That part of the business of banking which consists in the lending of money lay, during the Middle Ages, under severe restraints. The taking of interest for the loan of money was deemed sinful, and stigmatized with the name of usury. This opinion appears to be wholly unwarranted, either by the principles of natural equity or the enactments of the Mosaic law. "The taking of interest from Israelites was forbidden by Moses; not, however, as if he absolutely and in all cases condemned the practice, for he expressly permitted interest to be taken from strangers, but out of favour to the poorer classes of the people. The farther we go back towards the origin of nations, the poorer do we commonly find them, and the more strangers to commerce; and where this is the case, people borrow, not with a view to profit, but from poverty, and in order to procure the necessaries of life; and there it must be, no doubt, a great hardship to give back more than has been got. The taking of interest from strangers, Moses has not only nowhere forbidden, but even expressly authorized. Hence it is clear that he does by no means represent interest as in itself sinful and unjust. Any such prohibition of interest in our age and country would, without doubt, be unjust towards lenders, and destructive to trade of every description. Among all the remnants of ancient laws, it would be difficult to find one which, in the present state of society, it would be more foolish and hurtful to revive and enforce. It would only suit a State so constituted as was that of the Israelites by Moses."1 The taking of interest for the loan of money was first prohibited in England by Edward the Confessor. This law, however, appears to have become obsolete; for, in a council held at Westminster, in the year 1126, usury was prohibited only to the clergy, who, in case they practised it, were to be degraded; and in another Council, held twelve years afterwards, it was decreed that, "such of the clergy as were usurers and hunters after sordid gain, and for the public employments of the laity, ought to be degraded." The earliest mention we find in
1 See Maitland's History of London, page 826.
1 See Michaelis's Commentaries on the Laws of Moses, vol. ii. pp. 324 to 342.
English history, of a certain yearly allowance for the usury or interest of money, is in the year 1199, the tenth and last year of Richard I. In this case the rate of interest was 10 per cent. This appears to have been the ordinary or market-rate of interest from that period until the time of Henry VIII., but there are many instances on record of a much higher rate of interest being taken, especially by the Jews and the Lombards, who, in those times, were the principal money-lenders. The exorbitant interest taken by them is supposed by eminent writers to have been the effect of the prohibition of usury.
The Jews, who were previously famous in foreign coun tries for their "egregious cunning in trade and in the practice of brokerage," arrived in England about the time of the Conquest, and soon became remarkable for wealth and usury. "The prejudices of the age," says Hume, "had made the lending of money on interest pass by the invidious name of usury; yet the necessity of the practice had still continued it, and the greater part of that kind of dealing fell everywhere into the hands of the Jews, who, being already infamous on account of their religion, had no honour to lose, and were apt to exercise a profession odious in itself by every kind of rigour, and even sometimes by rapine and extortion. The industry and frugality of this people had put them in possession of all the ready money, which the idleness and profusion common to the English with the European nations enabled them to lend at exorbitant and unequal interest."1 Henry III. prohibited the Jews taking more than twopence a week for every 20s. they lent to the scholars at Oxford.2 This is after the rate of £43 6s. 8d. per cent. per annum. Peter of Blois, Archdeacon of Bath, writes thus to his friend the Bishop of Ely: "I am dragged to Canterbury to be crucified by the perfidious Jews amongst their other debtors, whom they ruin and torment with usury. The same sufferings await me also at London. if you do not mercifully interpose for my deliverance. I beseech you, therefore, O most Rev. Father and most loving friend, to become bound to Samson the Jew for £6 which Dowe him, and thereby deliver me from that cross."1 The wealth and the rapacity of the Jews occasioned the most cruel proceedings against them on the part of both the populace and the Government. These persecutions terminated by their expulsion from England in the year 1290. They were not readmitted until the time of Oliver Cromwell. On this occasion the Protector summoned an assembly to debate two questions: 1st, whether it were lawful to tolerate the Jews; and 2nd, if it were, on what conditions? The assembly consisted of two judges, seven citizens of London, among whom were the lord mayor and the sheriffs, and fourteen divines. The judges considered toleration merely as a point of law, and declared they knew of no law against it, and that if it were thought useful to the State, they would advise it. The citizens viewed it in a commercial light, and they were divided in their opinions about its utility. Both these, however, despatched the matter briefly; but the divines violently opposed it by text after text for four whole days. Cromwell was at length so weary that he told them he had hoped they would have thrown some light on the subject to direct his conscience, but, on the contrary, they had rendered it more obscure and doubtful than before; that he desired, therefore, no more of their reasonings, but lest he should do anything rashly, he begged a share in their prayers.
1 Hume's History of England, chap. 10.
2 Henry's History of England. vol vi. page 280.
Previous to the expulsion of the Jews, the Lombards had settled in England, and they soon became as great usurers as the Jews themselves. By Lombards were generally understood Italian merchants from the four republics of Genoa, Lucca, Florence, and Venice. The foreign commerce of those times was usually carried on by companies of merchants who, on payment of certain duties, were invested by the Government with a monopoly of the trade to those countries of which they were natives, and they also possessed peculiar privileges. "As the Lombards engrossed the trade of every kingdom in which they settled, they soon became masters of its cash, Money, of course, was in their hands not only a sign of the value of their commodities, but became an object of commerce itself. They dealt largely as bankers. In an ordinance, a.d. 1295, we find them styled mercatores and campsores. They carried on this, as well as other branches of their commerce, with somewhat of that rapacious spirit which is natural to monopolizers who are not restrained by the competition of rivals: an opinion which prevailed in the Middle Ages was, however, in some measure the cause of their exorbitant demands, and may be pleaded in apology for them. Commerce cannot be carried on with advantage, unless the persons who lend a sum are allowed a certain premium for the use of their money, as a compensation for the risk which they run in permitting another to traffic with their stock. This premium is fixed by law in all commercial countries, and is called the legal interest of money. But the Fathers of the Church absurdly applied the prohibitions of usury in Scripture to the payment of legal interest, and condemned it as a sin. The schoolmen, misled by Aristotle, whose sentiments they followed, implicitly and without examination adopted the same error and enforced it. Thus the Lombards found themselves engaged in a traffic which was deemed criminal and odious. They were liable to punishment if detected. They were not satisfied, therefore, with that moderate premium which they might have claimed, if their trade had been open and authorized by law. They exacted a sum proportional to the danger and infamy of a discovery. Accordingly we find it was usual for them to demand twenty per cent. for the use of money in the thirteenth century. About the beginning of that century the Countess of Flanders was obliged to borrow money in order to pay her husband's ransom. She procured the sum requisite, either from Italian merchants or from Jews. The lowest interest which she paid to them was above twenty per cent., and some of them exacted near thirty. In the fourteenth century, a.d. 1311, Philip IV. fixed the interest which might be legally exacted in the fairs of Champagne at twenty per cent. The interest of money in Arragon was somewhat lower. James I., a.d. 1242, fixed it by law at eighteen per cent. As late as the year 1490, it appears that the interest of money in Piacenza was at the rate of forty per cent. This is the more extraordinary, because at that time the commerce of the Italian States was become considerable. It appears from Lud. Guicciardini that Charles V. had fixed the rate of interest in his dominions in the Low Countries at twelve per cent., and at the time when he wrote, about the year 1560, it was not uncommon to exact more than that sum. He complains of this as exorbitant, and points out its bad effects both on agriculture and commerce. This high interest on money is alone a proof that the profits on commerce were exorbitant. The Lombards were also established in England in the thirteenth century, and a considerable street in the city of London still bears their name. They enjoyed great privileges, and carried on an extensive commerce, particularly as bankers."1
1 Henry's History of England, vol. vi. page 280.
1 Robertson's History of Charles V., vol. 1. page 257.
The English monarchs frequently borrowed money of the Lombards, as well as of other public bodies and of private individuals. The companies of foreign merchants made advances of money, which were repaid by the duties on their merchandise. The oldest and wealthiest of these companies, the Steel-Yard Company, was a kind of bank to our kings, whenever they wanted money on any sudden emergency, but the company was sure to be well paid in the end for such assistance.1
In the year 1546 the taking of interest for money was made legal in England, and the rate was fixed at ten per cent. This Act was repealed in the year 1552, but it was re-enacted in 1571. The legal rate of interest was reduced to eight per cent. in 1624, and to six per cent. in 1651. In the year 1714 it was reduced to five per cent. After the taking of interest was sanctioned by law, the term usury, which was previously applied to interest in general, became limited, to denote a rate of interest higher than that which the law allowed.