PAWNBROKING

business of advancing loans to customers who have pledged household goods or personal effects as security on the loans. The trade of the pawnbroker is one of the oldest known to humanity; it existed in China 2,000 to 3,000 years ago. Ancient Greece and Rome were familiar with its operation; they laid the legal foundations on which modern statutory regulation was built. Pawnbroking in the West may be traced to three different institutions of the European Middle Ages: the private pawnbroker, the public pawnshop, and the mons pietatis (charity fund). Usury laws in most countries prohibited the taking of interest, and private pawnbrokers were usually persons exempt from these laws by religion or regulationJews, for example. Their sometimes exorbitant interest rates, however, caused social unrest, which made public authorities aware of the need for alternative facilities for consumption loans. As early as 1198, Freising, a town in Bavaria, set up a municipal bank that accepted pledges and made loans against moderate interest charges. Such public pawnshops enjoyed only a comparatively short existence; their moderate charges did not cover the risks incurred in this type of business. The church also recognized the need for institutions to make lawful loans to indigent debtors; the Order of Friars Minor (Franciscans) in Italy in 1462 were the first to establish montes pietatis (mons denoted any form of capital accumulation), which were charitable funds for the granting of interest-free loans secured by pledges to the poor. The money was obtained from gifts or bequests. Later, in order to prevent the premature exhaustion of funds, montes pietatis were compelled to charge interest and to sell by auction any pledges that became forfeit. In the 18th century many states reverted to public pawnshops as a means of preventing exploitation of the poor. These suffered a decline toward the end of the 18th century because limitation of interest was thought to represent restriction, and the use of public funds seemed to stand for state monopoly. Most states returned again to a system of public pawnshops, however, after finding that complete freedom in pawning was harmful to debtors. In the 20th century, the public pawnshop predominated in the majority of countries on the European continent, sometimes alone, sometimes side by side with private pawnbrokers. Public pawnshops were never established in the United States. The importance of pawnbroking has declined in the 20th century. Social policies have helped to mitigate the financial needs resulting from temporary interruptions in earnings; operating expenses of pawnshops have risen; and installment credit and personal loans from banks have become widely available.