can.

This state of things occasions great annoyance and loss to borrowers; yet it must continue so long as usury laws exist.

(c) Usury laws are the principal cause of compulsory deposits, or deposits made to secure large discounts. These are, as we have shown, exceedingly burdensome to the business community, and most dangerous to the currency. If the rate of interest, as at the Bank of England, was left entirely to the state of the money market, these deposits, now peculiar to American banking, would disappear. If every man could borrow money at what it was worth, there would be no motive to bribe moneyed institutions indirectly. 3d, Interest will be influenced largely by the safety or hazard of capital. This will depend,

(a) Upon the moral character of the people, whether essentially honest or dishonest, whether honorable or dishonorable, whether industrious, frugal, and temperate, or otherwise.

(b) Upon the general thrift of the community; for however well disposed to pay, if decay and decline are general, the hazards of capital must be greatly increased. It must share in the general losses of business.

(c) Upon the justice and efficiency of the laws by which the rights of property are secured, and the obligation of contracts enforced. This, as can readily be seen, is one of the most important considerations in regard to the safety of loans; and, of course, the rate of compensation in the shape of interest.

4th, Again, the uniformity of the rate of interest, and its general average, will depend mainly upon the soundness of the currency. If it consists wholly of value,- that is, if the credit element constitutes no part of the circulating medium or standard of value,- -the rate of interest will be as uniform and as low as the laws of trade admit. The rate can

never be absolutely fixed at one point; yet, where no credit is used as currency, the credits of the country will be so based upon values that the vacillations will be very moderate. They were very slight in Europe until within the last thirty years.

*

We have already shown, when speaking of a mixed currency, how frequent and excessive are the fluctuations in the rate of interest in the United States. In no other civilized country have they been so great, for the sufficient reason that no other country has a mixed currency so deficient in the element of value.

We have shown, at the place referred to, that these variations have been from three and one-half to thirty-six per cent. Now, no commodity, in time of peace, has varied to an equal extent. The reason is, that commodities are not wanted to pay notes; but, to meet pecuniary engagements, money is, and must be had.

Under a currency in which credit is the principal element, the fluctuations in interest are in proportion to the extent of that element; because, as we have shown, a mixed currency, whenever there is any panic or distress for money, withdraws from circulation with a rapidity proportionate to its weakness, or want of value. Hence the frightful revulsions we have witnessed. And we may doubtless expect that these will increase in force and frequency in the future, since the mixed-currency system, once almost exclusively confined to England, France, and the United States, is being extended throughout the commercial world. The risks of credit will therefore be greater, and the average rate of interest will, so far as risk is concerned, be enhanced.

But, in regard to a legal rate of interest, it may be asked, whether a limit should not be established by law, in all cases where the parties have not themselves agreed upon one. Certainly, it would seem desirable and proper, that, in the absence of all agreement or contract, the law should say *See Diagram No. 6, p. 197.