Financial History Issue 112 (Winter 2015) | Page 18
Shavers, Sharks and
Payday Lenders
By Robert E. Wright
Westerners have long harbored a
love-hate relationship with lenders, and
their ambivalence shows no sign of abating anytime soon. What has changed over
time is the perception of what constitutes
“bad” types of lenders or loans. In various
times and places, it was illegal/immoral to
charge any interest at all, to exact interest
from kinsfolk, to charge rates considered
too high or to use violent collection methods. Today, it is lawful, and even somewhat morally acceptable, to charge any
rate of interest to anybody willing to pay
it. Reformers, however, want to protect
borrowers from being cajoled, forced or
tricked into borrowing at high rates for
long periods.
The King James version of Exodus
(22:25) states that “If thou lend money to
my people poor by thee, thou shalt not be
to him as a usurer, neither shalt thou lay
upon him usury.” Usury here is usually
taken to mean taking any interest whatsoever, though at least one recent translation
reads instead: “If you lend money to one
of my people among you who is needy, do
not treat it like a business deal; charge no
interest.” If the traditional interpretation
is correct, perhaps early Jews lamented
lost profit opportunities because Deuteronomy (23:19–20) clearly allows some
lending at interest: “Unto a stranger thou
mayest lend upon usury; but unto thy
brother thou shalt not lend upon usury.”
Stranger is usually taken to mean a nonIsraelite or non-Jew, which was the general
interpretation when Shakespeare penned
The Merchant of Venice and Hamlet. The
former featured an anti-Semitic caricature of an avaricious moneylender while
the latter contained the most infamous
anti-financial line of all time: “Neither a
borrower nor a lender be.” In David Copperfield, Charles Dickens warned that even
a small annual budget deficit could lead to
ruin: “Annual income 20 pounds, annual
16 FINANCIAL HISTORY | Winter 2015 | www.MoAF.org
expenditure nineteen six, result happiness.
Annual income twenty pounds, annual
expenditure twenty pounds ought and six,
result misery.” Clearly, the Western world
has had a long and complex relationship
with debt.
By the 18th century, charging/paying
interest was a quotidian activity in most of
Europe and America. Benjamin Franklin,
writing as Poor Richard, tried to persuade
readers that “the borrower is a slave to
the lender,” but what early Americans
deprecated was exacting excessive interest,
or “usury” in the modern sense of charging unlawfully high interest rates. That
sentiment was perhaps best expressed by
South Dakota banker Porter P. Peck. The
first lenders on the frontier had very bad
reputations, he explained, because they
were “the genuine old money shark who
went on with the first axman or prairie
schooner.” They did no good except to
“pave the way for the more liberal class
who followed. This latter class came on