Defence of Usury [13]
do in England: but why it would not, is a question which it would be in vain for me to pretend, at this distance from all authorities, to discuss.
LETTER VIII Virtual Usury allowed.
Having proved, as I hope, by this time, the utter impropriety of the law's limiting the rate of interest, in every case that can be conceived, it may be rather matter of curiosity, than any thing else, to enquire, how far the law, on this head, is consistent with itself, and with any principles upon which it can have built. 1. Drawing and re-drawing is a practice, which it will be sufficient here to hint at. It is perfectly well known to all merchants, and may be so to all who are not merchants, by consulting Dr Smith. In this way, he has shewn how money may be, and has been, taken up, at so high a rate, as 13 or 14 per cent -- a rate nearly three times as high as the utmost which the law professes to allow. The extra interest is in this case masked under the names of commission, and price of exchange. The commission is but small upon each loan, not more, I think, than 1/2 per cent: custom having stretched so far but no farther, it might be thought dangerous, perhaps, to venture upon any higher allowance under that name. The charge, being repeated a number of times in the course of the year, makes up in frequency what it wants in weight. The transaction is by this shift rendered more troublesome, indeed, but not less practicable, to such parties as are agreed about it. But if usury is good for merchants, I don't very well see what should make it bad for every body else. 2. At this distance from all the mountains of legal knowledge, I will not pretend to say, whether the practice of selling accepted bills at an under value, would hold good against all attacks. It strikes my recollection as a pretty common one, and I think it could not be brought under any of the penal statutes against usury. The adequateness of the consideration might, for aught I know, be attacked with success, in a court of equity; or, perhaps, if there were sufficient evidence (which the agreement of the parties might easily prevent) by an action at common law, for money had and received. If the practice be really proof against all attacks, it seems to afford an effectual, and pretty commodious method of evading the restrictive laws. The only restraint is, that it requires the assistance of a third person, a friend of the borrower's; as for instance: B, the real borrower, wants *100 and finds U, a usurer, who is willing to lend it to him, at 10 per cent B. has F, a friend, who has not the money himself to lend him, but is willing to stand security for him, to that amount. B. therefore draws upon F, and F. accepts, a bill of *100 at 5 per cent interest, payable at the end of a twelvemonth from the date. F. draws a like bill upon B.: each sells his bill to U. for fifty pound; and it is indorsed to U. accordingly. The *50 that F. receives. he delivers over without any consideration to B. This transaction, if it be a valid one, and if a man can find such a friend, is evidently much less troublesome than the practice of drawing and re-drawing. And this, if it be practicable at all, may be practised by persons of any description, concerned or not in trade. Should the effect of this page be to suggest an expedient, and that a safe and commodious one, for evading the laws against usury, to some, to whom such an expedient might not otherwise have occurred, it will not lie very heavy upon my conscience. The prayers of usurers, whatever efficacy they may have in lightening the burthen, I hope I may lay some claim to. And I think you will not now wonder at my saying, that in the efficacy of such prayers I have not a whit less confidence, than in that of the prayers of any other class of men. One apology I shall have to plead at any rate, that in pointing out these flaws, to the individual who may be disposed to creep out at them, I point them out at the same time to the legislator, in whose power it is to stop them up, if in his opinion they require it. If, notwithstanding
LETTER VIII Virtual Usury allowed.
Having proved, as I hope, by this time, the utter impropriety of the law's limiting the rate of interest, in every case that can be conceived, it may be rather matter of curiosity, than any thing else, to enquire, how far the law, on this head, is consistent with itself, and with any principles upon which it can have built. 1. Drawing and re-drawing is a practice, which it will be sufficient here to hint at. It is perfectly well known to all merchants, and may be so to all who are not merchants, by consulting Dr Smith. In this way, he has shewn how money may be, and has been, taken up, at so high a rate, as 13 or 14 per cent -- a rate nearly three times as high as the utmost which the law professes to allow. The extra interest is in this case masked under the names of commission, and price of exchange. The commission is but small upon each loan, not more, I think, than 1/2 per cent: custom having stretched so far but no farther, it might be thought dangerous, perhaps, to venture upon any higher allowance under that name. The charge, being repeated a number of times in the course of the year, makes up in frequency what it wants in weight. The transaction is by this shift rendered more troublesome, indeed, but not less practicable, to such parties as are agreed about it. But if usury is good for merchants, I don't very well see what should make it bad for every body else. 2. At this distance from all the mountains of legal knowledge, I will not pretend to say, whether the practice of selling accepted bills at an under value, would hold good against all attacks. It strikes my recollection as a pretty common one, and I think it could not be brought under any of the penal statutes against usury. The adequateness of the consideration might, for aught I know, be attacked with success, in a court of equity; or, perhaps, if there were sufficient evidence (which the agreement of the parties might easily prevent) by an action at common law, for money had and received. If the practice be really proof against all attacks, it seems to afford an effectual, and pretty commodious method of evading the restrictive laws. The only restraint is, that it requires the assistance of a third person, a friend of the borrower's; as for instance: B, the real borrower, wants *100 and finds U, a usurer, who is willing to lend it to him, at 10 per cent B. has F, a friend, who has not the money himself to lend him, but is willing to stand security for him, to that amount. B. therefore draws upon F, and F. accepts, a bill of *100 at 5 per cent interest, payable at the end of a twelvemonth from the date. F. draws a like bill upon B.: each sells his bill to U. for fifty pound; and it is indorsed to U. accordingly. The *50 that F. receives. he delivers over without any consideration to B. This transaction, if it be a valid one, and if a man can find such a friend, is evidently much less troublesome than the practice of drawing and re-drawing. And this, if it be practicable at all, may be practised by persons of any description, concerned or not in trade. Should the effect of this page be to suggest an expedient, and that a safe and commodious one, for evading the laws against usury, to some, to whom such an expedient might not otherwise have occurred, it will not lie very heavy upon my conscience. The prayers of usurers, whatever efficacy they may have in lightening the burthen, I hope I may lay some claim to. And I think you will not now wonder at my saying, that in the efficacy of such prayers I have not a whit less confidence, than in that of the prayers of any other class of men. One apology I shall have to plead at any rate, that in pointing out these flaws, to the individual who may be disposed to creep out at them, I point them out at the same time to the legislator, in whose power it is to stop them up, if in his opinion they require it. If, notwithstanding