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It is possible that an estate or a house may, during the term of a lease, be so increased or diminished in its value, as to become worth much more or much less than the rent agreed to be paid for it in some of which cases it may be doubted to whom, of natural right, the advantage or disadvantage belongs. The rule of justice seems to be this: If the alteration might be expected by the parties, the hirer must take the consequence; if it could not, the owner. An orchard, or a vineyard, or a mine, or a fishery, or a decoy, may this year yield nothing, or next to nothing, yet the tenant shall pay his rent; and if they next year produce tenfold the usual profit, no more shall be demanded, because the produce is in its nature precarious, and this variation might be expected. If an estate in the fens of Lincolnshire, or the Isle of Ely, be overflowed with water, so as to be incapable of occupation, the tenant, notwithstanding, is bound by his lease, because he entered into it with a knowledge and foresight of the danger. On the other hand, if, by the irruption of the sea into a country where it was never known to have come before, by the change of the course of a river, the fall of a rock, the breaking out of a volcano, the bursting of a moss, the incursions of an enemy, or by a mortal contagion amongst the cattle; if, by means like these, an estate change or lose its value, the loss shall fall upon the owner-that is, the tenant shall either be discharged from his agreement, or be entitled to an abatement of rent. A house in London, by the building of a bridge, the opening of a new road or street, may become of ten times its former value; and, by contrary causes, may be as much reduced in value: here also, as before, the owner, not the hirer, shall be affected by the alteration. The reason upon which our determination proceeds is this-that changes such as these, being neither foreseen nor provided for by the contracting parties, form no part or condition of the contract, and therefore ought to have the same effect as if no contract at all had been made (for none was made with respect to them)—that is, ought to fall upon the owner.
CONTRACTS CONCERNING THE LENDING OF MONEY.
There exists no reason in the law of nature, why a man should not be paid for the lending of his money, as well as of any other property into which the money might be converted.
The scruples that have been entertained upon this head, and upon the foundation of which the receiving of interest or usury (for they formerly meant the same thing) was once prohibited in
almost all Christian countries,1 arose from a passage in the law of Moses, Deuteronomy xxiii. 19, 20: Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of anything that is lent upon usury: unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury.'
This prohibition is now generally understood to have been intended for the Jews alone, as part of the civil or political law of that nation, and calculated to preserve amongst themselves that distribution of property to which many of their institutions were subservient; as the marriage of an heiress within her own tribe; of a widow, who was left childless, to her husband's brother; the year of jubilee, when alienated estates reverted to the family of the original proprietor-regulations which were never thought to be binding upon any but the commonwealth of Israel.
This interpretation is confirmed, I think, beyond all controversy, by the distinction made in the law, between a Jew and a foreigner: 'Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury—a distinction which could hardly have been admitted into a law which the Divine Author intended to be of moral and of universal obligation.
The rate of interest has in most countries been regulated by law. The Roman law allowed of twelve pounds per cent., which Justinian reduced at one stroke to four pounds. A statute of the thirteenth year of Queen Elizabeth, which was the first that tolerated the receiving of interest in England at all, restrained it to ten pounds per cent.; a statute of James I., to eight pounds; of Charles II., to six pounds; of Queen Anne, to five pounds, on pain of forfeiture of treble the value of the money lent: at which rate and penalty the matter now stands. The policy of these regulations is, to check the power of accumulating wealth without industry; to give encouragement to trade, by enabling adventurers in it to borrow money at a moderate price; and of late years, to enable the state to borrow the subject's money itself.
Compound interest, though forbidden by the law of England, is agreeable enough to natural equity; for interest detained after it is due, becomes to all intents and purposes part of the sum lent. [The following exposition of the impolicy of the usury laws is given by Mr J. S. Mill:
'In more improved countries, legislation no longer discountenances the receipt of an equivalent for money lent; but it every
1 By a statute of James I., interest above eight pounds per cent. was prohibited (and consequently under that rate allowed), with this sage provision: That this statute shall not be construed or expounded to allow the practice of usury in point of religion or conscience.
where interferes with the free agency of the lender and borrower, by fixing a legal limit to the rate of interest, and making the receipt of more than the appointed maximum a penal offence. This restriction, though approved by Adam Smith, has been condemned by all enlightened persons since the triumphant onslaught made upon it by Bentham in his Letters on Usury, which may still be referred to as the best extant writing on the subject.
"Legislators may enact and maintain usury laws from one of two motives: ideas of public policy, or concern for the interest of the parties to the contract; in this case, of one party only-the borrower. As a matter of policy, the notion may possibly be, that it is for the general good that interest should be low. It is for the good, certainly, of borrowers. For preferring, however, their advantage to that of lenders, it would be difficult to give any better reason, than that in most countries the governing classes are borrowers. It is, besides, a misapprehension of the causes which influence commercial transactions, to suppose that the rate of interest is really made lower by law than it would be made by the spontaneous play of supply and demand. If the competition of borrowers, left unrestrained, would raise the rate of interest to 6 per cent., this proves that at 5 there would be a greater demand for loans than there is capital in the market to supply. If the law in these circumstances permits no interest beyond 5 per cent., there will be some lenders who, not choosing to disobey the law, and not being in a condition to employ their capital otherwise, will content themselves with the legal rate: but others, finding that in a season of pressing demand, more may be made of their capital by other means than they are permitted to make by lending it, will not lend it at all; and the loanable capital, already too small for the demand, will be still further diminished. Of the disappointed candidates, there will be many at such periods who must have their necessities supplied at any price; and these will readily find a third section of lenders, who will not be averse to join in a violation of the law, either by circuitous transactions partaking of the nature of fraud, or by relying on the honour of the borrower. The extra expense of the roundabout mode of proceeding, and an equivalent for the risk of non-payment and of legal penalties, must be paid by the borrower, over and above the extra interest which would at anyrate have been required of him by the general state of the market. The laws which were intended to lower the price paid by him for pecuniary accommodation, end thus in greatly increasing it. These laws have also a directly demoralising tendency. Knowing the difficulty of detecting an illegal pecuniary transaction between two
persons, in which no third person is involved, so long as it is the interest of both to keep the secret, legislators have adopted the expedient of tempting the borrower to become the informer, by making the annulment of the debt a part of the penalty for the offence-thus rewarding men for obtaining the property of others by false promises, and then not only refusing repayment, but invoking legal penalties on those who have helped them in their need. The moral sense of mankind very rightly infamises those who resist an otherwise just claim on the ground of usury, and tolerates such a plea only when resorted to as the best legal defence available against an attempt really considered as partaking of fraud or extortion. But this very severity of public opinion renders the enforcement of the laws so difficult, and the infliction of the penalties so rare, that when it does occur, it merely victimises an individual, and has no effect on general practice.']
It is a question which sometimes occurs, how money borrowed in one country ought to be paid in another, where the relative value of the precious metals is not the same. For example, suppose I borrow 100 guineas in London, where each guinea is worth one-and-twenty shillings, and meet my creditor in the East Indies, where a guinea is worth no more perhaps than nineteen, is it a satisfaction of the debt to return 100 guineas, or must I make up so many times one-and-twenty shillings? I should think the latter; for it must be presumed, that my creditor, had he not lent me his guineas, would have disposed of them in such a manner as to have now had, in the place of them, so many one-and-twenty shillings; and the question supposes, that he neither intended, nor ought to be a sufferer, by parting with the possession of his money to me.
When the relative value of coin is altered by an act of the state, if the alteration would have extended to the identical pieces which were lent, it is enough to return an equal number of pieces of the same denomination, or their present value in any other. As, if guineas were reduced by act of parliament to twenty shillings, so many twenty shillings as I borrowed guineas would be a just repayment. It would be otherwise if the reduction was owing to a debasement of the coin; for then respect ought to be had to the comparative value of the old guinea and the new.
Whoever borrows money is bound in conscience to repay it. This every man can see; but every man cannot see, or does not, however, reflect, that he is, in consequence, also bound to use the means necessary to enable himself to repay it. 'If he pay the money when he has it, or has it to spare, he does all that an honest man can do,' and all, he imagines, that is required of him; whilst the previous measures, which are necessary to furnish him
with that money, he makes no part of his care, nor observes to be as much his duty as the other; such as selling a family seat, or a family estate, contracting his plan of expense, laying down his equipage, reducing the number of his servants, or any of those humiliating sacrifices which justice requires of a man in debt, the moment he perceives that he has no reasonable prospect of paying his debts without them. An expectation which depends upon the continuance of his own life will not satisfy an honest man, if a better provision be in his power, for it is a breach of faith to subject a creditor, when we can help it, to the risk of our life, be the event what it will, that not being the security to which credit was given.
I know few subjects which have been more misunderstood than the law which authorises the imprisonment of insolvent debtors. It has been represented as a gratuitous cruelty, which contributed nothing to the reparation of the creditor's loss, or to the advantage of the community. This prejudice arises principally from considering the sending of a debtor to jail as an act of private satisfaction to the creditor, instead of a public punishment. As an act of satisfaction or revenge, it is always wrong in the motive, and often intemperate and undistinguishing in the exercise. Consider it as a public punishment, founded upon the same reason, and subject to the same rules, as other punishments, and the justice of it, together with the degree to which it should be extended, and the objects upon whom it may be inflicted, will be apparent. There are frauds relating to insolvency, against which it is as necessary to provide punishment as for any public crimes whatever as where a man gets your money into his possession, and forthwith runs away with it, or, what is little better, squanders it in vicious expenses; or stakes it at the gaming-table, in the Alley, or upon wild adventures in trade; or is conscious, at the time he borrows it, that he can never repay it; or wilfully puts it out of his power, by profuse living; or conceals his effects, or transfers them by collusion to another: not to mention the obstinacy of some debtors, who had rather rot in a jail than deliver up their estates; for, to say the truth, the first absurdity is in the law itself, which leaves it in a debtor's power to withhold any part of his property from the claim of his creditors. The only question is, whether the punishment be properly placed in the hands of an exasperated creditor: for which it may be said, that these frauds are so subtile and versatile, that nothing but a discretionary power can overtake them; and that no discretion is likely to be so well informed, so vigilant, or so active, as that of the creditor.
It must be remembered, however, that the confinement of a debtor in jail is a punishment, and that every punishment supposes