The usury laws tend in several ways to injure the class which they were designed to serve. In the first place, they lessen the amount of money that is ready to be lent; many persons being unwilling either to violate or evade the law, who therefore seek to employ their capital themselves in some way that promises them the market rate of interest, rather than to lend it at the lower legal rate.

But, secondly, when a lender is willing to incur the risk of violating the law, he will naturally seek to indemnify himself for that risk by requiring a higher rate of interest.

Thirdly, where the law is evaded, as it commonly is, by various roundabout proceedings devised by the combined wit of borrowers and lenders, the borrower is thus subjected to additional trouble, and probable loss, which he might avoid if he could directly contract for a loan. So that, upon the whole, the effect of the law is not so much to abolish usury as to make it more burdensome to the debtor class.

It seems probable that the law is, in another way, injurious to the same class. The sympathy which the generality of mankind have ever shown for debtors, and the odium which has always more or less attended those who were disposed to take advantage of their necessities, are somewhat strengthened by the law; and thus men who are very sensitive as to the opinion of their fellow-citizens are unwilling to obtain a higher rate of interest than the law allows, even when they can do so without incurring its penalties. They might, for instance, buy bonds or promissory notes not yet due at a discount far exceeding the legal interest. This practice, which is very frequent with those who would derive a large profit from their moneyed capital, and which is popularly called shaving, though it infringes no law, is just as odious and discreditable as direct usury, which is illegal. The difficulty, then, of obtaining loans is still farther increased by the law.

But what would be the consequences of repealing the usury laws? The repeal would remove restraints on a class of contracts in which legislative interposition seems to be no more required than in any other, and so far it would tend to make the laws consistent and uniform. It would also take away the inducement which now exists for one who has borrowed money at usurious interest to act dishonorably, by violating his own solemn engagements. But it is a mistake to suppose that it would greatly increase the loanable money of the community. In a very large majority of the cases of money lent at more than legal interest, the parties resort to the ready expedients of evading the usury law, which merely causes them some little delay and trouble, as by the sale of stock or merchandise to the borrower, on a credit, which is then sold by him at a reduced price for cash; or by the borrower's giving his bond to a friend, who then sells it to the money-lender at a discount for cash. These expedients, and many others for escaping the penalties of usury, are strictly legal, and could not be prohibited without too much restricting commercial intercourse.

The principal effect, then, of the repeal would be to make such evasive shifts and contrivances unnecessary, and to allow a more simple and direct course of procedure between the borrower and lender, without a sensible increase in the amount of money to be lent, or in the facility of borrowing. Hence it is that whenever the experiment of repealing the usury laws has been made, as has been done in several of the States, the public has been disappointed in not seeing the expected benefits, and the repealing law has been itself repealed before its effects had been fairly tested. It is not improbable, too, that such repeals have been furthered by some cases of exorbitant usury, which, being then first openly made, shocked men's natural sense of justice; though similar contracts may have always existed, but having been negotiated in secret, were known only to the parties; and, it might be that such cases of extreme improvidence in one party, and extreme unconscientiousness in the other, might have been made on more reasonable terms, if the parties had waited until the increased competition among the class of lenders had adapted the money market to the new state of things. It may, therefore, be wise in legislatures, in repealing the usury law, to postpone the operation of their act, that the community may prepare for the change.

The injustice which the usury laws do to the moneyed class is greatly mitigated by means of banks, insurance companies, and other joint-stock associations, the price of whose stock, compared with their ordinary dividends, denotes the market rate of interest with tolerable correctness. Thus, suppose the price of a share of stock to be $80, and the ordinary dividend to be $6 per annum; the purchaser of stock would then receive 7 1/2 per cent. for his purchase-money. Those persons who have unemployed funds, but cannot use them in any profitable employment which requires personal attention, by reason of their age, sex, or engrossing occupations, can thus, without labor or care, obtain the current rate of interest by the purchase of stock.

Besides the variations in the rate of interest, according to the amount lent, and the duration of the loan, there is also a difference arising from the character of the employment. When that is low and disreputable, its profits, like the wages of labor, must be proportionally higher. But the chief cause of the difference in the rate of profit is the difference of risk. Thus, capital vested in mining, insurance companies, and in untried enterprises, will require a return much larger than is yielded by government stocks, the profits of which are not precarious. The like uncertainty, but to a less extent, is to be found in the stocks of banks and railroads. But the power which banks possess of accommodating their stockholders with large loans, when the use of money is unusually profitable or desirable, tends to enhance the value of their stock; and that of railroads consists not merely in their dividends, but also in the effect on the value of the neighboring lands. This alone is often a sufficient compensation to many of the stockholders.

It sometimes has been asked, what is the minimum rate to which the interest of money can fall? It is clear that capital cannot increase in a country, unless the whole amount annually produced exceeds the amount annually consumed, and this excess must result from the disposition of individuals to save being greater than their disposition to spend. It seems fair to presume that the disposition to save will diminish with the decline of interest, since the desire of spending for present gratification, which would be overcome by one rate of profit, might not yield to an inferior profit, and thus a further saving might be arrested.

There are, indeed, individuals of such settled habits of frugality and aversion to expense, that they would rather save than spend, though they were to receive no additional profit whatever from their savings. But with a majority of the community, the money saved by them is profitably invested, and the prospect of this profit has been a strong incentive to their economy. Let this hope of profit be taken away, or be greatly diminished, and the desire of further accumulation might be countervailed by the pleasure of spending as well as the relaxation of industry, until the whole amount consumed might equal the amount produced, when, of course, interest would be stationary.

At what rate of interest this resting-point would be reached, is a question which has yet to be determined; but it seems probable that, if interest should ever become so low as one per cent., or even be much under two per cent., further accumulation would then be arrested.

There are circumstances which tend to retard this result, and may even prevent it. Whenever interest becomes very low in any country, capital will naturally find a vent in other nations, connected with it by commercial intercourse, in which it is less abundant. English capital is thus found in every part of the United States, from the Atlantic cities to the remotest regions of the West; and interest might long ago have reached its minimum in Holland, if its capital had not found employment in other countries. We will now proceed to consider that portion of the capital of a country which consists of its money.