Of Usury is a hard one! Not just the Latin, of which there is an abundance; also the shifts in meanings of words having to do with financial dealings. And my general ignorance about financial stuff. Ah, well! We can but soldier on, with the aid of our friend Richard Whateley.
Rude words about money-lenders
Bacon gives us a few choice examples: “[T]he usurer is the greatest Sabbath-breaker, because his plough goeth every Sunday.” “That the usurer breaketh the first law, that was made for mankind after the fall, which was, in sudore vultus tui comedes panem tuum (in the sweat of thy face shalt thou eat bread); not, in sudore vultus alieni (in the sweat of another’s face.)”
“That it is against nature for money to beget money.” I wonder at this one. What else would money beget?
But usury is necessary, Bacon rightly observes, so why fuss? “[U]sury is a concessum propter duritiem cordis (a concession on account of hardness of heart); for since there must be borrowing and lending, and men are so hard of heart, as they will not lend freely, usury must be permitted.”
Given the realities of the world we live in, let us take usury as a given and spend our time more fruitfully laying forth its advantages (commodities) and disadvantages (discommodities.)
The discommodities of usury
“First, that it makes fewer merchants. For were it not for this lazy trade of usury, money would not be still, but would in great part be employed upon merchandizing (trading); which is the vena porta (great vein) of wealth in a state.”
I don’t understand this. Don’t usurers (banks, nowadays) lend money so that merchants can engage in more trade? Like, buy more stuff to sell somewhere else? Maybe Bacon means that usurers would spend their money on trade, instead of lazily lending it out to others.
“The second, that it makes poor merchants. For, as a farmer cannot husband his ground so well, if he sit at a great rent; so the merchant cannot drive his trade so well, if he sit at great usury.”
This one I understand: paying interest on loans takes a big bite out of your income.
“The third is incident to the other two; and that is the decay of customs of kings or states, which ebb or flow, with merchandizing.” I guess he means that usury inhibits trade among nations?
“The fourth, that it bringeth the treasure of a realm, or state, into a few hands. For the usurer being at certainties, and others at uncertainties, at the end of the game, most of the money will be in the box; and ever a state flourisheth, when wealth is more equally spread.”
That’s the money quote for me: “ever a state flourisheth, when wealth is more equally spread.” We’re living in a time of great concentration of wealth in the hands of a very few, with disastrous consequences for nations and peoples. I’m surprised to see Bacon expressing this clear statement, but perhaps I shouldn’t be. He may have loved money, or rather the luxuries money buys, but he could see the negative effects of great disparities of wealth clearly in his own time.
“The fifth, that it beats down the price of land; for the employment of money, is chiefly either merchandizing or purchasing; and usury waylays both.”
Uh… do interest rates interact with real estate prices? I suppose they do… buyers and sellers do better with lower rates, I think. I’m really not the person to be explaining financial matters.
“The sixth, that it doth dull and damp all industries, improvements, and new inventions, wherein money would be stirring, if it were not for this slug.”
We seem to think the opposite way. We rely on venture capitalists – money lenders – to provide capital for the launching of new enterprises.
“The last, that it is the canker and ruin of many men’s estates; which, in process of time, breeds a public poverty.” Interest payments can bring a person down, that’s for sure, especially at the lower end of the economic scale where the interest rates are the highest. You can never get out of debt, because you can’t get past the interest payments.
The commodities of usury
“[F]irst, that howsoever usury in some respect hindereth merchandizing, yet in some other it advanceth it; for it is certain that the greatest part of trade is driven by young merchants, upon borrowing at interest; so as if the usurer either call in, or keep back, his money, there will ensue, presently, a great stand of trade.”
That’s the way we see it. You have to be able to borrow money in order to go into business, but we don’t want those interest rates getting out of control.
“The second is, that were it not for this easy borrowing upon interest, men’s necessities would draw upon them a most sudden undoing; in that they would be forced to sell their means (be it lands or goods) far under foot; and so, whereas usury doth but gnaw upon them, bad markets would swallow them quite up.”
Again, still true. If you couldn’t borrow, you’d have to put your principle assets at risk, like your house. Losing that would ruin you. You couldn’t risk it, so you wouldn’t do the business thing you had in mind. But professional money lenders can sustain that loss as part of their normal costs of doing business.
“The third and last is, that it is a vanity to conceive, that there would be ordinary borrowing without profit; and it is impossible to conceive, the number of inconveniences that will ensue, if borrowing be cramped. Therefore to speak of the abolishing of usury is idle. All states have ever had it, in one kind or rate, or other. So as that opinion must be sent to Utopia.”
Get over it, Bacon says. We need money-lending, everyone everywhere always has, so stop railing about these simple facts of life. I really like that last expression: send that opinion to Utopia!
The reiglement of usury
I’ve never seen that word before, but it’s easy enough to guess it’s meaning: regulation.
“It appears, by the balance of commodities and discommodities of usury, two things are to be reconciled. The one, that the tooth of usury be grinded, that it bite not too much; the other, that there be left open a means, to invite moneyed men to lend to the merchants, for the continuing and quickening of trade.”
This is the main job of our modern Federal Reserve Bank, isn’t it? Regulating interest rates so that they stimulate the economy by making it easy enough to borrow what you need while providing a fair profit to the money lenders. That’s my simple-minded view anyway.
Bacon proposes a two-tier system: “That there be two rates of usury: the one free, and general for all; the other under license only, to certain persons, and in certain places of merchandizing.”
By ‘free’ he doesn’t mean ‘without charge.’ I think he means, ‘accessible to everyone.’
Then he gets into specific numbers, leaving me in the dust. He must have dealt with such numbers, especially with respect to real estate transactions, all the time as a lawyer. Then as now, who owes what to whom is a big part of legal disputes.
“This will, in good part, raise the price of land, because land purchased at sixteen years’ purchase will yield six in the hundred, and somewhat more; whereas this rate of interest, yields but five.”
Here I am, in that dust again.
“Secondly, let there be certain persons licensed, to lend to known merchants, upon usury at a higher rate…” I think he’s proposing that the state allow an unlimited number of licensed money-lenders in principal cities only, allowing them to lend money at a higher rate to a certain class of established merchants.” Prime, sub-prime?
Here’s a longish paragraph of specifics that I just can’t face. Sorry, y’all. He’s basically proposing some degree of state involvement in the money-lending business, at least to the extent of establishing a tier of interest rates for specified classes of borrowers and thereby in some sense authorizing specified classes of lenders.
“If it be objected that this doth in a sort authorize usury, which before, was in some places but permissive; the answer is, that it is better to mitigate usury, by declaration, than to suffer it to rage, by connivance.”
Does this mean the state officially approves the heinous act of usury? Well, yes. And get over it, Bacon says, which we have. In our time, we don’t even debate the validity of the whole idea of usury (charging interest for loans). It’s an essential thread in the fabric of our economic lives.