quarters of England, and into a greater number of hands, according to the exigencies of trade.

"If money were to be hired as land is, or to be had, as corn or wool, from the owner himself, and known good security be given for it, it might then, probably, be had at the market (which is the true) rate, and that rate of interest would be a constant gauge of your trade and wealth. But, when a kind of monopoly, by consent, has put this general commodity into a few hands, it may need regulation, though what the stated rate of interest should be, in the constant change of affairs and flux of money, is hard to determine. Possibly, it may be allowed, as a reasonable proposal, that it should be within such bounds. as should not, on the one side, quite eat up the merchant's and tradesmen's profit and discourage their industry; nor, on the other hand, so low, as should hinder men from risking their money in other men's hands, and so rather choose to keep it out of trade, than venture it upon so small a profit. When it is too high, it so hinders the merchant's gain that he will not borrow; when too low, it so hinders the monied man's profit that he will not lend; and in both these ways it is an hindrance to trade."

In stating these observations, I would, by no means, be understood to deny, that low interest is a cause as well as an effect of National Wealth, or that it ought to be an object with a statesman to favour as much as possible its reduction, by the. general plan of his policy. I only speak of the inefficacy of particular regulations to that purpose, unless they are so accommodated to the actual circumstances of a country that the same consequences would spontaneously have taken place in the natural course of things, without the interposition of the legislator.

The importance of low interest to the progress of National Wealth follows, as an obvious consequence, from the remarks formerly made on the accumulation of stock. "The proprietor," says Turgot," who lends money, ought to be considered as a dealer in a commodity absolutely necessary for the production. of riches, and which cannot be at too low a price. To charge

this commerce, therefore, with duties, would be as unreasonable as to lay a duty on a dung-hill, which is to manure the land." The truth is, that a decrease in the market rate of interest (so far as it is in the power of laws to favour it, by their general spirit and tendency) is the only safe and effectual encouragement which a statesman can give to national industry. It will afterwards appear, that the regulations of commerce, which have been commonly employed for that purpose, (such as prohibitions, monopolies, bounties, drawbacks, &c.,) are not merely useless, but positively hurtful. They may, indeed, encourage particular branches of industry, but it is at the expense of other branches, from which they withdraw their natural share of the capital of the country. Nor do they always succeed in advancing even those trades which they favour, inasmuch as by multiplying their productions beyond their due proportion, they must, in some instances, have the effect of overstocking the market. Hence the only equitable and advantageous encouragements to industry are those which favour all its branches alike; and such, precisely, is the effect of a low rate of interest." It enables individuals with the same given resources, to put larger capitals in motion, leaving them, in the employment of their capitals, entirely to the guidance of their own prudential views of profit, and extending to all equally the means of applying their industry to their favourite objects.

Among the other mischievous effects of raising supplies on the funding system, its tendency to increase the market rate of interest is one of the most important. Immense sums, which would otherwise have been employed in the various departments of useful industry, are kept disengaged for speculations in the funds; and a shock is frequently given to the trade and manufactures of the kingdom by a sudden abstraction of capital, in consequence of those high temptations to lenders which it is necessary for Government to hold out in times of difficulty.

* [Réflexions sur la Formation et la Distribution des Richesses, § xcv. Euvres, Vol. V. p. 123.]

1 Gale's Second Essay on Public Credit.

It is, however, chiefly against the agricultural improvement of the country that public loans operate. The high profits of trade enable persons of good credit to elude the laws against usury, by expedients which custom authorizes, and which actual circumstances render absolutely necessary. The shortness of the period too, to which their temporary accommodations generally extend, while it enhances the rate of interest, leaves the money-lender at all times the ready command of his capital. The case is widely different with those who have occasion to borrow money for agricultural speculations, which afford but moderate profits, and which, from their slow returns, require loans of a more permanent nature. This is felt severely in the present times, even by those who have landed security to offer, and who, accordingly, are frequently reduced to the ruinous resource of raising money on annuities; consequences, undoubtedly, of the most alarming sort to the country in general, but which necessarily result from the high rate of interest obtainable upon government securities.

Although, therefore, it seems to be impossible for a statesman, by an arbitrary reduction of the legal rate of interest, to accelerate the national prosperity at pleasure, it is equally clear, on the other hand, that the general plan of its policy may influence, to a great degree, this essential requisite to improvement.

How much the inconveniences, which have just been mentioned as resulting from public loans, are aggravated by the Anti-usurious Laws, is sufficiently evident. The tendency of such restraints on the commerce of money being obviously to raise the rate of interest in the market. M. Turgot has made some good observations on this point, in his Essay on Money Loans, formerly referred to, [supra, p. 157.]

I shall conclude this subject with remarking, that the prejudices and laws with respect to Compound Interest are entirely of a piece with those which have been now under our consideration, originating in the same idea, that the protection of the borrower requires the interposition of the legislator, in every instance, in a greater degree than that of the lender.

VOL. IX.

N

It appears from an Epistle of Cicero to Atticus, that compound interest was not then, in every case, contrary to law; for he says, that usura centesimæ cum anatocismo anniversario might be enacted.1 But this law was abrogated by Justinian;2 and in modern Europe compound interest is almost universally reprobated as the worst species of usury and extortion. In reason and equity, however, there seems to be no foundation. for this opinion; the same principles which justify simple interest, concluding decisively in favour of compound interest, when the principal is withheld after being demanded; and, accordingly, Henry de Cocceii pronounced, long ago, that usuræ usurarum, or anatocismus, is perfectly agreeable to the law of nature.

"Jure naturæ usuras usurarum semper deberi, puto, etsi promissæ non fuerint. Is enim qui mea pecunia utitur, ac pro eo usu annuas usuras promittit, nec solvit has ipsas usuras, plus suo habet; utitur jure alieno; mihi aliquid abest, unde lucrum capere possem si debitor usuras solvisset: adeoque ex natura obligationis sequitur, æstimationem ejus, quod facto debitoris mihi abest, id est, usuras usurarum, solvi debere.” The argument, however, is stated much more forcibly by Mr. Bentham, who has allotted a separate section of his Treatise to the discussion of this very question. The substance of his reasoning may be collected from the following abstract:

"If the borrower pays his interest at the day, and thereby performs his engagement with punctuality, the lender has it in his power to secure compound interest, by lending it out again immediately. If he fails of receiving it, he is by so much a loser. The borrower, by paying it at the day, is no loser; if he does not pay it at the day he is by so much a gainer; and what is worse, the gain which the law in its tenderness thus bestows on him, is a reward which it holds out in many cases for breach of faith, for indolence, and for negligence. The loss, on the other hand, which it thus throws on

1 Lib. V. Epist. ult.

2 See Grotius, Lampredi, and H. Cocceii.

3 [H. Cocceii ad] Grotium, De Jure Belli, &c., Lib. II. cap. xii. 22. [Edit. Lausanne, 1751, Tom. II. p. 721.]

the forbearing lender, is a punishment which it inflicts on him. for his forbearance; while the power which it gives him of avoiding that loss, by prosecuting the borrower upon the instant of failure, is a reward which it holds out to him for his hardheartedness and rigour.

"It may indeed be, in many cases, impossible for the borrower to pay the interest at the day; but what is the obvious inference? That the creditor should not have it in his power to ruin the debtor for not paying at the day, and that he should receive a compensation for the loss occasioned by such failure. The spirit of our existing laws is precisely the reverse of this. The creditor has it in his power to ruin him, and he has it not in his power to obtain such a compensation. On the contrary, if the debtor has recourse to law, and resolves to fight his creditor through all the windings of mischievous delay, he purchases a respite at ten times, perhaps at a hundred times, the expense of compound interest; while, of the money thus thrown away, no part falls to the share of the individual he has injured, but is consumed by the legal agents who conduct the litigation."*

[SECT. IV.-ON SUBJECTING THE COMMERCE OF LAND TO THE REGULATION OF LAW.]

(Interpolation from Notes.)—I proceed next, agreeably to the arrangement formerly laid down, [Political Economy, Vol. I. p. 45,] to make some remarks on the expediency of restraints on the Commerce of Land.

The pre-eminent importance of landed property, and the various effects connected with its distribution, will justify me sufficiently for treating of it separately from the other constituents of National Wealth. From the observations which I formerly had occasion to make, it appears how intimately this subject is connected with the advancement of that species of wealth which gives existence to all the others, furnishing to the various classes of manufacturers and artists, both the mate* [Defence of Usury, Letter xi.; Works, Vol. III. p. 18.]