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THE

CHA P. IV.

Of Stock lent at Intereft.

IV.

HE ftock which is lent at intereft is always CHA 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 ufe it either as a capital, or as a stock referved for immediate consumption. If he ufes 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 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 destined for the fupport of the industrious. He can, in this cafe, neither restore the capital nor pay the interest, without either alienating or encroaching upon fome other source of revenue, fuch as the property or the rent of land.

THE stock which is lent at interest is, no doubt, soccafionally 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 VOL. II.

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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 interest, we may be affured, 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 ftock, 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 question. Even among

borrowers, therefore, not the people in the world most 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 scarce ever borrow merely to spend. row, one may fay, is commonly fpent before they borrow it. They have generally confumed fo great a quantity of goods, advanced to them upon credit by fhopkeepers and tradefmen, that they find it necessary to borrow at intereft 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 eftates. 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.

ALMOST 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 ftock for immediate confumption, it is thofe goods only which he can place in that ftock. If he wants it as a capital for employing induftry, it is from thofe goods only that the induftrious 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 intereft in any country, is not regulated by the value of the money, whether paper or coin, which serves 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 deftined not only for replacing a capital, but fuch a capital as the owner does not care to be at the trouble of employing himself. As fuch capitals are commonly lent out and paid back in money, they conftitute what is called the monied interest. It is diftinct, not only from the landed, but from the trading and

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IV.

BOOK manufacturing interefts, as in these last the owners II. themselves employ their own capitals. Even in the monied intereft, however, the money is, as it were, but the deed of affignment, which conveys from one hand to another thofe capitals which the owners do not care to employ themfelves. Those capitals may be greater in almost any proportion, than the amount of the money which ferves as the inftrument of their conveyance; the fame pieces of money fucceffively ferving for many different loans, as well as for many different purchases. A, for example, lends to W a thousand pounds, with which W immediately purchases of B a thousand pounds worth of goods. B having no occafion for the money himself, lends the identical pieces to X, with which X immediately purchases of C another thousand pounds worth of goods. C in the fame manner, and for the fame reason, lends them to Y, who again purchases goods with them of D. In this manner the fame pieces, either of coin or of paper, may, in the course of a few days, ferve as the inftrument of three different loans, and of three different purchases, each of which is, in value, equal to the whole amount of thofe pieces. What the three monied men A, B, and C, affign to the three borrowers, W, X, Y, is the power of making thofe purchases. In this power confift both the value and the use of the loans. The ftock lent by the three monied men, is equal to the value of the goods which can be purchased with it, and is three times greater than that of the money with which the purchases are made. Those loans, however, may be all per

fectly

IV.

fectly well fecured, the goods purchased by the CHA P. different debtors being fo employed, as, in due time, to bring back, with a profit, an equal value either of coin or of paper. And as the fame pieces of money can thus ferve as the inftrument of different loans to three, or for the fame reason, to thirty times their value, fo they may likewise fucceffively ferve as the inftrument of repayment.

A CAPITAL lent at interest may, in this manner, be confidered as an affignment from the lender to the borrower of a certain confiderable portion of the annual produce; upon condition that the borrower in return fhall, during the continuance of the loan, annually affign to the lender a fmaller portion, called the interest; and at the end of it, a portion equally confiderable with that which had originally been affigned to him, called the repayment. Though money, either coin or paper, ferves generally as the deed of affignment both to the finaller, and to the more confiderable portion, it is itself altogether different from what is affigned by it.

In proportion as that fhare of the annual produce which, as foon as it comes either from the ground, or from the hands of the productive labourers, is deftined for replacing a capital, increases in any country, what is called the monied intereft naturally increafes with it. The increase of those particular capitals from which the owners wish to derive a revenue, without being at the trouble of employing them themselves, naturally accompanies the general increase of capitals; or, in other words, as ftock increases, the quantity of ftock

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