is the premium or money paid for the loan or use of other money. See Arithmetic, §20.

Many good and learned men have in former times very much perplexed themselves and other people by railing doubts about the legality of interest in foro conscientiae. It may not be amiss here to inquire upon what grounds this matter does really stand.

The enemies to interest in general make no distinction between that and usury, holding any increase of money to be indefensibly furious. And this they ground as well on the prohibition of it by the law of Moses among the Jews, as also upon what is laid down by Aristotle, That money is naturally barren; and to make it breed money is preposterous, and a perversion of the end of its institution, which was only to serve the purposes of exchange, and not of increase. Hence the school-divines have branded the practice of taking interest, as being contrary to the divine law both natural and revealed; and the canon law has prescribed the taking any the least increase for the loan of money as a mortal sin.

But, in answer to this, it may be observed, that the Mosaic precept was clearly a political, and not a moral, precept. It only prohibited the Jews from taking usury from their brethren the Jews; but in express words permitted them to take it of a stranger: which proves that the taking of moderate usury, or a reward for the use, for so the word signifies, is not malum in se, since it was allowed where any but an Israelite was concerned. And as to Aristotle's reason, deduced from the natural barrenness of money, the same may with equal force be alleged of houses, which never breed houses; and twenty other things, which nobody doubts it is lawful to make profit of, by letting them to hire. And though money was originally used only for the purposes of exchange, yet the laws of any state may be well justified in permitting it to be turned to the purposes of profit, if the convenience of society (the great end for which money was invented) shall require it. And that the allowance of moderate interest tends greatly to the benefit of the public, especially in a trading country, will appear from that generally acknowledged principle, that commerce cannot subsist without mutual and extensive credit. Unless money therefore can be borrowed, trade cannot be carried on; and if no premium were allowed for the hire of money, few persons would care to lend it; or at least the ease of borrowing at a short warning (which is the life of commerce) would be entirely at an end.

Thus, in the dark ages of monkish superstition and civil tyranny, when interest was laid under a total interdict, commerce was also at its lowest ebb, and fell entirely into the hands of the Jews and Lombards: but when men's minds began to be more enlarged, when true religion and real liberty revived, commerce grew again into credit; and again introduced with itself its inseparable companion, the doctrine of loans upon interest.

And, really, considered abstractedly from this its use, since all other conveniences of life may be either bought or hired, but money can only be hired, there seems no greater impropriety in taking a recompense or price for the hire of this, than of any other convenience. If one borrow 100l. to employ in a beneficial trade, it is but equitable that the lender should have a proportion of the gains. To demand an exorbitant price is equally contrary to conscience, for the loan of a horse, or the loan of a sum of money: but a reasonable equivalent for the temporary inconvenience which the owner may feel by the want of it, and for the hazard of his losing it entirely, is not more immoral in one case than it is in the other. And indeed the absolute prohibition of lending upon any, even moderate interest, introduces the very inconvenience which it seems meant to remedy. The necessity of individuals will make borrowing unavoidable. Without some profit by law, there will be but few lenders: and those principally bad men, who will break through the law, and and take a profit; and then will endeavour to indemnify themselves from the danger of the penalty, by making that profit exorbitant. Thus, while all degrees of profit were discommoded, we find more complaints of usury, and more flagrant instances of oppression, than in modern times when money may be easily had at a low interest. A capital distinction must therefore be made between a moderate and exorbitant profit; to the former of which we usually give the name of interest, to the latter the truly odious appellation of usury; the former is necessary in every civil state; if it were but to exclude the latter, which ought never to be tolerated in any well-regulated society. For, as the whole of this matter is well summed up by Grotius, "if the compensation allowed by law does not exceed the proportion of the hazard run, or the want felt, by the loan, its allowance is neither repugnant to the revealed nor to the natural law; but if it exceeds those bounds, it is then oppressive usury; and though the municipal laws may give it impunity, they never can make it just."

We see, that the exorbitance or moderation of interest, for the money lent, depends upon two circumstances; the inconvenience of parting with it for the present, and the hazard of losing it entirely. The inconvenience to individual lenders can never be eliminated by laws; the rate therefore of general interest must depend upon the usual or general inconvenience. This results entirely from the quantity of specie or current money in the kingdom: for, the more specie there is circulating in any nation, the greater superfluity there will be, beyond what is necessary to carry on the business of exchange and the common concerns of life. In every nation, or public community, there is a certain quantity of money thus necessary; which a person well skilled in political arithmetic might perhaps calculate as exactly, as a private banker can the demand for running cash in his own shop: all above this necessary quantity may be spared, or lent, without much inconvenience to the respective lenders; and the greater this national superfluity is, the more numerous will be the lenders, and the lower ought the rate of the national interest to be; but where there is not enough, or barely enough, circulating cash, to answer the ordinary uses of the public, interest will be proportionably high; for lenders will be but few, as few can submit to the inconvenience of lending.

So also the hazard of an entire loss has its weight in the regulation of interest: hence, the better the security, the lower will the interest be; the rate of interest being generally in a compound ratio, formed out of the inconvenience and the hazard. And as, if there were no inconvenience, there should be no interest but what is equivalent to the hazard; so, if there were no hazard, there ought to be no interest, save only what arises from the mere inconvenience of lending. Thus, if the quantity of specie in a nation be such, that the general inconvenience of lending for a year is computed to amount to three per cent., a man that has money by him will perhaps lend it upon good personal security at five per cent., allowing two for the hazard run; he will lend it upon landed security, or mortgage, at four per cent., the hazard being proportionably less; but he will lend it to the state, on the maintenance of which all his property depends, at three per cent., the hazard being none at all.

But sometimes the hazard may be greater than the rate of interest allowed by law will compensate. And this gives rise to the practice, 1. Of bottomry, or respondentia. 2. Of policies of insurance. See Bottomry, and Insurance.

Upon the two principles of inconvenience and hazard, compared together, different nations have at different times established different rates of interest. The Romans at one time allowed centifime, one per cent. monthly, or twelve per cent. per annum, to be taken for common loans; but Justinian reduced it to triente, or one third of the as or centifime, that is, four per cent.; but allowed higher interest to be taken of merchants, because there the hazard was greater. So too Grotius informs us, that in Holland the rate of interest was then eight per cent. in common loans, but twelve to merchants. Our law establishes one standard for all alike, where the pledge or security itself is not put in jeopardy; lest, under the general pretence of vague and indeterminate hazards, a door should be opened to fraud and usury; leaving specific hazards to be provided against by specific insurances, or by loans upon respondentia or bottomry. But as to the rate of legal interest, it has varied and decreased for 200 years past, according as the quantity of specie in the kingdom has increased by accretions of trade, the introduction of paper-credit, and other circumstances. The statute 37 Hen. VIII. c. 9, confined interest to ten per cent. and so did the statute 13 Eliz. c. 8. But as, through the encouragements given in her reign to commerce, the nation grew more wealthy; so, under her successor, the statute 21 Jac. I. c. 17, reduced it to eight per cent.; as did the statute 12 Car. II. c. 13, to six; and lately, by the statute 12 Ann. st. 2. c. 16, it was brought down to five per cent. yearly, which is now the extremity of legal interest that can be taken. But yet, if a contract which carries interest be made in a foreign country, our courts will direct the payment of interest according to the law of that country in which the contract was made. Thus Irish, American, Turkish, and Indian interest, have been allowed in our courts to the amount of even 12 per cent. For the moderation or exorbitance of interest depends upon local circumstances; and the refusal to enforce such contracts would put a stop to all foreign trade. And, by stat. 14 Geo. III. c. 79, all mortgages and other securities upon estates or other property in Ireland or the plantations, bearing interest not exceeding six per cent. shall be legal; though executed in the kingdom of Great Britain; unless the money lent shall be known at the time to exceed the value of the thing in pledges; in which case also, to prevent furious contracts at home under colour of such foreign securities, the borrower shall forfeit treble the sum so borrowed.