Lending and borrowing

“ The increase of lenders above the borrowers sinks the interest, and so much the faster if those who have acquired those large sums find no industry or commerce in the state, and no method of employing their money but by lending it at interest. ”

“ It provides in part for 'individual mortgage loans to facilitate acquisition, parceling out, transformation, and reconstitution of small rural properties of which the value does not exceed 10,000 francs.' The loans are to be made from the agricultural lending societies at a rate of 1 per cent, with a term of twenty-five years. ”

“ Loans shall be made only for the purposes which promise to result in a saving or a profit to the borrower. Each applicant for a loan must state the object for which he desires to borrow, in order that the credit committee, which passes on all loans, may rigidly exclude thriftless and improvident borrowing. ”

“ X.39 The case is even more complicated, however; for many borrowers and lenders are interested less in consumption than in investment.*35 The choice is as much between lending and other investing as between lending and consuming. Similarly, the borrower may borrow to invest as well as to consume and may raise the money for repayment by curtailing investment rather than by curtailing consumption. ”

“ The concern is that if we do not re-start lending in this country, our recovery will be choked off before it even begins.
You see, the flow of credit is the lifeblood of our economy. The ability to get a loan is how you finance the purchase of everything from a home to a car to a college education; how stores stock their shelves, farms buy equipment, and businesses make payroll. ”

“ Since the borrowers consist largely of active business men, precisely the class of greatest foresight, they grasp the situation more quickly than lenders. As a result of their desire to profit by their opportunity, loans are rapidly extended. This extension is effected largely by the lending of bank credits, that is, by the increasing of deposit currency. The greater volume of the currency combines with more rapid circulation of money and checks to increase prices again, and so to start the whole process anew on a higher level. ”

“ The main features of this system are the limitation of the interest rate that can be charged, the amortization of the debt, and wise and equitable regulations and restrictions relative to loans and the issuance of debentures which protect the farmer from extortion and thriftless borrowing, and at the same time bring safety and a feeling of confidence to the investing public. ”

“ And nothing can more surely aggravate the panic than to forbid the Bank of England to lend that money. Just when money is most scarce you happen to have an unusually large fund of this particular species of money, and you should lend it as fast as you can at such moments, for it is ready lending which cures panics, and non-lending or niggardly lending which aggravates them. ”

“ In short, the only economically sound method of meeting expenses which the ordinary resources of a state cannot meet is by borrowing in the open market on the most advantageous terms obtainable. On this normal method of borrowing, loans are divided into different categories, though there are really only two main classes, which may be designated perpetual and terminable. Borrowing in quasi-perpetuity has hitherto been the mode adopted by most states in the creation of the bulk of their debt. ”

“ As to internal loans, on which, after all, we must chiefly depend, there are two things that operate against them, to any [Pg 236] large amount; the want of a sufficient number of men, with sufficient moneyed capitals to lend the sums required, and the want of confidence in those who are able to lend, to make them willing to part with their money. It may be added, that they can employ it to greater advantage in traffic, than by merely lending it on interest. ”

“ A college professor in the state of Washington informs me that short-time loans to farmers are common in that state, but that frequently the rate of interest charged is 2 per cent. higher than that on commercial loans—the explanation commonly given being that a farmer borrowing generally reduces the resulting deposit credit more rapidly than does a merchant. ”

“ There occasionally happens a concurrence of circumstances tending to withdraw from the loan market a considerable portion of the capital which usually supplies it. These circumstances, in the present case, were great foreign payments, (occasioned by a high price of cotton and an unprecedented importation of food,) together with the continual demands on the circulating capital of the country by railway calls and the loan transactions of railway companies, for the purpose of being converted into fixed capital and made unavailable for future lending. ”

“ Wishing, as much as possible, to lighten the burden of his brothers, the founder of the Bank of the Poor sets apart an income of twenty-five thousand francs a year, for the purpose of lending on pledges, not to exceed the amount of ten francs for each loan. The borrowers will pay neither cost nor interest, but they must prove that they follow an honorable profession, and produce a declaration from their employers which will prove their morality. ”

“ On the other hand, the capital owned by persons who prefer lending it at interest, or whose avocations prevent them from personally superintending its employment, may be short of the habitual demand for loans. It may be in great part absorbed by the investments afforded by the public debt and by mortgages, and the remainder may not be sufficient to supply the wants of commerce. ”

“ If the law in these circumstances permits no interest beyond five per cent, there will be some lenders, who not choosing to disobey the law, and not being in a condition to employ their capital otherwise, will content themselves with the legal rate: but others, finding that in a season of pressing demand, more may be made of their capital by other means than they are permitted to make by lending it, will not lend it at all; and the loanable capital, already too small for the demand, will be still further diminished. ”

“ The country banks lend their surplus resources in the form of deposits at interest to the banks in the larger cities, and the banks in the principal money centres commonly expand their credits as much as practicable by lending on call such sums as they deem it unsafe to lend on time or by discount of commercial paper. ”

“ Men make contracts for dollars, not for dollar’s-worths. Selling long or short is one thing; lending is another. Borrowers and lenders never guarantee each other the purchasing power of dollars at a future time. If the contracts were thus complicated they would become impossible. Between 1850 and 1872 the debtors made no complaint and the creditors never thought144 of getting up an agitation to have debts scaled up. ”

“ The mortgaging of land is known as long-term credit, and it may be handled by joint-stock institutions or by associations of borrowers, but in institutions furnishing the credit required by farmers for working capital, such as the purchase of seeds, fertilizer, payment for labour, etc., which is known as short-term credit, the aim that the borrower should be primarily considered rather than the lender assumes fundamental importance. ”

“ Each borrower must specify the purpose for which he wants a loan, say to buy a cow or drain a field, or pay off a money-lender, and this is rigorously inquired into. Only members can borrow. Any member, however poor, can borrow for a profitable approved purpose, and no one, however rich, for any other. Practically all the members see that the money is applied as agreed; and, while the loan is often made for a long period, a year or two—even for ten or more—so as to repay itself out of the profit, power is reserved to call it in at short notice if misapplied. ”

“ Either process will in general require additional capital, the former to maintain the new labourers, the latter to provide improved machinery or to enable the employer to introduce a more complete division of labour. In what are commonly called loans of money, it is not really the money, but the money’s worth, that the borrowel wants; and the lender really assigns to him the right to a certain portion of the annual produce of the land and labour of the country. ”

“ Each bank must conform the volume of its lending, and therewith its issue of circulating credit, to the fundamental requirement that it be always able [Pg 139] to make good its agreement to discharge its deposit liabilities on demand. To maintain reserves involves expense. Especially may it be expensive if they have been allowed to get low; securities may have to be marketed at a sacrifice, or good customers pressed for payment at inconvenient times. ”

“ When a loan is made, the attention of the borrower is seldom called to the rapidity of increase and the dangers of accumulation. If this were done, and a prompt return of both principal and interest required, at the end of the term the borrower would soon be alarmed at the hopelessness of permanent gain through debt. ”

“ It is clear, that when the rate of interest is increased, the gains of money-lenders are augmented, and the money gained will buy a greater quantity of property and [Pg 90] labor. The increased gains of the lender must be paid by the borrowers, by the productions of their own or of others' labor. ”

“ The recognized system of lending upon approved security for a fair and moderate rate of interest removes the irksome, galling sense of obligation, and enables any man to borrow with a feeling that if he receives an obligation he is also conferring one; that if he makes ten per cent, by trading, or a good stipend by his degree, he will divide his profits fairly with the man who served him, and that he110 is helping him in his turn to keep his money together for the sake of his children after him. ”

“ The question really is between lending and not lending. The lending, if sanctioned in any form, will at first be limited, it will rapidly become unlimited. A rat-hole in a dyke lets the water in at first in a dribble, then in a stream, finally away goes the dyke and irreparable mischief is done. So will it be with lending, only that the dyke which defends the Bodleian will be bored in an indefinite number of places. Every borrower will act the part of a rat. The borrowers’ list which this Statute legalizes for the first time will soon embrace the name of every graduate in Oxford. ”

“ Under the operation of a shrinkage in the volume of money this enormous mass of borrowers, at the maturity of their respective debts, though nominally paying no more than the amount borrowed, with interest, are, in reality, in the amount of the principal alone, returning a percentage of value greater than they received—more than in equity they contracted to pay and oftentimes more, in substance, than they profited by the loan. ”

“ If a banker can loan on a bill of lading or a warehouse receipt, or a trader can buy the same, or if a man can give a trust receipt to his banker agreeing that all his general shipments or stock in trade shall be the property of that banker until his debt is paid, it makes enormously for the rapid turning over of capital, and the extension of credit. ”

“ A profit made, or loss imposed on the necessities of the borrower, whatever form, shape, or disguise it may assume where the treaty is for a loan, and the capital is to be returned at all events; has always been adjudged to be so much profit taken upon a loan; and to be a violation of those laws which limit the lender to a specified rate of interest. ”

“ The disposable capital deposited in banks, together with the funds belonging to those who, either from necessity or preference, live upon the interest of their property, constitute the general loan fund of the country ”

“ Our farmers who have mortgages on their property, and who have been told that free coinage will make things exceedingly easy for them, will have some unexpected experiences. Every mortgage debt that is due will be quickly called in. The mortgagor who tries to have his bond extended will find an unwilling ear. He who seeks to borrow money in order to replace the old mortgage with a new one will be told that this is no time for loans, except, perhaps, upon exorbitant conditions. ”

“ Now, it is impossible in any country to transmit from one person to another more productions than that country contains.
Whatever may be the amount of cash and of paper which is in circulation, the whole of the borrowers cannot receive more ploughs, houses, tools, and supplies of raw material, than the lenders altogether can furnish; for we must take care not to forget that every borrower supposes a lender, and that what is once borrowed implies a loan. ”

“ When a man finds that his patch of land is insufficient to support his family, he borrows money and buys more land. In nine cases out of ten, the interest to be paid to the lender is greater than the profit which the borrower can extract from the land—and bankruptcy, and reduction to the condition of a day-labourer, is sooner or later the inevitable result. ”

“ There is a plain distinction between large loans secured by negotiable bonds and mortgages that easily escape taxation, and small ones to needy borrowers for which they give their personal note for a short term and a mortgage of their house. ”

“ Even with this precaution, too, the money which is borrowed, and which it is meant should not be repaid till after a period of several years, ought not to be borrowed of a bank, but ought to be borrowed upon bond or mortgage, of such private people as propose to live upon the interest of their money, without taking the trouble themselves to employ the capital; and who are upon that account willing to lend that capital to such people of good credit as are likely to keep it for several years. ”