II.

BOOK as before, the competition between the different capitals of individuals into which it was divided would likewife be the fame. They would all trade with the fame advantages and disadvantages. The common proportion between capital and profit, therefore, would be the fame, and confequently the common interest of money; what can commonly be given for the use of money being neceffarily regulated by what can commonly be made by the use of it.

Any increase in the quantity of commodities annually circulated within the country, while that of the money which circulated them remained the fame, would, on the contrary, produce many other important effects, befides that of raising the value of the money. The capital of the country, though it might nominally be the fame, would really be augmented. It might continue to be expreffed by the fame quantity of money, but it would command a greater quantity of labour. The quantity of productive labour which it could maintain and employ would be increased, and confequently the demand for that labour. Its wages would naturally rife with the demand, and yet might appear to fink. They might be paid with a smaller quantity of money, but that smaller quantity might purchase a greater quantity of goods than a greater had done before. The profits of stock would be diminished both really and in appearance. The whole capital of the country being augmented, the competition between the different capitals of which it was compofed, would naturally be augmented along with

it. The owners of those particular capitals CHAP. would be obliged to content themselves with a smaller proportion of the produce of that labour which their respective capitals employed. The

IV.

interest of money, keeping pace always with the
profits of stock, might, in this manner, be greatly

diminished, though the value of money, or the quantity of goods which any particular fum could purchase, was greatly augmented.

In fome countries the interest of money has been prohibited by law. But as fomething can every-where be made by the use of money, fomething ought every-where to be paid for the ufe of it. This regulation, instead of preventing, has been found from experience to increase the evil of ufury; the debtor being obliged to pay, not only for the use of the money, but for the rifk which his creditor runs by accepting a compensation for that use. He is obliged, if one may say so, to infure his creditor from the penalties of ufury.

In countries where interest is permitted, the law, in order to prevent the extortion of ufury, generally fixes the highest rate which can be taken without incurring a penalty. This rate ought always to be fomewhat above the lowest

_ market price, or the price which is commonly paid for the use of money by those who can give the most undoubted security. If this legal rate should be fixed below the lowest market rate, the effects of this fixation must be nearly the fame as those of a total prohibition of interest. The creditor will not lend his money for less than the ufe

of

BOOK of it is worth, and the debtor must pay him for

II.

the risk which he runs by accepting the full value of that use. If it is fixed precifely at the lowest market price, it ruins with honest people, who respect the laws of their country, the credit of all those who cannot give the very best security, and obliges them to have recourse to exorbitant ufurers. In a country, fuch as Great Britain, where money is lent to government at three per cent. and to private people upon good security at four, and four and a half, the present legal rate, five per cent., is perhaps, as proper as any.

The legal rate, it is to be observed, though it ought to be fomewhat above, ought not to be much above the lowest market rate. If the legal rate of interest in Great Britain, for example, was fixed so high as eight or ten per cent., the greater part of the money which was to be lent, would be lent to prodigals and projectors, who alone would be willing to give this high intereft. Sober people, who will give for the use of money no more than a part of what they are likely to make by the use of it, would not venture into the competition. A great part of the capital of the country would thus be kept out of the hands which were most likely to make a profitable and advantageous use of it, and thrown into those which were most likely to waste and destroy it. Where the legal rate of interest, on the contrary, is fixed but a very little above the lowest market rate, fober people are univerfally preferred, as borrowers, to prodigals and projectors. The perfon who lends money gets nearly as much intereft

interest from the former as he dares to take from CHAP. the latter, and his money is much fafer in the hands of the one fet of people, than in those of the other. A great part of the capital of the country is thus thrown into the hands in which it is most likely to be employed with advantage. No law can reduce the common rate of interest below the lowest ordinary market rate at the time when that law is made. Notwithstanding the edict of 1766, by which the French king attempted to reduce the rate of interest from five to four per cent., money continued to be lent in France at five per cent., the law being evaded in feveral different ways.

IV.

The ordinary market price of land, it is to be observed, depends every-where upon the ordinary market rate of interest. The perfon who has a capital from which he wishes to derive a revenue, without taking the trouble to employ it himself, deliberates whether he should buy land with it, or lend it out at intereft. The fuperior security of land, together with fome other advantages which almost every-where attend upon this species of property, will generally difpofe him to content himself with a smaller revenue from land, than what he might have by lending out his money at interest. These advantages are fufficient to compenfate a certain difference of revenue; but they will compenfate a certain difference only; and if the rent of land should fall short of the interest of money by a greater difference, nobody would buy land, which would foon reduce its ordinary price. On the contrary,

II.

BOOK if the advantages should much more than compensate the difference, every body would buy land, which again would foon raise its ordinary price. When interest was at ten per cent., land was commonly fold for ten and twelve years purchase. As interest sunk to fix, five, and four per cent., the price of land rose to twenty, five and twenty, and thirty years purchase. The market rate of interest is higher in France than in England; and the common price of land is lower. In England it commonly fells at thirty; in France at twenty years purchase.

CHAP.
V.

CHAP. V.

Of the different Employment of Capitals.

THOUGH all capitals are deftined for the maintenance of productive labour only, yet the quantity of that labour, which equal capitals are capable of putting into motion, varies extremely according to the diversity of their employment; as does likewife the value which that employment adds to the annual produce of the land and labour of the country.

A capital may be employed in four different ways: either, first, in procuring the rude produce annually required for the use and confumption of the fociety; or, secondly, in manufacturing and preparing that rude produce for immediate ufe