THE

CHAP. IV.

Of Stock lent at Interest.

IV.

HE ftock which is lent at intereft is always C HA P. confidered as a capital by the lender. He expects that in due time it is to be reftored to him, and that in the mean time the borrower is to pay him a certain annual rent for the use of it. The borrower may use it either as a capital, or as a stock referved for immediate confumption. If he uses it as a capital, he employs it in the maintenance of productive labourers, who reproduce the value with a profit. He can, in this cafe, both restore the capital and pay the interest without alienating or encroaching upon any other fource of revenue. If he uses it as a stock referved for immediate confumption, he acts the part of a prodigal, and diffipates in the maintenance of the idle, what was deftined for the fupport of the induftrious. He can, in this cafe, neither reftore the capital nor pay the interest, without either alienating or encroaching upon fome other fource of revenue, fuch as the property or the rent of land.

The stock which is lent at intereft is, no doubt, occafionally employed in both thefe ways, but in the former much more frequently than in the latter. The man who borrows in order to fpend will foon be ruined, and he who lends to him will generally have occafion to repent of his

VOL. III.

D

folly.

II.

BOOK folly. To borrow or to lend for fuch a purpose, therefore, is in all cafes, where grofs ufury is out of the question, contrary to the intereft of both parties; and though it no doubt happens fometimes that people do both the one and the other; yet, from the regard that all men have for their own intereft, we may be affured, that it cannot happen fo very frequently as we are fometimes apt to imagine. Afk any rich man of common prudence, to which of the two forts of people he has lent the greater part of his stock, to thofe who, he thinks, will employ it profitably, or to those who will spend it idly, and he will laugh at you for propofing the queftion. Even among borrowers, therefore, not the people in the world moft famous for frugality, the number of the frugal and induftrious furpaffes confiderably that of the prodigal and idle.

What they bor

The only people to whom stock is commonly lent, without their being expected to make any very profitable use of it, are country gentlemen who borrow upon mortgage. Even they fcarce ever borrow merely to spend. row, one may fay, is commonly spent before they borrow it. They have generally confumed fo great a quantity of goods, advanced to them upon credit by fhopkeepers and tradesmen, that they find it neceffary to borrow at interest in order to pay the debt. The capital borrowed replaces the capitals of thofe fhopkeepers and tradefmen, which the country gentlemen could not have replaced from the rents of their estates. It is not properly borrowed in order to be spent, but in

order

order to replace a capital which had been spent CHA P. before.

Almoft all loans at intereft are made in money, either of paper, or of gold and filver. But what the borrower really wants, and what the lender really fupplies him with, is not the money, but the money's worth, or the goods which it can purchase. If he wants it as a stock for immediate confumption, it is thofe goods only which he can place in that stock. If he wants it as a capital for employing industry, it is from thofe goods only that the industrious can be furnished with the tools, materials, and maintenance, neceffary for carrying on their work. By means of the loan, the lender, as it were, affigns to the borrower his right to a certain portion of the annual produce of the land and labour of the country, to be employed as the borrower pleases.

The quantity of stock, therefore, or, as it is commonly expreffed, of money which can be lent at interest in any country, is not regulated by the value of the money, whether paper or coin, which ferves as the inftrument of the different loans made in that country, but by the value of that part of the annual produce which, as foon as it comes either from the ground, or from the hands of the productive labourers, is destined not only for replacing a capital, but fuch a capital as the owner does not care to be at the trouble of employing himfelf. As fuch capitals are commonly lent out and paid back in money, they conftitute what is called the monied intereft. It is diftinct, not only from the landed, but from the trading and

II.

BOOK probably more difficult than in one in which the inferior ranks of people have no other maintenance but what they derive from the employment of fuch a capital. The idleness of the greater part of the people who are maintained by the expence of revenue, corrupts, it is probable, the industry of those who ought to be maintained by the employment of capital, and renders it lefs advantageous to employ a capital there than in other places. There was little trade or industry in Edinburgh before the Union. When the Scotch parliament was no longer to be affembled in it, when it ceased to be the neceffary refidence of the principal nobility and gentry of Scotland, it became a city of fome trade and industry. It ftill continues, however, to be the residence of the principal courts of juftice in Scotland, of the boards of customs and excife, &c. A confiderable revenue, therefore, ftill continues to be spent in it. In trade and industry it is much inferior to Glasgow, of which the inhabitants are chiefly maintained by the employment of capital. The inhabitants of a large village, it has fometimes been obferved, after having made confiderable progrefs in manufactures, have become idle and poor, in confequence of a great lord's having taken up his refidence in their neighbourhood.

The proportion between capital and revenue, therefore, feems every-where to regulate the proportion between industry and idleness. Whereéver capital predominates, industry prevails: wherever revenue, idlenefs. Every increase or diminution

III.

diminution of capital, therefore, naturally tends CHA P. to increase or diminish the real quantity of induftry, the number of productive hands, and confequently the exchangeable value of the annual produce of the land and labour of the country, the real wealth and revenue of all its inhabitants.

Capitals are increased by parfimony, and diminished by prodigality and misconduct.

Whatever a perfon faves from his revenue he adds to his capital, and either employs it himself in maintaining an additional number of productive hands, or enables fome other perfon to do fo, by lending it to him for an intereft, that is, for a fhare of the profits. As the capital of an individual can be increased only by what he faves from his annual revenue or his annual gains, fo the capital of a fociety, which is the fame with that of all the individuals who compose it, can be increafed only in the fame

manner.

Parfimony, and not induftry, is the immediate caufe of the increase of capital. Induftry, indeed, provides the fubject which parfimony accumulates. But whatever industry might acquire, if parfimony did not fave and store up, the capital would never be the greater.

Parfimony, by increafing the fund which is deftined for the maintenance of productive hands, tends to increase the number of thofe hands whofe labour adds to the value of the fubject upon which it is bestowed. It tends therefore to increase the exchangeable value of the annual

pro

duce