Report No. 63

Chapter 2

History of Interest and Usury

2.1. The concept of interest.-

Before we discuss the law on the subject, it is desirable to make certain general observations about the concept of interest and its relationship to usury. Interest is a return on a loan or other monetary obligation. To the lender, it is the difference between the money now and money in the future, seen as a profit.

Interest is,1 in general terms, the return or consideration or compensation for the use or retention by one person of a sum of money, belonging to, in a colloquial sense, or owed to, another. There may be other essential characteristics of interest, but they are not material here for our present purpose. People have different preference as between money now and money in the future. Hence a "natural" rate of interest on loan arises. Ordinarily, the lender will take advantage of the present necessity of the borrower, in contrast with the future need of the lender, to take a higher rate than is reasonable; and this he will do regardless of the prevailing economic conditions.2

1. Reference regarding Validity of Farm Security Act, 1947 SCR 394 (411) (Canada).

2. See Dr. Francis Hyde, Chnddock Professor of Economics Science, University of Liverpool-article on "Usury" in Chambers Encyclopaedia, (1959), Vol. 14, p. 213.