CHAP. IV.

Of Stock lent at Interest.

IV.

THE HE stock which is lent at interest is always CHAP. confidered as a capital by the lender. He expects that in due time it is to be restored 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 reftore the capital and pay the interest without alienating or encroaching upon any other fource of revenue. If he ufes it as a stock reserved for immediate consumption, he acts the part of a prodigal, and diffipates in the maintenance of the idle, what was destined for the fupport of the industrious. He can, in this cafe, neither restore the capital nor pay the intereft, without either alienating or encroaching upon some other fource of revenue, fuch as the property or the rent of land.

The stock which is lent at interest is, no doubt, occafionally employed in both these ways, but in the former much more frequently than in the latter. The man who borrows in order to spend will foon be ruined, and he who lends to him

will generally have occafion to repent of his folly.

VOL. III.

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II.

воок folly. To borrow or to lend for fuch a purpose, therefore, is in all cafes, where gross ufury is out of the question, contrary to the interest 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 assured, that it cannot happen so very frequently as we are sometimes apt to imagine. Ask any rich man of common prudence, to which of the two forts of people he has lent the greater part of his stock, to those who, he thinks, will employ it profitably, or to those who will spend it idly, and he will laugh at you for propofing the question. Even among borrowers, therefore, not the people in the world most famous for frugality, the number of the frugal and industrious furpasses confiderably that of the prodigal and idle.

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 scarce ever borrow merely to spend. What they borrow, one may say, is commonly spent before they borrow it. They have generally confumed fo great a quantity of goods, advanced to them upon credit by shopkeepers and tradesmen, that they find it neceffary to borrow at interest in order to pay the debt. The capital borrowed replaces the capitals of those shopkeepers 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 to replace a capital which had been spent CHAP. before.

Almost all loans at interest are made in money, either of paper, or of gold and filver. But what the borrower really wants, and what the lender really supplies 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 consumption, it is those goods only which he can place in that stock. If he wants it as a capital for employing industry, it is from those goods only that the industrious can be furnished with the tools, materials, and maintenance, necessary 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 expressed, 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 theinstrument 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 deftined not only for replacing a capital, but such a capital as the owner does not care to be at the trouble of employing himself. As such capitals are commonly lent out and paid back in money, they conftitute what is called the monied interest. It is distinct, not only from the landed, but from the trading and

D2

воок probably more difficult than in one in which the II. inferior ranks of people have no other maintenance but what they derive from the employment of such 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 assembled 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 still continues, however, to be the residence of the principal courts of justice in Scotland, of the boards of customs and excise, &c. A confiderable revenue, therefore, still 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 observed, after having made confiderable progress in manufactures, have become idle and poor, in consequence 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, idleness. Every increase or diminution

III.

diminution of capital, therefore, naturally tends CHAP. to increase or diminish the real quantity of industry, 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 person saves 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 interest, that is, for a share 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 increased only in the fame

manner.

Parfimony, and not industry, is the immediate cause of the increase of capital. Industry, 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 increasing the fund which is destined for the maintenance of productive hands, tends to increase the number of those hands whofe labour adds to the value of the subject upon which it is bestowed. It tends therefore to increafe the exchangeable value of the annual produce