The statutes in most jurisdictions provide that interest shall he allowed at a fixed rate on all sums when they become due. as on a debt for goods sold and delivered when the period of credit has expired. It is not etistomary, however, to exact interest in snob cases unless the creditor is forced to sue on his claim. In smile States, and in England, interest. is allowed in certain tort actions on the amount of the damages awarded from the time the claim accrued. hut this is not the general cute.
A distinction is usually made between the rate which will be allowed by law. usually called the 'legal rate.' where it is not agreed upon by the parties, or where allowed by operation of law, as on a judgment. and the maximum rate which may Is• stipulated for by contrail. sometimes known as the conventional rate. For exatoplc, in Ohio the statutes provide that ti per cent. shall be al lowed on all stuns on %dile]) interest is rgeald.• by operation of law. as 011 a judgment after it entry, and on ,11111N due where no rate is agreed upon hy the parties, whereas s per cent. may be legally demanded if pro% bled for by express eo n. tract.
The following arc the rats of interest tiNt'll law in the States and Territories of the Coked States: These rates are occasionally changed statute, but there has been comparatively little variation in recent years. An interesting fart is that several Eastern States, as Alassa•husetts, have removed all limitations on rates by contract, and in Nell' York any rate may be eharged (Titania on loans exceeding $5000 payable on demand. and 1010 W11 to the financial world a, •rall In f1rerit Britain, after the existence of rig r ims measures against excessive interest for e1 11 all statutes against usury and fixing of interest were repealed by the act of 17 and 1.1 Viet., eh. xe. (1S54). The power of the court of equity to relieve against unconscionable bar gains as to interest still exists: and in 1900, by the 'honey Lenders' Acts Ppeeial provision Was made for setting aside a contract made with a professional lender of money where an oppressive rate of interest is charged. In France the legal rate is 5 per cent., but more may be demanded by contract.
The usual method of calculating interest is to compute it on the principal suni originally due for the period which has elapsed at the time of computation, but by agreement compound interest may be allowed; that is, the arrears of interest for each year are added to the principal sum, and interest for the following year is computed on this accumulation, and so on, thus giving the investor interest upon interest. It is customary
to compute interest in this manner upon deposits in savings institutions.
In popular usage, interest is the payment made by a borrower for the use of a sum of wealth for a definite period of time; it is expressed as the ratio which that payment bears to the value of the wealth loaned—the 'principal.' In economic theory the term interest is used in a broader sense, and signifies the return for the use of capi tal, whether the employment of capital is made directly by its O•B•r or by another person to whom it has been loaned. In the latter instance it appears as a suns paid by the borrower over and above the amount received in loan. It is calculated at a certain percentage of the capital to be paid annually. Economists distinguish from interest that part of the gross product which is necessary to replace the original capital, and the extra return to capital which appears in enterprises involving risk of loss, as well as chance gains and the abnormal return due to superior management. The last three forms of income are usually classed under the head of profits (q.v.).
Loan or contract interest may be paid for wealth for immediate consumption as well as for wealth which is employed as capital. In the earlier stages of industrial development, when little capital was used, loans normally assumed the former character. Money was loaned to those persons who were in temporary distress, or to spendthrifts who desired to an ticipate future revenues. In either case the repayment of the principal was a hardship, and the additional payment of interest, usually cal culated at a high rate because of uncertainty of repayment or because of the necessities of the borrower, was peculiarly vexatious. For these reasons the taking of interest was generally con demned by public sentiment, and frequently pe nalized by legislators. (See Usual.) This was the case in ancient and medieval nations; and much the same attitude survives in backward communities of the present. day. With the de velopment of capitalistic production. the gain to the borrower who invests the wealth borrowed in productive enterprise became so obvious that the opposition to interest declined, and no longer exists among business men.