Front Page Titles (by Subject) Chapter 10: Contracts Concerning the Lending of Money - The Principles of Moral and Political Philosophy
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Chapter 10: Contracts Concerning the Lending of Money - William Paley, The Principles of Moral and Political Philosophy 
The Principles of Moral and Political Philosophy, Foreword by D.L. Le Mahieu (Indianapolis: Liberty Fund, 2002).
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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,* 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 any thing 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 mayest 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 the First, to eight pounds; of Charles the Second, 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.
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 a hundred 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 a hundred 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 gaol, 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 gaol, 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 gaol is a punishment; and that every punishment supposes a crime. To pursue, therefore, with the extremity of legal rigour, a sufferer, whom the fraud or failure of others, his own want of capacity, or the disappointments and miscarriages to which all human affairs are subject, have reduced to ruin, merely because we are provoked by our loss, and seek to relieve the pain we feel by that which we inflict, is repugnant not only to humanity, but to justice: for it is to pervert a provision of law, designed for a different and a salutary purpose, to the gratification of private spleen and resentment. Any alteration in these laws, which could distinguish the degrees of guilt, or convert the service of the insolvent debtor to some public profit, might be an improvement; but any considerable mitigation of their rigour, under colour of relieving the poor, would increase their hardships. For whatever deprives the creditor of his power of coercion, deprives him of his security; and as this must add greatly to the difficulty of obtaining credit, the poor, especially the lower sort of tradesmen, are the first who would suffer by such a regulation. As tradesmen must buy before they sell, you would exclude from trade two thirds of those who now carry it on, if none were enabled to enter into it without a capital sufficient for prompt payments. An advocate, therefore, for the interests of this important class of the community, will deem it more eligible, that one out of a thousand should be sent to gaol by his creditors, than that the nine hundred and ninety-nine should be straitened and embarrassed, and many of them lie idle, by the want of credit.
[* ]By a statute of James the First, 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 conscienc