The only man of great distinction that has undertaken a defense of the policy of usury laws in modern times, so far as the writer is aware, is Chancellor Kent, who, in 1819, had occasion to discuss. this subject in his official capacity, in the course of an opinion rendered by him in the case of Dunham vs. Gould, 16 Johnson, 367. After reviewing the history of usury laws, be says: "Can we suppose that a principle of moral restraint of such uniform and universal adoption, has no good sense in it? Is it altogether the result of monkish prejudice? Ought we not rather to conclude that the provision is adapted to the necessities and the wants of our species, and grows out of the natural infirmity of man, and the temptation to abuse inherent in pecuniary loans? The question of interest arises constantly, and intrudes itself into almost every transaction. It stimulates the cupidity for gain; and sensibly affects the heart; and gradually presses upon the relation of debtor and creditor. Civil government is continually placing guards over the weaknesses, and checks upon the passions of men, and many cases might be mentioned in which there is, equally with usury laws, an interference of the lawgiver with the natural liberty of mankind to deal as they please with each other. But no person On doubts of the necessity and salutary efficacy of such checks. the same principle, that unlimited usury may be permitted, the law ought to allow the creditor to insert in his bond a provision for compound interest, whenever the stipulated interest becomes due, and is not paid. Nay, parties ought to be allowed to agree that if the condition of a bond be not performed at the day, the penalty shall not only be nominally forfeited, but literally exacted. I should apprehend that if these things were to be permitted, there would not be strength enough in the government to support the administration of justice. It is an idle dream to suppose that we are wiser and better than the rest of mankind. Such doctrine may be taught by those who find it convenient to flatter popular prejudice, but the records of our courts are daily teaching us a lesson of more humility. And I apprehend it would be perilous in the extreme to throw aside all the existing checks upon usurous extortion, and abolish or traduce a law which is founded on the accumulated experience of every age." The writer is of the opinion that this able defense of the policy of usury laws by Chancellor Kent had much to do with sustaining and giving permanency to that class of legislation in the State of New York, in which state until recently the usury laws were of the most rigorous kind, and these laws were not materially modified until about the year 1880. But it may be said that at the present time the usury laws of that state are quite moderate. The only result or penalty affixed to a usurous contract at the present time is a forfeiture of all interest in excess of the legal rate. The writer has not been able to ascertain the status of laws of this character generally throughout the world. It may be said, however, that in England all usury laws have been abolished since 1839; and in that country ever since that date parties are left to make their own contracts in regard to the rate of interest. In other European countries, as well as in the different states in the union, there is a great diversity in the nature and extent of the restrictions placed upon the loaning of money. In 1875 the Central Law Journal classifies the different states of the union with regard to usury laws as follows: States in which there were no usury laws and no legal restrictions upon the rate of interest were California, Colorado, Massachusetts, Mississippi, Nevada, Mexico, Oregon, Texas, Utah, and Georgia. Ten states in all. In 1880 the same authority adds Florida, Louisiana, Maine, Rhode Island, Washington, and Wyoming. But in the meantime it appears that Oregon and Georgia had enacted some legislation tending to regulate the rates of interest. To the list of states in which there are no usury laws may be added Montana and Arizona. But on the other hand the State of Washington, in the year 1895, has joined the class of states which undertake to regulate the rate of interest. the present time, according to the best information the writer has been able to obtain, there are thirteen states of the union in which there is free money and no usury law to control the contracts of parties. In the following states the only penalty for usurous contracts is forfeiture of the excess of interest above the legal rate, namely: Connecticut, Indiana, Kansas, Kentucky, Maryland, Michigan, Mississippi, New Hampshire, Vermont, West Virginia, Georgia, New York, Pennsylvania, and Tennessee. In the following states the entire interest is forfeited: Alabama, North Dakota, South Dakota, Illinois, Iowa, Missouri, Nebraska, New Jersey, North Carolina, Ohio, South Carolina, Texas, Wisconsin, Minne So that at sota, Connecticut, and Florida. In a few states the entire debt is forfeited, the contract held to be void and the creditor without remedy. On the question of whether usury laws are beneficial, it has been impracticable for the writer to reach a conclusion after the manner of true scientific research. The inductive process of reasoning is not avilable, because the necessary facts are not accessible. After trying the issue upon the testimony of witnesses, which is necessarily almost exclusively in the nature of expert evidence, it is not difficult to decide that the weight of such evidence is strongly in favor of the negative of the question. But the conclusion thus reached is not satisfactory, for the same reason that renders all decisions based on expert evidence of light weight, and the more so when, in this case, the individuals giving their opinions are scarcely to be classed as experts, and are all more or less prejudiced. When we attempt to throw upon the question the great searchlight of history, we are also disappointed. We find that communities have prospered with severe usury laws, standing side by side, and apparently working under like conditions, with other commonwealths that have enjoyed like prosperity, although having no usury laws. In some instances, however, a distinction evidently due to this cause has been noted. Historians and philosophers seem to agree that Greece, during the administration of Solon, enjoyed a great revival of trade and commerce and a great degree of general prosperity, whereas, during the same period, they were having comparatively hard times in Rome; and that the difference in conditions in these two countries was largely, if not wholly, due to the severe usury laws in force during this time in Rome and the freedom of money during the same time in Greece. During the last ten years the writer has had considerable opportunity to observe the conditions in the two neighboring states of Oregon and Washington, and the facts observed led him to the conclusion that, of the two, Washington has been the more prosperous, and has made by far the more rapid strides of advancement and development of resources, and that the difference has been largely due to the greater severity of the usury laws and other restrictions upon the borrowing of money existing in the State of Oregon during that time. It seems to be a fact well established in the history of all usury laws that they have the effect of limiting free competition among the money lenders. And the worst of it is, that those who are driven out of competition are the best friends of the borrower, because they are the conservative; conscientious, law-abiding lenders who are driven from the field, and thus the borrower is left to the tender mercies of the unscrupulous shylocks. Another fact seems evident, viz., that usury laws seem in their practical effect to impose additional burdens upon the very class of people, and the only class of people, which they are designed to relieve. At first blush this fact, although well established by history, seems paradoxical, but upon a careful study of the conditions, it seems easily explained. That no man will bind himself to pay extravagant, extortionate or ruinious rates of interest, unless driven to it by necessity or some very powerful motive, is axiomatic. He is evidently in such a condition as to fall an easy prey to the money shark, who will not hesitate to impose upon him the additional burden produced and caused by the penalties of the usury laws. Under these circumstances neither borrower nor lender will hesitate to do an act that is merely mala prohibita, and hence a way will be adopted to evade the law, and in the dancing necessary for such evasion it is easy to see who will have to pay the fiddler. At present the people of this country, and especially in this state, are in a condition similar to that of the Romans so graphically described by Baron De Montesquieu. The officers and lawgivers of our government are greatly tempted to render themselves popular by frantic efforts to satisfy the clamor, however unreasonable it may be, of the masses of the people who are at present suffering from great financial depression and distress. This condition has resulted in the enactment of some very unwise laws, apparently designed to embarrass and restrict the lending of money in this state, and it is a wonder that the same legislature did not also pass some stringent usury laws. There is at present a sentiment abroad in this state, amounting almost to a clamor, for the aboli tion of all laws permitting the collection of debts, and a demand that money lenders be forever driven from our state. This sentiment, if carried into effect, would naturally result in usury laws of the greatest severity, perhaps in forbidding the lending of money at any, even the lowest rate of interest. And what would be the affect? The teachings of history clearly show that while the lending of money upon conservative business principles for trade and commerce, and other legitimate purposes, would be greatly hampered, if not entirely prevented, yet for purposes of gambling, speculation and of dire necessity loaning would still be carried on, and that, too, on a basis of most extravagant usury. Would this be beneficial? And putting the question on broader grounds, would it be beneficial to the people at large to forbid, and if possible entirely prevent the loaning of money in the State of Washington? There are not a few advocates of the affirmative of this question, and some of considerable ability and apparent learning. They contend that it would be better for our people to be compelled to live upon their earnings and within their incomes, and thus avoid the risks incident to borrowing, viz.: the loss of home and all acquired property by the foreclosure of a mortgage or the levy of an execution. They insist that if any one of our people who has acquired a surplus of money be prevented from loaning it, that he will necessarily invest it in some productive industry, and that the eastern or other foreign capitalist will in like manner invest his money if he be not permitted to loan it, and then they grow eloquent in depicting the Utopian results that would follow, and jump to the happy conclusion that under such conditions everybody will be prosperous. Their peroration is about as follows: There will be no more judgments then, There will be no receivers then, There will be mighty few lawyers then. Under present conditions it must be admitted that this contention is not without some degree of plausibility, and to many the argument is positively captivating. Yet I imagine that if any one of us being without money, as practically all of us are, should rereceive information believed to be positively reliable, of a place like some in the recently discovered Klondike region of Alaska (but for the sake of the argument we will suppose it to lie in a salubrious and pleasant climate), which could be reached, located and developed at an expense of $1,000 within sixty days, to such |
