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, so they may likewise fucceffively ferve as the inftrument of repayment.

A CAPITAL lent at intereft may, in this manner, be considered 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 smaller portion, called the intereft; 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 fmaller, and to the more confiderable portion, it is itself altogether different from what is affigned by it.

In proportion as that share of the annual produce which, as foon as it comes either from the ground, or from the hands of the productive labourers, is destined 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 stock increases, the quantity of ftock

D 3

II.

BOOK stock to be lent at intereft grows gradually greater and greater.

As the quantity of stock to be lent, at intereft increases, the intereft, or the price which must be paid for the ufe of that stock, neceffarily diminishes, not only from those general causes which make the market price of things commonly di-, minish as their quantity increases, but from other caufes which are peculiar to this particular cafe. As capitals increase in any country, the profits which can be made by employing them neceffarily diminish. It becomes gradually more and more difficult to find within the country a profitable method of employing any new capital. There arifes in confequence a competition between different capitals, the owner of one endeavouring to get poffeffion of that employment which is occupied by another. But upon, moft occafions he can hope to juftle that other out of this employment, by no other means but by dealing upon more reasonable terms. He must not only fell what he deals in fomewhat cheaper, but in order to get it to, fell, he muft fometimes too buy it dearer. The demand for productive labour, by the increase of the funds which are deftined for maintaining it, grows every day greater and greater. Labourers, eafily find employment, but the owners of capitals find it difficult to get labourers to employ. Their competition raifes the wages of labour, and finks the profits of frock. But when the profits which can be made by the ufe of a capital are in this man-, ner diminished, as it were, at both ends, the price

IV.

which can be paid for the use of it, that is, the CHA P. ⚫ rate of intereft, muft neceffarily be diminished with them.

MR. Locke, Mr. Law, and Mr. Montefquieu, as well as many other writers, feem to have imagined that the increase of the quantity of gold and filver, in confequence of the discovery of the Spanish West Indies, was the real cause of the lowering of the rate of intereft through the greater part of Europe. Those metals, they fay, having become of lefs value themselves, the ufe of any particular portion of them neceffarily became of less value too, and confequently the price which could be paid for it. This notion, which at first sight seems so plaufible, has been fo fully expofed by Mr. Hume, that it is, perhaps, unneceffary to fay any thing more about it. The following very fhort and plain argument, how-. ever, may ferve to explain more diftinctly the fallacy which feems to have mifled those gentle

men.

BEFORE the discovery of the Spanish Weft Indies, ten per cent. feems to have been the common rate of intereft through the greater part of Europe. It has fince that time in different countries funk to fix, five, four, and three per cent. Let us fuppofe that in every particular country the value of filver has funk precifely in the fame proportion as the rate of intereft; and that in thofe countries, for example, where intereft has been reduced from ten to five per cent., the fame quantity of filver can now purchase just half the quantity of goods which it could have purchased before.

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II.

BOOK before. This fuppofition will not, I believe, be found any-where agreeable to the truth, but it is the most favourable to the opinion which we are going to examine; and even upon this fuppo> fition it is utterly impoffible that the lowering of the value of filver, could have the smallest tendency to lower the rate of intereft. If a hundred pounds are in thofe countries now of no more value than fifty pounds were then, ten pounds muft now be of no more value than five pounds were then. Whatever were the caufes which lowered the value of the capital, the fame muft neceffarily have lowered that of the interest, and exactly in the fame proportion. The proportion between the value of the capital and that of the intereft, must have remained the fame, though the rate had never been altered. By altering the rate, on the contrary, the proportion between those two values is neceffarily altered. If a hundred pounds now are worth no more than fifty were then, five pounds now can be worth no more than two pounds ten fhillings were then. By re-. ducing the rate of intereft, therefore, from ten to five per cent., we give for the ufe of a capital, which is fuppofed to be equal to one-half of its former value, an intereft which is equal to onefourth only of the value of the former intereft.

ANY increase in the quantity of filver, while that of the commodities circulated by means of it remained the fame, could have no other effect than to diminish the value of that metal. The nominal value of all forts of goods would be greater, but their real value would be precisely

the

IV.

the fame as before. They would be exchanged CHA P. for a greater number of pieces of filver; but the quantity of labour which they could command, the number of people whom they could maintain and employ, would be precifely the fame. The capital of the country would be the fame, though a greater number of pieces might be requifite for conveying any equal portion of it from one hand to another. The deeds of affignment, like the conveyances of a verbose attorney, would be more cumbersome, but the thing affigned would be precifely the fame as before, and could produce only the fame effects. The funds for maintaining productive labour being the fame, the demand for it would be the fame. Its price or wages, therefore, though nominally greater, would really be the fame. They would be paid in a greater number of pieces of filver; but they would purchase only the fame quantity of goods. The profits of stock would be the fame both nominally and really. The wages of labour are commonly computed by the quantity of filver which is paid to the labourer. When that is increased, therefore, his wages appear to be increased, though they may fometimes be no greater than before. But the profits of stock are not computed by the number of pieces of filver with which they are paid, but by the proportion which thofe pieces bear to the whole capital employed. Thus in a particular country five fhillings a week are faid to be the common wages of labour, and ten per cent. the common profits of stock. But the whole capital of the country, being the fame

as