IV.

it. The owners of thofe particular capitals CHA P. would be obliged to content themfelves with a smaller proportion of the produce of that labour which their respective capitals employed. The 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 intereft 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, inftead 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 risk which his creditor runs by accepting a compenfation for that ufe. He is obliged, if one may say so, to insure his creditor from the penalties of ufury.

IN countries where intereft is permitted, the law, in order to prevent the extortion of usury, 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 fecurity. If this legal rate fhould be fixed below the lowest market rate, the effects of this fixation must be nearly the fame as thofe of a total prohibition of intereft. The creditor will not lend his money for lefs than the use

of

44

II.

BOOK of it is worth, and the debtor must pay him for the risk which he runs by accepting the full value of that use. If it is fixed precisely at the lowest market price, it ruins with honeft people, who refpect the laws of their country, the credit of all those who cannot give the very beft fecurity, and obliges them to have recourfe 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 fecurity. at four, and four and a half, the prefent legal rate, five per cent., is perhaps, as proper as any.

THE legal rate, it is to be observed, though it ought to be somewhat above, ought not to be much above the loweft market rate. If the legal rate of interest in Great Britain, for example, was fixed fo 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 interest. 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 ufe of it, and thrown into thofe which were most likely to waste and destroy it. Where the legal rate of intereft, on the contrary, is fixed but a very little above the lowest market rate, fober people are univerfally preferred, as borrowers, to to prodigals and projectors. The person who lends money gets nearly as much

interest

IV.

intereft from the former as he dares to take from CHA P. the latter, and his money is much safer in the hands of the one fet of people, than in thofe 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 intereft 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.

THE ordinary market price of land, it is to be obferved, depends every-where upon the ordinary market rate of intereft. The person who has a capital from which he wishes to derive a revenue, without taking the trouble to employ it himself, deliberates whether he fhould buy land with it, or lend it out at intereft. The fuperior fecurity of land, together with fome other advantages which almost every-where attend upon this fpecies of property, will generally difpofe him to content himself with a finaller 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 fhould fall fhort of the intereft of money by a greater difference, nobody would buy land, which would foon reduce its ordinary price. On the contrary, if the ad

12

vantages

BOOK

II.

vantages fhould much more than compenfate 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 intereft funk 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 intereft 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.

CHA P. V.

Of the different Employment of Capitals.

HOUGH all capitals are deftined for the

Tmaintenance of productive labour only,

yet the quantity of that labour, which equal capitals are capable of putting into motion, varies extremely according to the diverfity 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, firft, in procuring the rude produce annually required for the use and consumption of the fociety; or, fecondly, in manufacturing and preparing that rude produce for immediate use and confumption;

V.

confumption; or, thirdly, in tranfporting either CHA P. the rude or manufactured produce from the places where they abound to thofe where they are wanted; or, laftly, in dividing particular portions of either into fuch fmall parcels as fuit the occafional demands of thofe who want them. In the first way are employed the capitals of all those who undertake the improvement or cultivation of lands, mines, or fisheries; in the fecond, thofe of all master manufacturers; in the third, those of all wholefale merchants; and in the fourth, thofe of all retailers. It is difficult to conceive that a capital should be employed in any way which may not be claffed under fome one or other of those four.

EACH of thofe four methods of employing a capital is effentially neceffary either to the exiftence or extenfion of the other three, or to the general conveniency of the fociety.

UNLESS a capital was employed in furnishing rude produce to a certain degree of abundance, neither manufactures nor trade of any kind could exist.

UNLESS a capital was employed in manufacturing that part of the rude produce which requires a good deal of preparation before it can be fit for use and confumption, it either would never be produced, becaufe there could be no demand for it; or if it was produced fpontaneously, it would be of no value in exchange, and could add nothing to the wealth of the fociety.

UNLESS