But if one person borrow capital from another, and give him a price for the service rendered, or a share of the profits in proportion to the capital advanced, it appears to some people to alter the whole nature of the transaction. While a return of 30 per cent. was quite an ordinary return in the way of trade for man's own capital, they thought it something essentially wicked for the person who advanced the capital whereby these profits were made to take more than 5 per cent. for the use of it. The above is a simple explanation of the nature of interest; and there certainly seems no imaginable reason why such a contract should not be left to the private arrangement of the parties themselves as other contracts usually are. Yet there is no subject upon which men seem so utterly to have taken leave of their senses as on that of interest and usury. Dante punishes usurers worse than those who denied the existence of the Deity, and puts a whole city famous for its monetary business into hell, as a companion to the cities of the plain.1 Nor is it possible to say whether the nonsense talked by Dante, or the nonsense talked by Aristotle on the subject of usury, is the greater. And it is not a little humiliating to think, that within the last forty years it was a crime punishable by law to take more than 5 per cent. for the use of money in any case whatever, and that the usury laws were only partially relaxed then, and were not finally abolished till 1854. And in the most modern works on Banking published in France, it is still deemed necessary to retain a chapter on the lawfulness of interest.

30. The prejudice against the imaginary crime of usury is now so completely exterminated in this country that it would be a waste of time to trace its history. But as it still prevails in several countries, we may give a place to the opinion of the celebrated divine, John Calvin, who was, as far as we know, one of the first persons to see through its absurdity; and it will be seen how he anticipated Bentham's line of argument. 2

On the question of the lawfulness of usury being submitted to him, he replied that it is not entirely condemned in any part of Scripture. The sense of the precept of Christ (Luke vi.) had been perverted. The law of Moses was political, and not to be 1 Inferno, Canto 11. The assertion of the lawfulness of usury was one of the articles of heresy charged against the unfortunate Albigenses.

2 Epistola, Responsa, Genera, 1575, p. 355.

stretched beyond what men and equity would bear. There were, indeed, certain passages of Scripture in which the Holy Spirit inveighs against usury. As in Psalm iv., 12, he describes a wicked city, where usury was practised in public. But, in fact, the Hebrew word meant fraud in general, and could not be applied to usury. It is true that usury was mentioned by name, by the writer, but that was because fraud and cruelty so often accompanied it. Ezekiel, it is true, goes further (xxii., 12), and specifies usury as one of the crimes which had kindled the wrath of God against Israel; but he uses two words, one of which means usury, and is derived from the same root as signifies to devour, and the other means increase or addition.

He shews that the Jewish laws and polity were adapted to the Jews only, and that modern society in no way resembles the condition of the Jews, to whom usury was forbidden.

He treats the reasons of St. Ambrose and Chrysostom as of very slight weight, and then says:

"Money does not beget money! What does the sea? What does a house, for the letting of which I receive a rent? Does money truly grow from the roof and walls? But the land also produces, and something is brought from the sea which afterwards produces (or draws forth; PRODUCTION1) money, and the convenience of a house may be bought or exchanged for a certain sum of money. If, therefore, more profit can be made by trading than from the produce of any farm, is he who has let some barren farm to an agriculturist to be allowed to receive rent and profit, and another man not to be allowed to receive profit from money? And if any one buys a farm with money, does not that money generate money every year? You would allow that the profit of the merchant comes from his diligence and industry. Who doubts that unemployed money is useless? Or that he who asks a loan from me does not intend to keep it idle when he has got it? Now, in truth, that profit does not arise from the money, but from the produce. These reasons, therefore, are somewhat subtle, and have some plausibility; but when they are fully weighed, they fail. I therefore conclude that we are not to judge of usury by any particular passage of Scripture, but only by the law of equity. This will be clearer by an example. Let us suppose some wealthy man with large possessions in farms and rents, but not much money, 1 Chap. 4, § 33.

Suppose another man, not so rich, nor of such large possessions as the first, but yet having more ready money. The latter being about to buy a farm with his own money, is asked for a loan by the wealthier man. He who makes the loan may stipulate for a rent for his money, and that the farm shall be mortgaged to him until the principal is repaid; but until it is repaid, he will be content with the profit or usury. Why, then, shall the first contract without a mortgage, but only for the profit of the money, be condemned, when the much harsher one of the annual rent, with a mortgage of the farm is approved? And what else is it than to treat God like a child when we judge of things by mere words, and not from the nature of the thing itself? As if virtue and crimes could be perceived from the form of the words!"

No one can but admire the daring good sense of this argument in the mouth of a divine, in defence of what was then considered one of the worse crimes men could be guilty of, and be amazed that these arguments made scarcely any impression, even in Protestant England, for upwards of 200 years!

31. The progress of just legislation on this subject must always be remarkable as an instance of the extraordinary vis inertia of an established law in this country, where no great popular passion is brought to bear on it, even where no great interests are enlisted in defending it, and where abstract justice and good sense are not made a popular cry. In the year 1691, Lock published his "Considerations of the Consequences of Lowering the Interest of Money," in which the futility of the Usury Laws was perfectly demonstrated. Smith shewed less than his usual judgment in advocating their maintenance. But his doctrine called forth the letters of Bentham upon the "Defence of Usury," as splendid examples of unanswerable argument as any in existence. It is said that Smith had the candour to acknowledge that his opinions were mistaken; but they remained uncancelled in the Wealth of Nations. The most eminent writers had pointed out, not only their utter futility to effect their purpose, but their highly mischievous effect in aggravating the evil they were intended to prevent. The experience of several commercial crises had demonstrated, that in consequence of the law attempting to prevent people paying more than 5 per cent. for the use of money, they often had to pay 50, 60, or 70 per cent. by the

methods they were forced to adopt. They were investigated and condemned by a Parliamentary Committee. Yet it was only in the year 1833 that the first breach was made in them, by exempting bills which had not more than three months to run from their operation, and by temporary extensions and prolongations most other contracts were taken out of their operation; but it was only in 1854 that they were finally swept away from the Statute Book. Thus, from the period of their total demolition in argument till their total demolition in fact, a space of not less than 161 years elapsed. Such was the period it required even in this commercial country to abolish laws equal in absurdity to those of witchcraft.1

32. Before we proceed any further we must point out an extraordinary confusion into which Mill has fallen with reference to the common phrase Value of Money 2" It is unfortunate that in the very outset of the subject we have to clear from our path a formidable ambiguity of language. The Value of Money is to appearance an expression as precise, as free from possibility of misunderstanding, as any in science. The value of a thing is what it will exchange for: the value of money is what money will exchange for the purchasing power of money. If prices are low, money will buy much of other things, and is of high value; if prices are high, it will buy little of other things, and is of low value. The value of money is inversely as general prices falling as they rise, and rising as they fall.

"But unhappily the same phrase is also employed, in the current language of commerce, in a very different sense. Money, which is so commonly understood as the synonyme of wealth, is more especially the term in use to denote it when it is the subject of borrowing. When one person lends to another, as well as when he pays wages or rent to another, what he transfers is not the mere money, but a right to a certain value of the produce of the country, to be selected at pleasure; the lender having first bought the right by giving for it a portion of his capital. What he really lends is so much capital; the money is the mere instrument of transfer. But the capital usually passes from the lender

The last trial for Witchcraft in Great Britain took place in 1736, the last case of Usury in our law books was in 1856.

to the receiver through the means either of money, or of an order to receive money, and at any rate it is in money that the capital is commuted and estimated. Hence borrowing capital is universally called borrowing money; the loan market is called the money market: those who have their capital disposable for investment or loan are called the monied class: and the equivalent given for the use of capital, or, in other words, interest, is not only called the interest of money, but, by a grosser perversion of terms, the value of money. This misapplication of language, assisted by some fallacious appearances which we shall notice and clear up hereafter, has created a general notion among persons in business that the Value of money, meaning the rate of interest, has an intimate connection with the Value of Money in its proper sense, the value or purchasing power of the circulating medium. We shall return to this subject before long: at present it is enough to say, that by Value I shall always mean Exchange Value, and by money the medium of exchange, not the capital which is passed from hand to hand through that medium."

33. The reader has only to refer to a previous chapter, where we have shewn that in Roman Law, Rights are expressly declared to be Wealth and Merchandise, and what we have said under Price, Interest, and Discount,2 to see that the sole confusion in the case has been created by Mill himself. Turgot long ago observed that the expression Value of Money has two senses "It appears from this explanation of the manner in which money is sold or is lent in return for annual interest, that there are two ways of valuing money in commerce.

3

"For buying and selling, a certain weight of money represents a certain quantity of value or of different kinds of merchandise; for example, an ounce of money is equivalent to a certain quantity of corn, or of a certain number of days' labour.

"In loans and in the commerce of money, a capital is the equivalent of a rent equal to a certain portion of the capital; and reciprocally, an annual rent represents a capital equal to the amount of this rent repeated a certain number of times, according as the interest is higher or lower.

"These two different modes of valuation have less relation, and depend less upon each other than we might think at first sight.