THE THEORY OF INTEREST

because he needs special clerks and experts to appraisethe articles deposited, and partly because, in many cases,when not redeemed, he has to make an effort to find mar-kets in which to sell them. He is, moreover, able to securethese high rates partly because pawnbroking is in badodor, so that those who go into the business find a rela-tive monopoly, and partly because of the fact that thecustomers usually have, either from poverty or from per-sonal peculiarity, a relatively high preference for presentover future income. While the effect of their accommoda-tion at the pawn shop is to reduce their impatience tosome extent, it will not reduce it to the general level inthe community, because these persons do not have accessto the loan market in which the ordinary business mandeals. To them, undoubtedly, the fact that they cannotborrow except at high, or usurious, rates is often a greathardship, but it has one beneficent effect, that is, the dis-couraging of the improvident from getting unwisely intodebt.

One of the very greatest needs has always been to siftout the relatively safe and sane from the relatively riskyand reckless loans of the poor in order to encourage theone and discourage the other. When this has been morefully accomplished, the scandal of the loan shark will belargely a thing of the past. A loan which, to the short-sighted or weak willed borrower, seems to be a blessing,but which is really sure to prove a curse, ought certainlyto be discouraged no matter what may be the rate ofinterest. The Russell Sage Foundation has studied theloan shark problem intensively and as a result hasformulated a model small loans act which has beenadopted by the legislatures in a large number of ourStates. This model act recognizes the greater risk and

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