The Canadian Debate on the Legitimacy of Usury in 1870

23 03 2010

I’m sharing an interesting primary source I discovered in the course of researching the history of the laws governing finance and banking in Canada. For centuries, either Christian countries outlawed the payment or receipt of interest or imposed usury laws that made interest over a certain amount (say six percent) illegal. See here. During and after the Enlightenment, there was a move throughout the Western world to abolish the usury laws.

In the 1840s and 1850s, the usury laws were dismantled the Province of Canada (i.e., present-day Ontario and Quebec). The usury laws were repealed or watered down for two reasons: the desire of the political class to make Canada attractive to British investors and the growing influence of classical political economy (the free-market doctrines of Smith, Ricardo, Mill). The Canadian debates over the usury laws are very interesting because they pitted region against region and net debtor against net creditor. The anti-Semitic comments made during these debates were also interesting. Another fascinating aspect of this debate were its implications for Anglo-Canadian relations.

In the 1860s, there was a long campaign in the 1860s to re-impose some sort of statutory limits of usury. This campaign began before the start of the Civil War in the United States: in the 1860s, an ultramontanist Catholic politician proposed making charging more than six percent usury a criminal offence punishable with a term in prison. The dislocations caused by the Civil War in the United States and the cancellation of the Reciprocity Treaty lent impetus to the demand for a usury law.

After 1867, the politics of usury in Ontario and Quebec became wrapped up in the question of how the pre-Confederation financial laws of the provinces should be harmonized. Nova Scotia and New Brunswick, it should be pointed out, still had fairly strict usury laws.

In 1870, Sir Francis Hincks, Macdonald’s Minister of Finance, proposed a law that would have made 8% the maximum rate of interest in all provinces. This bill was defeated due to an unholy alliance of MPs who thought it was too permissive and those who thought it was an undue abridgement of freedom of contract. The Monetary Times, a Toronto publication, published this editorial on the subject.

[Toronto] Monetary Times, 6 May 1870, “Uniformity of Laws: Usury” p. 596

“The usury question has been disposed of for the Session; but there is much reason to fear that like Sir John Macdonald’s apprehension of the Fenian difficulty recurring, it will continue to crop up from time to time. It is very desirable that the nuisance should be abated, and that investors, especially those who live outside of the Dominion, should not have their minds periodically disturbed on the subject, that the law should be considered settled, and not liable to frequent alteration. This condition can be fulfilled only by the usury laws being in complete harmony with public opinion. Bu the opinion of the several Provinces cannot, we fear, during this generation, ever be harmonized. The differences are radical and fundamental, having their seat deep in prejudices derived from religious authority on one side and enlightened economic principles on the other. Ontario has a very decided conviction on the subject; she is fully convinced that the rate of interest should be allowed to regulate itself. Quebec, considered in the aggregate, has, if possible, a more decided opinion on the subject. She places the bills of the Pope above the most irrefragable arguments of Bentham and the whole body of the economists…. when the legislator takes his stand on religious authority, he shuts his ears to argument; it is with him not a question of logic, but of authority.”