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Interest

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INTEREST, an allowance or compen sation for the loan or use of a sum of mo ney for a certain time, according to a fix ed rate or proportion. The rate of inter est varies in difl'erent countries, and at different times, according to the scarcity or plenty of money, and the security of lending ; in most commercial states, it has been thought necessary to establish by law a fixed rate of interest for the use of money : this restriction, however, must nearly correspond with the current rate of interest, that is, the rate at which mo ney can be readily borrowed on good se curity; for if it be attempted to reduce by law the common rate of interest be low the lowest ordinary market rate, the restriction will be generally evades, as under all such attempts it has hitherto in variably been.

By 37th Henry VIII. cap. 9, all inter est above 10 per cent. was declared un lawful : before that time higher rates had usually been taken. In the reign of Ed ward VI. religious zeal prohibited all in terest for money ; but the prohibition, like all others of the same kind, is said to have produced no effect, and probably rather increased than diminished the evil of usury. The statute of Henry VIII. was revived by the 13th Elizabeth, cap. 8, and 10 per cent. continued to be the le gal rate of interest till the 21st of James L when it was restricted to 8 per cent. In 1651, the rate of interest in several other countries being lower than in Eng land, the parliament reduced the legal rate to 6 per cent, which, soon after the restoration, was confirmed by 12th Charles II. c. 13. The last act of parlia ment for regulating the interest of money was 12th Anne, st. 2. c. 16, by which it was fixed at five per cent. per annum. These different statutory regulations seem to have been made with great propriety, as they followed the market rate of inter est; and since the time of Queen Anne, 5 per cent. appears to have been rather above than below the market rate. Be fore the American war, government bor rowed at little more than 3 per cent, ; and about the year 1792, good bills were readily discounted at 4 per cent.

The legal rate of interest in France was not always regulated by the market rate. In 1601, Henry IV. issued an edict for re ducing the interest of money in that king dom to 64- per cent. ; but the current rate afterwards rose above this limit. In 1720, interest was reduced from the twen tieth to the fiftieth penny, or from 5 to 2 per cent. In 1724, it was raised to the

thirtieth penny, or to 34 per cent. In 1725, it was again raised to the twentieth penny, or to 5 per cent. • In 1766, it was reduced to the twenty-fifth penny, or to 4 per cent ;, but a few years after, it was raised agaiiilo the old rate of 5 per cent. The supposed purpose of many of these violent reductions of interest was, to pre pare the way for reducing that of the pub lic debts ; a measure which, when it is not justified by a previous tall in the cur rent rate of interest, is better than defrauding the public creditors.

In Holland, previously to the revolu tion, the government frequently borrow ed at 2 per cent. and private persons of good credit at 3 per cent. This lowness of interest induced many of the Dutch to invest their property in the French and English funds. In the United States of America, the lawful rate of interest is 6 per cent. in most of the states ; in a few it is 7 per cent. ; and in one it is only 5 per cent. In Greece, the mean rate of interest is 20 per cent. and in the other parts of Turkey nearly the same; in Persia, 25 per cent.; and in the Mogul empire, 30 per cent. In Bengal, and the other British possessions in India, the in terest is generally from 8 to 12 per cent. on government security, but individuals are frequently obliged to pay a much higher rate. In these countries there is no fixed rate of interest, and the usual high rate arises chiefly from the insecu rity of lending.

Interest is generally payable yearly, half-yearly, or quarterly, and is distin guished into simple interest and compound interest ; the former being merely the compensation paid for the use of a capi tal at a certain fixed rate for a year, and a proportionately greater or less sum for a greater or less time ; while in the latter the interest which becomes due in the first year, or other interval, is added to the principal, and thus forms a new capi tal, on which the interest of the second year is to be computed ; and thus the ca pital, and consequently the amount of in terest, are continually increasing. Sim ple interest only is lawful in loans between individuals, and in discounting notes or bills of exchange ; but in the granting or purchasing of annuities, either for terms of years, or for lives, or of leases, or re versions, it is usual to allow the purchaser compound interest for his money, unless there is a particular agreement to the contrary.

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