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MINUTES OF EVIDENCE TAKEN BEFORE THE SELECT COMMITTEE ON THE USURY LAWS - David Ricardo, The Works and Correspondence of David Ricardo, Vol. 5 Speeches and Evidence 
The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 5 Speeches and Evidence 1815-1823.
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First published by Cambridge University Press in 1951. Copyright 1951, 1952, 1955, 1973 by the Royal Economic Society. This edition of The Works and Correspondence of David Ricardo is published by Liberty Fund, Inc., under license from the Royal Economic Society.
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MINUTES OF EVIDENCE TAKEN BEFORE THE SELECT COMMITTEE ON THE USURY LAWS
Jovis, 30° die Aprilis, 1818.
Mr. Serjeant Onslow, in the Chair.
David Ricardo, Esq. called in; and Examined.
 Has your attention been called to the laws which restrain the rate of interest?
 Have you that experience, to say, or have you perceived, whether those laws are beneficial or otherwise?
I think otherwise.
 In what respect do you think otherwise? It appears to me, from the experience which I have had on the Stock Exchange, that, upon almost all occasions they are evaded, and that they are disadvantageous to those only who conscientiously adhere to them.
 Do you think that repealing those laws, would have the effect of raising or lowering the average rate of interest?
I think that the effect would be but trifling; but if any thing, it would tend to lower the rate of interest.
 When the funds afford a greater rate of interest than 5 per cent, do not the usury laws injure the commercial part of the world, with regard to discounts?
Not only at that time, but at other times, for it often happens that the price of the funds afford a less rate of interest than 5 per cent, at the same time that the market rate of interest is much above 5 per cent.
 But however, in point of fact, during the late wars, have or have not persons engaged in commerce, sustained injuries from the operation of the usury laws?
I should think, that they had sustained injuries in consequence of those laws.
 Have you any doubt of it? I have no doubt at all, as far as my experience goes, but those injuries have been diminished by the easy means of evading them.
 Of successfully evading them? The evasion of the laws is the effect of the natural order in which these transactions take place.
 In what manner evaded? In the particular market with which I am acquainted, namely, the Stock Market, they are evaded by means of the difference between the money price and the time price of stock, which enables a person to borrow at a higher rate of interest than 5 per cent, if possessed of stock, or to lend at a higher rate, if the difference between the money price and the time price, affords a higher rate.
 Has that been acted upon extensively? Very extensively; it is the usual and constant practice.
 The difference between the money and the time price, is that which is called “continuation;” is it not?
 Was there not a trial some time ago, as to the legality of “continuation”?
 For some time, did not that trial diminish the practice very considerably, at least so far as making bargains for buying and selling to the same person?
That trial did diminish such bargains.
 Will you be kind enough to favour the Committee with your opinion with respect to these laws?
As far as my experience goes in business, nothing is more easy than to evade them; and after that trial to which allusion has been made, the same practice was continued, by altering the quantity of stock, either for money or for time; on all former occasions, the same amount of stock was bought for one period, that was sold for another period; but some timid men, after that trial, thought they were perfectly safe by making those sums different quantities, although they differed but a trifle in amount; and they thought themselves equally safe in buying stock for money of one person, and selling it, at the same instant, for time to another.
 Do you think that the supposed or real illegality tends, in any degree, to increase the rate of that Continuation?
The dealing in stock, for Time, is, in many cases, an illegal transaction; and that therefore may sometimes have an effect on the Continuation. A man possessed of money, purchasing stock for ready money at one price, and selling for a future day at a higher price, may make more than the legal rate of interest by so doing; but as he may not be actually possessed of stock at the time of making the time bargain, it cannot be considered, in any shape, as a legal transaction, and he can have no legal remedy against the default of the purchaser.
 I beg to ask whether I am to understand that, in general, these transactions by Continuation, are not strictly legal?
In my opinion, the greater part of these transactions are not legal.
 And you are of opinion, that that illegality raises the rate at which the borrower obtains the money?
Exactly so; there would be more competition if it was not for that.
 In this manner you conceive the usury laws, indirectly, to raise the rate of interest in these transactions, by compelling persons to resort to a practice not strictly legal?
 Am I to understand that, in point of fact, by this Continuation, nothing is done, but that money is raised at a higher than the legal rate of interest?
The transaction never has that complexion. A man bargains either for the purchase or the sale of stock, for money or time, and the rate of interest is never spoken of; it is the effect of the transaction, but never the avowed object of it.
 That I understand; but I wish to ask, whether, in point of fact, the effect is not simply to obtain the use of money at a higher than the legal rate, though that is not the shape of the transaction?
That is generally the object, but it frequently happens that the difference between the money and the time price of stock, may not afford so much as the market rate of interest, and may also be below the legal rate.
 I am to understand, therefore, that this is a risk which the lender, so to speak, takes upon himself?
There is no risk whatever in it, as far as regards the rate at which the money is lent or borrowed, because it is known at the time what rate of interest the difference between the money and time prices affords, and because the sum to be received by the lender is thereby defined and settled.
 Is not that sum, or rather the profit to be derived by the lender, governed by the market rate of interest at that time?
I can only say, that I think it is not.
 How comes it that it is not? When preparations are making for a loan, large sales of stock are made, of which the seller may not be possessed, but which he may expect to replace by the share he may have in the loan to be contracted for; in such case, there may be rather a scarcity than otherwise of ready money stock in the market; the seller, who is not possessed of stock, will sell it at a small addition of price for time, and sometimes even under the money price.
 In your opinion can the Government loans, and other public transactions in the funds, be carried on without purchasing and selling stock for Time, and will not the difference between the two prices be governed and depend on the market value of money, and not on the legal rate of interest?
The Government loans could not, in my opinion, be carried on, if Time bargains were disused. The difference between the money price and the time price, does not always depend, as I have before stated, on the market rate of interest. In general, stock is in abundance; and in that case no inconvenience arises in depositing that as a security for money borrowed; but on some occasions stock exists in a degree of scarcity, and then, although the market rate of interest may be high, it may be inconvenient to the borrower to deposit this particular security; consequently the time price will be either very little above, or even below the money price.
 I beg to ask if it is within your knowledge, and if it is your opinion, that what you have described as Continuation, or time bargains, embrace any dealings in money at all, or are they not rather speculations between the parties?
In many cases, indeed in most cases, it is a speculation between the parties; but it is constantly had recourse to, as a means of borrowing and lending money.
 In times of difficulty, do not the usury laws injure commerce by restricting discounts, and the making of loans to persons engaged in all branches of trade?
In my opinion, they do.
 Will you state to the Committee, if you think that any good effect is derived by the public from the usury laws?
I think no good effect is derived from those laws.
 Are you aware of any inconvenience that would result from the repeal of them?
 Were there not a considerable number of persons, who formerly lent money upon Continuation, who were deterred from doing so by this trial, in which it seemed to be held by the Court to be usurious?
The trial which took place was concerning Continuation upon scrip receipts, and not on stock. The transactions are similar to each other, but the facility of proof may be different.
 Those were actions under the usury laws, were they not?
 But it was, I believe, one action to recover penalties under the usury laws?
 You have already said, that it did deter many persons from continuing to lend money on Continuation?
 By so deterring them, had it not the natural operation to raise the rate of Continuation?
I consider that rather as a question of science, which must require a good deal of consideration, because the money may be lent by these parties at the legal rate of interest, and thus it may come to the same borrowers by a circuitous route.
 If you wished yourself to borrow money on Continuation, should you not be desirous that there should be in the market a great number of persons disposed to lend upon Continuation? Most certainly.
 For what reason?
Because it is probable the terms might be somewhat lower.
 Does not the power of selling stock for money, and repurchasing it for time, afford great facility to the holders of stock, by enabling them for temporary purposes to procure money, without foregoing the advantage of repossessing their stock at a distant day?
 May not this advantage be considerably more than the excessive interest which the transaction may have obliged them to pay?
Without any doubt at all.
 What effect would the abrogation of the usury laws produce upon the financial operations of the Government, in time of war; I mean, in the negociation of loans?
It would rather tend to facilitate them; the Government is not bound by the usury laws, for in allowing discount for prompt payment for a loan, they frequently give considerably more than 5 per cent.
 When the legal rate of interest is 5 per cent, and the Government are enabled to borrow at a higher rate of interest, does it not proceed, as a necessary consequence, that they, the Government, are enabled to borrow when individuals are not?
 Does not the Government, therefore, obtain in this way, a preference in the money market, and thereby obtain a facility in the negociation of their loans?
If the law was not evaded, such would be the effect; but, as I have already observed, it is completely evaded.
 In the negociation of loans, have you ever known the laws for restricting interest to be taken into consideration in adjusting the terms?
Never; and frequently, when loans are raised at an interest below the legal rate of interest, the mode in which the discount on prompt payment is calculated, affords a rate of interest of sometimes 7, 8, or 9 per cent.
 Do not takers of loans calculate the advantages which result in Government stock transactions from the habit of evading the usury laws?
Certainly; if those laws were not evaded, the contractor would not be able to give the minister such good terms; his transactions would be cramped, if he were prevented from borrowing at the market rate of interest.
 What is the criterion by which you judge the market rate of interest, or is there any criterion at all?
I know of no other criterion than the prices of the public securities, and the facility of raising money for short periods.
 Do you not think that the price of the Government securities affords a very good criterion of the market rate of interest?
Not a very good one; their price is a good deal influenced by speculation, and by the anticipation of political and financial events.
 I would mean to speak of the average price of these securities, and not of their occasional fluctuations?
I can hardly conceive any times in which these securities are not acted upon by the considerations I have stated.
 Would you consider the price of exchequer bills as a criterion?
As a better criterion than the price of the funds.
 Would you not rather consider, that discount in the market was a more just criterion than the value of the public funds?
No; because discounts are strictly regulated by the laws of usury.
 I mean to confine it to discounts when interest is not above the legal rate, and there are cases when discounts are inferior to the legal rate?
When the market rate of interest is below 5 per cent, then I think that the discount given on a bill is a very good criterion of the market rate of interest.
 You have already said, that money may be raised by borrowing on Continuation; does not this give to the holder of stock a greater facility of raising money than other persons possess, who are holders of other property?
I should think it does.
 Are you acquainted with the nature of foreign loans? I never was engaged in any.
 You do not know what is the discount of bills, or the mode of raising loans in France, Holland and Germany?
No, I do not.
 What are the grounds of your opinion of the principle by which the rate of interest is regulated?
It is regulated by the demand and supply, in the same way as any other commodity; but the demand and supply itself is again regulated by the rate of profit to be made on capital.
 Do you think there is anything in the nature of money, or of the transactions regarding the borrowing or lending of money, which distinguishes it from other commodities which find their value in the market, according to the proportion of demand and supply?
None, whatever; the market rate of interest for money depends on the proportion between the borrower and the lender of capital, without reference to the quantity or value of the currency by which the transactions of the country are carried on.
 Have you, in the course of your transactions, been acquainted with a case, in which any disadvantage could have been derived to the borrower, by the abrogation of the usury laws?
None whatever; on the contrary, the abrogation of the usury laws would, upon all occasions, have been advantageous, in my opinion, to the borrower.
 Are you not of opinion also, that their abrogation would be equally advantageous to the lender?
I conceive there are cases in which their abrogation would not be quite advantageous to the lender, because he may exact a premium for the risk which the law imposes upon him.
 But except in so far as he exacts a premium for his risk in breaking the law, you are of opinion he can derive no advantage from the usury laws?
I think all his advantages may be referred to that principle.
 Do you think that mercantile interests will be injured or served by these restraints of the usury laws upon interest?
I have already given my opinion, that they would be much served by the abrogation of these laws.
 If a person who is possessed of considerable capital in this country, or in any other country belonging to the United Kingdom, should wish to make the most of his money, and if he is restrained in this country by the Usury Act, do you not think it would be the means of his transferring his capital to another country, where he would obtain a greater rate of interest, by loan or discount?
Undoubtedly, if the law be not easily evaded.
 Do you not believe, that many have been injured by borrowing money upon annuities at a very high rate; and do you not believe, that many have been more injured by these means, than if they could have borrowed money at the market rate of interest?
I have no knowledge of any such transactions; but my opinion is very decided, that they have been more injured by having been prevented from borrowing money at the market rate of interest.
EVIDENCE ON THE RESUMPTION OF CASH PAYMENTS 1819