Theannualproduceofthelandandlabourofanynationcanbeincreasedinitsvaluebynoothermeansbutbyincreasingeitherthenumberofitsproductivelabourers,ortheproductivepowersofthoselabourerswhohadbeforebeenemployed。Thenumberofitsproductivelabourers,itisevident,canneverbemuchincreased,butinconsequenceofanincreaseofcapital,orofthefundsdestinedformaintainingthem。Theproductivepowersofthesamenumberoflabourerscannotbeincreased,butinconsequenceeitherofsomeadditionandimprovementtothosemachinesandinstrumentswhichfacilitateandabridgelabour;orofamoreproperdivisionanddistributionofemployment。Ineithercaseanadditionalcapitalisalmostalwaysrequired。Itisbymeansofanadditionalcapitalonlythattheundertakerofanyworkcaneitherprovidehisworkmenwithbettermachineryormakeamoreproperdistributionofemploymentamongthem。Whentheworktobedoneconsistsofanumberofparts,tokeepeverymanconstantlyemployedinonewayrequiresamuchgreatercapitalthanwhereeverymanisoccasionallyemployedineverydifferentpartofthework。Whenwecompare,therefore,thestateofanationattwodifferentperiods,andfind,thattheannualproduceofitslandandlabourisevidentlygreateratthelatterthanattheformer,thatitslandsarebettercultivated,itsmanufacturesmorenumerousandmoreflourishing,anditstrademoreextensive,wemaybeassuredthatitscapitalmusthaveincreasedduringtheintervalbetweenthosetwoperiods,andthatmoremusthavebeenaddedtoitbythegoodconductofsomethanhadbeentakenfromiteitherbytheprivatemisconductofothersorbythepublicextravaganceofgovernment。Butweshallfindthistohavebeenthecaseofalmostallnations,inalltolerablyquietandpeaceabletimes,evenofthosewhohavenotenjoyedthemostprudentandparsimoniousgovernments。Toformarightjudgmentofit,indeed,wemustcomparethestateofthecountryatperiodssomewhatdistantfromoneanother。Theprogressisfrequentlysogradualthat,atnearperiods,theimprovementisnotonlynotsensible,butfromthedeclensioneitherofcertainbranchesofindustry,orofcertaindistrictsofthecountry,thingswhichsometimeshappenthoughthecountryingeneralbeingreatprosperity,therefrequentlyarisesasuspicionthattherichesandindustryofthewholearedecaying。
TheannualproduceofthelandandlabourofEngland,forexample,iscertainlymuchgreaterthanitwas,alittlemorethanacenturyago,attherestorationofCharlesII。Though,atpresent,fewpeople,Ibelieve,doubtofthis,yetduringthisperiod,fiveyearshaveseldompassedawayinwhichsomebookorpamphlethasnotbeenpublished,written,too,withsuchabilitiesastogainsomeauthoritywiththepublic,andpretendingtodemonstratethatthewealthofthenationwasfastdeclining,thatthecountrywasdepopulated,agricultureneglected,manufacturesdecaying,andtradeundone。Norhavethesepublicationsbeenallpartypamphlets,thewretchedoffspringoffalsehoodandvenality。Manyofthemhavebeenwrittenbyverycandidandveryintelligentpeople,whowrotenothingbutwhattheybelieved,andfornootherreasonbutbecausetheybelievedit。
TheannualproduceofthelandandlabourofEngland,again,wascertainlymuchgreaterattheRestoration,thanwecansupposeittohavebeenaboutanhundredyearsbefore,attheaccessionofElizabeth。Atthisperiod,too,wehaveallreasontobelieve,thecountrywasmuchmoreadvancedinimprovementthanithadbeenaboutacenturybefore,towardsthecloseofthedissensionsbetweenthehousesofYorkandLancaster。Eventhenitwas,probably,inabetterconditionthanithadbeenattheNormanConquest,andattheNormanConquestthanduringtheconfusionoftheSaxonHeptarchy。Evenatthisearlyperiod,itwascertainlyamoreimprovedcountrythanattheinvasionofJuliusCaesar,whenitsinhabitantswerenearlyinthesamestatewiththesavagesinNorthAmerica。
Ineachofthoseperiods,however,therewasnotonlymuchprivateandpublicprofusion,manyexpensiveandunnecessarywars,greatperversionoftheannualproducefrommaintainingproductivetomaintainunproductivehands;butsometimes,intheconfusionofcivildiscord,suchabsolutewasteanddestructionofstock,asmightbesupposed,notonlytoretard,asitcertainlydid,thenaturalaccumulationofriches,buttohaveleftthecountry,attheendoftheperiod,poorerthanatthebeginning。Thus,inthehappiestandmostfortunateperiodofthemall,thatwhichhaspassedsincetheRestoration,howmanydisordersandmisfortuneshaveoccurred,which,couldtheyhavebeenforeseen,notonlytheimpoverishment,butthetotalruinofthecountrywouldhavebeenexpectedfromthem?ThefireandtheplagueofLondon,thetwoDutchwars,thedisordersoftheRevolution,thewarinIreland,thefourexpensiveFrenchwarsof1688,1702,1742,and1756,togetherwiththetworebellionsof1715and1745。InthecourseofthefourFrenchwars,thenationhascontractedmorethanahundredandforty—fivemillionsofdebt,overandabovealltheotherextraordinaryannualexpensewhichtheyoccasioned,sothatthewholecannotbecomputedatlessthantwohundredmillions。Sogreatashareoftheannualproduceofthelandandlabourofthecountryhas,sincetheRevolution,beenemployedupondifferentoccasionsinmaintaininganextraordinarynumberofunproductivehands。Buthadnotthosewarsgiventhisparticulardirectiontosolargeacapital,thegreaterpartofitwouldnaturallyhavebeenemployedinmaintainingproductivehands,whoselabourwouldhavereplaced,withaprofit,thewholevalueoftheirconsumption。Thevalueoftheannualproduceofthelandandlabourofthecountrywouldhavebeenconsiderablyincreasedbyiteveryyear,andeveryyear’sincreasewouldhaveaugmentedstillmorethatofthefollowingyear。Morehouseswouldhavebeenbuilt,morelandswouldhavebeenimproved,andthosewhichhadbeenimprovedbeforewouldhavebeenbettercultivated,moremanufactureswouldhavebeenestablished。andthosewhichhadbeenestablishedbeforewouldhavebeenmoreextended;andtowhatheighttherealwealthandrevenueofthecountrymight,bythistime,havebeenraised,itisnotperhapsveryeasyeventoimagine。
Butthoughtheprofusionofgovernmentmust,undoubtedly,haveretardedthenaturalprogressofEnglandtowardswealthandimprovement,ithasnotbeenabletostopit。Theannualproduceofitslandandlabouris,undoubtedly,muchgreateratpresentthanitwaseitherattheRestorationorattheRevolution。Thecapital,therefore,annuallyemployedincultivatingthisland,andinmaintainingthislabour,mustlikewisebemuchgreater。Inthemidstofalltheexactionsofgovernment,thiscapitalhasbeensilentlyandgraduallyaccumulatedbytheprivatefrugalityandgoodconductofindividuals,bytheiruniversal,continual,anduninterruptedefforttobettertheirowncondition。Itisthiseffort,protectedbylawandallowedbylibertytoexertitselfinthemannerthatismostadvantageous,whichhasmaintainedtheprogressofEnglandtowardsopulenceandimprovementinalmostallformertimes,andwhich,itistobehoped,willdosoinallfuturetimes。England,however,asithasneverbeenblessedwithaveryparsimoniousgovernment,soparsimonyhasatnotimebeenthecharacteristicalvirtueofitsinhabitants。Itisthehighestimpertinenceandpresumption,therefore,inkingsandministers,topretendtowatchovertheeconomyofprivatepeople,andtorestraintheirexpense,eitherbysumptuarylaws,orbyprohibitingtheimportationofforeignluxuries。Theyarethemselvesalways,andwithoutanyexception,thegreatestspendthriftsinthesociety。Letthemlookwellaftertheirownexpense,andtheymaysafelytrustprivatepeoplewiththeirs。Iftheirownextravagancedoesnotruinthestate,thatoftheirsubjectsneverwill。
Asfrugalityincreasesandprodigalitydiminishesthepubliccapital,sotheconductofthosewhoseexpensejustequalstheirrevenue,withouteitheraccumulatingorencroaching,neitherincreasesnordiminishesit。Somemodesofexpense,however,seemtocontributemoretothegrowthofpublicopulencethanothers。
Therevenueofanindividualmaybespenteitherinthingswhichareconsumedimmediately,andinwhichoneday’sexpensecanneitheralleviatenorsupportthatofanother,oritmaybespentinthingsmoredurable,whichcanthereforebeaccumulated,andinwhicheveryday’sexpensemay,ashechooses,eitheralleviateorsupportandheightentheeffectofthatofthefollowingday。Amanoffortune,forexample,mayeitherspendhisrevenueinaprofuseandsumptuoustable,andinmaintainingagreatnumberofmenialservants,andamultitudeofdogsandhorses;orcontentinghimselfwithafrugaltableandfewattendants,hemaylayoutthegreaterpartofitinadorninghishouseorhiscountryvilla,inusefulorornamentalbuildings,inusefulorornamentalfurniture,incollectingbooks,statues,pictures;orinthingsmorefrivolous,jewels,baubles,ingenioustrinketsofdifferentkinds;or,whatismosttriflingofall,inamassingagreatwardrobeoffineclothes,likethefavouriteandministerofagreatprincewhodiedafewyearsago。Weretwomenofequalfortunetospendtheirrevenue,theonechieflyintheoneway,theotherintheother,themagnificenceofthepersonwhoseexpensehadbeenchieflyindurablecommodities,wouldbecontinuallyincreasing,everyday’sexpensecontributingsomethingtosupportandheightentheeffectofthatofthefollowingday:thatoftheother,onthecontrary,wouldbenogreaterattheendoftheperiodthanatthebeginning。Theformer,too,would,attheendoftheperiod,betherichermanofthetwo。Hewouldhaveastockofgoodsofsomekindorother,which,thoughitmightnotbeworthallthatitcost,wouldalwaysbeworthsomething。Notraceorvestigeoftheexpenseofthelatterwouldremain,andtheeffectsoftenortwentyyearsprofusionwouldbeascompletelyannihilatedasiftheyhadneverexisted。
Astheonemodeofexpenseismorefavourablethantheothertotheopulenceofanindividual,soisitlikewisetothatofanation。Thehouses,thefurniture,theclothingoftherich,inalittletime,becomeusefultotheinferiorandmiddlingranksofpeople。Theyareabletopurchasethemwhentheirsuperiorsgrowwearyofthem,andthegeneralaccommodationofthewholepeopleisthusgraduallyimproved,whenthismodeofexpensebecomesuniversalamongmenoffortune。Incountrieswhichhavelongbeenrich,youwillfrequentlyfindtheinferiorranksofpeopleinpossessionbothofhousesandfurnitureperfectlygoodandentire,butofwhichneithertheonecouldhavebeenbuilt,northeotherhavebeenmadefortheiruse。WhatwasformerlyaseatofthefamilyofSeymourisnowaninnupontheBathroad。Themarriage—bedofJamestheFirstofGreatBritain,whichhisqueenbroughtwithherfromDenmarkasapresentfitforasovereigntomaketoasovereign,was,afewyearsago,theornamentofanalehouseatDunfermline。Insomeancientcities,whicheitherhavebeenlongstationary,orhavegonesomewhattodecay,youwillsometimesscarcefindasinglehousewhichcouldhavebeenbuiltforitspresentinhabitants。Ifyougointothosehousestoo,youwillfrequentlyfindmanyexcellent,thoughantiquatedpiecesoffurniture,whicharestillveryfitforuse,andwhichcouldaslittlehavebeenmadeforthem。Noblepalaces,magnificentvillas,greatcollectionsofbooks,statues,picturesandothercuriosities,arefrequentlybothanornamentandanhonour,notonlytotheneighbourhood,buttothewholecountrytowhichtheybelong。VersaillesisanornamentandanhonourtoFrance,StoweandWiltontoEngland。Italystillcontinuestocommandsomesortofvenerationbythenumberofmonumentsofthiskindwhichitpossesses,thoughthewealthwhichproducedthemhasdecayed,andthoughthegeniuswhichplannedthemseemstobeextinguished,perhapsfromnothavingthesameemployment。
Theexpensetoo,whichislaidoutindurablecommodities,isfavourable,notonlytoaccumulation,buttofrugality。Ifapersonshouldatanytimeexceedinit,hecaneasilyreformwithoutexposinghimselftothecensureofthepublic。Toreduceverymuchthenumberofhisservants,toreformhistablefromgreatprofusiontogreatfrugality,tolaydownhisequipageafterhehasoncesetitup,arechangeswhichcannotescapetheobservationofhisneighbours,andwhicharesupposedtoimplysomeacknowledgmentofprecedingbadconduct。Few,therefore,ofthosewhohaveoncebeensounfortunateastolaunchouttoofarintothissortofexpense,haveafterwardsthecouragetoreform,tillruinandbankruptcyobligethem。Butifapersonhas,atanytime,beenattoogreatanexpenseinbuilding,infurniture,inbooksorpictures,noimprudencecanbeinferredfromhischanginghisconduct。Thesearethingsinwhichfurtherexpenseisfrequentlyrenderedunnecessarybyformerexpense;andwhenapersonstopsshort,heappearstodoso,notbecausehehasexceededhisfortune,butbecausehehassatisfiedhisfancy。
Theexpense,besides,thatislaidoutindurablecommoditiesgivesmaintenance,commonly,toagreaternumberofpeoplethanthatwhichisemployedinthemostprofusehospitality。Oftwoorthreehundredweightofprovisions,whichmaysometimesbeservedupatagreatfestival,onehalf,perhaps,isthrowntothedunghill,andthereisalwaysagreatdealwastedandabused。Butiftheexpenseofthisentertainmenthadbeenemployedinsettingtoworkmasons,carpenters,upholsterers,mechanics,etc。,aquantityofprovisions,ofequalvalue,wouldhavebeendistributedamongastillgreaternumberofpeoplewhowouldhaveboughttheminpennyworthsandpoundweights,andnothavelostorthrownawayasingleounceofthem。
Intheoneway,besides,thisexpensemaintainsproductive,intheotherunproductivehands。Intheoneway,therefore,itincreases,intheother,itdoesnotincrease,theexchangeablevalueoftheannualproduceofthelandandlabourofthecountry。
Iwouldnot,however,byallthisbeunderstoodtomeanthattheonespeciesofexpensealwaysbetokensamoreliberalorgenerousspiritthantheother。Whenamanoffortunespendshisrevenuechieflyinhospitality,hesharesthegreaterpartofitwithhisfriendsandcompanions;butwhenheemploysitinpurchasingsuchdurablecommodities,heoftenspendsthewholeuponhisownperson,andgivesnothingtoanybodywithoutanequivalent。Thelatterspeciesofexpense,therefore,especiallywhendirectedtowardsfrivolousobjects,thelittleornamentsofdressandfurniture,jewels,trinkets,gewgaws,frequentlyindicates,notonlyatrifling,butabaseandselfishdisposition。AllthatImeanis,thattheonesortofexpense,asitalwaysoccasionssomeaccumulationofvaluablecommodities,asitismorefavourabletoprivatefrugality,and,consequently,totheincreaseofthepubliccapital,andasitmaintainsproductive,ratherthanunproductivehands,conducesmorethantheothertothegrowthofpublicopulence。
CHAPTERIV
OfStockLentatInterestTHEstockwhichislentatinterestisalwaysconsideredasacapitalbythelender。Heexpectsthatinduetimeitistoberestoredtohim,andthatinthemeantimetheborroweristopayhimacertainannualrentfortheuseofit。Theborrowermayuseiteitherasacapital,orasastockreservedforimmediateconsumption。Ifheusesitasacapital,heemploysitinthemaintenanceofproductivelabourers,whoreproducethevaluewithaprofit。Hecan,inthiscase,bothrestorethecapitalandpaytheinterestwithoutalienatingorencroachinguponanyothersourceofrevenue。Ifheusesitasastockreservedforimmediateconsumption,heactsthepartofaprodigal,anddissipatesinthemaintenanceoftheidlewhatwasdestinedforthesupportoftheindustrious。Hecan,inthiscase,neitherrestorethecapitalnorpaytheinterestwithouteitheralienatingorencroachinguponsomeothersourceofrevenue,suchasthepropertyortherentofland。
Thestockwhichislentatinterestis,nodoubt,occasionallyemployedinboththeseways,butintheformermuchmorefrequentlythaninthelatter。Themanwhoborrowsinordertospendwillsoonberuined,andhewholendstohimwillgenerallyhaveoccasiontorepentofhisfolly。Toborrowortolendforsuchapurpose,therefore,isinallcases,wheregrossusuryisoutofthequestion,contrarytotheinterestofbothparties;andthoughitnodoubthappenssometimesthatpeopledoboththeoneandtheother;yet,fromtheregardthatallmenhavefortheirowninterest,wemaybeassuredthatitcannothappensoveryfrequentlyaswearesometimesapttoimagine。Askanyrichmanofcommonprudencetowhichofthetwosortsofpeoplehehaslentthegreaterpartofhisstock,tothosewho,hethinks,willemployitprofitably,ortothosewhowillspenditidly,andhewilllaughatyouforproposingthequestion。
Evenamongborrowers,therefore,notthepeopleintheworldmostfamousforfrugality,thenumberofthefrugalandindustrioussurpassesconsiderablythatoftheprodigalandidle。
Theonlypeopletowhomstockiscommonlylent,withouttheirbeingexpectedtomakeanyveryprofitableuseofit,arecountrygentlemenwhoborrowuponmortgage。Eventheyscarceeverborrowmerelytospend。Whattheyborrow,onemaysay,iscommonlyspentbeforetheyborrowit。Theyhavegenerallyconsumedsogreataquantityofgoods,advancedtothemuponcreditbyshopkeepersandtradesmen,thattheyfinditnecessarytoborrowatinterestinordertopaythedebt。Thecapitalborrowedreplacesthecapitalsofthoseshopkeepersandtradesmen,whichthecountrygentlemencouldnothavereplacedfromtherentsoftheirestates。Itisnotproperlyborrowedinordertobespent,butinordertoreplaceacapitalwhichhadbeenspentbefore。
Almostallloansatinterestaremadeinmoney,eitherofpaper,orofgoldandsilver。Butwhattheborrowerreallywants,andwhatthelenderreallysupplieshimwith,isnotthemoney,butthemoney’sworth,orthegoodswhichitcanpurchase。Ifhewantsitasastockforimmediateconsumption,itisthosegoodsonlywhichhecanplaceinthatstock。Ifhewantsitasacapitalforemployingindustry,itisfromthosegoodsonlythattheindustriouscanbefurnishedwiththetools,materials,andmaintenancenecessaryforcarryingontheirwork。Bymeansoftheloan,thelender,asitwere,assignstotheborrowerhisrighttoacertainportionoftheannualproduceofthelandandlabourofthecountrytobeemployedastheborrowerpleases。
Thequantityofstock,therefore,or,asitiscommonlyexpressed,ofmoneywhichcanbelentatinterestinanycountry,isnotregulatedbythevalueofthemoney,whetherpaperorcoin,whichservesastheinstrumentofthedifferentloansmadeinthatcountry,butbythevalueofthatpartoftheannualproducewhich,assoonasitcomeseitherfromtheground,orfromthehandsoftheproductivelabourers,isdestinednotonlyforreplacingacapital,butsuchacapitalastheownerdoesnotcaretobeatthetroubleofemployinghimself。Assuchcapitalsarecommonlylentoutandpaidbackinmoney,theyconstitutewhatiscalledthemoniedinterest。Itisdistinct,notonlyfromthelanded,butfromthetradingandmanufacturinginterests,asintheselasttheownersthemselvesemploytheirowncapitals。
Eveninthemoniedinterest,however,themoneyis,asitwere,butthedeedofassignment,whichconveysfromonehandtoanotherthosecapitalswhichtheownersdonotcaretoemploythemselves。Thosecapitalsmaybegreaterinalmostanyproportionthantheamountofthemoneywhichservesastheinstrumentoftheirconveyance;thesamepiecesofmoneysuccessivelyservingformanydifferentloans,aswellasformanydifferentpurchases。A,forexample,lendstoWathousandpounds,withwhichWimmediatelypurchasesofBathousandpounds’worthofgoods。Bhavingnooccasionforthemoneyhimself,lendstheidenticalpiecestoX,withwhichX
immediatelypurchasesofCanotherthousandpounds’worthofgoods。Cinthesamemanner,andforthesamereason,lendsthemtoY,whoagainpurchasesgoodswiththemofD。Inthismannerthesamepieces,eitherofcoinorpaper,mayinthecourseofafewdays,serveastheinstrumentofthreedifferentloans,andofthreedifferentpurchases,eachofwhichis,invalue,equaltothewholeamountofthosepieces。WhatthethreemoniedmenA,B,andCassigntothethreeborrowers,W,X,Y,isthepowerofmakingthosepurchases。Inthispowerconsistboththevalueandtheuseoftheloans。Thestocklentbythethreemoniedmenisequaltothevalueofthegoodswhichcanbepurchasedwithit,andisthreetimesgreaterthanthatofthemoneywithwhichthepurchasesaremade。Thoseloanshowever,maybeallperfectlywellsecured,thegoodspurchasedbythedifferentdebtorsbeingsoemployedas,induetime,tobringback,withaprofit,anequalvalueeitherofcoinorofpaper。Andasthesamepiecesofmoneycanthusserveastheinstrumentofdifferentloanstothree,orforthesamereason,tothirtytimestheirvalue,sotheymaylikewisesuccessivelyserveastheinstrumentofrepayment。
Acapitallentatinterestmay,inthismanner,beconsideredasanassignmentfromthelendertotheborrowersofacertainconsiderableportionoftheannualproduce;uponconditionthattheborrowerinreturnshall,duringthecontinuanceoftheloan,annuallyassigntothelenderasmallerportion,calledtheinterest;andattheendofitaportionequallyconsiderablewiththatwhichhadoriginallybeenassignedtohim,calledtherepayment。Thoughmoney,eithercoinorpaper,servesgenerallyasthedeedofassignmentbothtothesmallerandtothemoreconsiderableportion,itisitselfaltogetherdifferentfromwhatisassignedbyit。
Inproportionasthatshareoftheannualproducewhich,assoonasitcomeseitherfromtheground,orfromthehandsoftheproductivelabourers,isdestinedforreplacingacapital,increasesinanycountry,whatiscalledthemoniedinterestnaturallyincreaseswithit。Theincreaseofthoseparticularcapitalsfromwhichtheownerswishtoderivearevenue,withoutbeingatthetroubleofemployingthemthemselves,naturallyaccompaniesthegeneralincreaseofcapitals;or,inotherwords,asstockincreases,thequantityofstocktobelentatinterestgrowsgraduallygreaterandgreater。
Asthequantityofstocktobelentatinterestincreases,theinterest,orthepricewhichmustbepaidfortheuseofthatstock,necessarilydiminishes,notonlyfromthosegeneralcauseswhichmakethemarketpriceofthingscommonlydiminishastheirquantityincreases,butfromothercauseswhicharepeculiartothisparticularcase。Ascapitalsincreaseinanycountry,theprofitswhichcanbemadebyemployingthemnecessarilydiminish。
Itbecomesgraduallymoreandmoredifficulttofindwithinthecountryaprofitablemethodofemployinganynewcapital。Therearisesinconsequenceacompetitionbetweendifferentcapitals,theownerofoneendeavouringtogetpossessionofthatemploymentwhichisoccupiedbyanother。Butuponmostoccasionshecanhopetojostlethatotheroutofthisemploymentbynoothermeansbutbydealinguponmorereasonableterms。Hemustnotonlysellwhathedealsinsomewhatcheaper,butinordertogetittosell,hemustsometimes,too,buyitdearer。Thedemandforproductivelabour,bytheincreaseofthefundswhicharedestinedformaintainingit,growseverydaygreaterandgreater。
Labourerseasilyfindemployment,buttheownersofcapitalsfinditdifficulttogetlabourerstoemploy。Theircompetitionraisesthewagesoflabourandsinkstheprofitsofstock。Butwhentheprofitswhichcanbemadebytheuseofacapitalareinthismannerdiminished,asitwere,atbothends,thepricewhichcanbepaidfortheuseofit,thatis,therateofinterest,mustnecessarilybediminishedwiththem。
Mr。Locke,Mr。Law,andMr。Montesquieu,aswellasmanyotherwriters,seemtohaveimaginedthattheincreaseofthequantityofgoldandsilver,inconsequenceofthediscoveryoftheSpanishWestIndies,wastherealcauseoftheloweringoftherateofinterestthroughthegreaterpartofEurope。Thosemetals,theysay,havingbecomeoflessvaluethemselves,theuseofanyparticularportionofthemnecessarilybecameoflessvaluetoo,andconsequentlythepricewhichcouldbepaidforit。
Thisnotion,whichatfirstsightseemsplausible,hasbeensofullyexposedbyMr。Humethatitis,perhaps,unnecessarytosayanythingmoreaboutit。Thefollowingveryshortandplainargument,however,mayservetoexplainmoredistinctlythefallacywhichseemstohavemisledthosegentlemen。
BeforethediscoveryoftheSpanishWestIndies,tenpercentseemstohavebeenthecommonrateofinterestthroughthegreaterpartofEurope。Ithassincethattimeindifferentcountriessunktosix,five,four,andthreepercent。Letussupposethatineveryparticularcountrythevalueofsilverhassunkpreciselyinthesameproportionastherateofinterest;
andthatinthosecountries,forexample,whereinteresthasbeenreducedfromtentofivepercent,thesamequantityofsilvercannowpurchasejusthalfthequantityofgoodswhichitcouldhavepurchasedbefore。Thissuppositionwillnot,Ibelieve,befoundanywhereagreeabletothetruth,butitisthemostfavourabletotheopinionwhichwearegoingtoexamine;andevenuponthissuppositionitisutterlyimpossiblethattheloweringofthevalueofsilvercouldhavethesmallesttendencytolowertherateofinterest。Ifahundredpoundsareinthosecountriesnowofnomorevaluethanfiftypoundswerethen,tenpoundsmustnowbeofnomorevaluethanfivepoundswerethen。Whateverwerethecauseswhichloweredthevalueofthecapital,thesamemustnecessarilyhaveloweredthatoftheinterest,andexactlyinthesameproportion。Theproportionbetweenthevalueofthecapitalandthatoftheinterestmusthaveremainedthesame,thoughtheratehadbeenaltered。Byalteringtherate,onthecontrary,theproportionbetweenthosetwovaluesisnecessarilyaltered。Ifahundredpoundsnowareworthnomorethanfiftywerethen,fivepoundsnowcanbeworthnomorethantwopoundstenshillingswerethen。Byreducingtherateofinterest,therefore,fromtentofivepercent,wegivefortheuseofacapital,whichissupposedtobeequaltoonehalfofitsformervalue,aninterestwhichisequaltoonefourthonlyofthevalueoftheformerinterest。
Anyincreaseinthequantityofsilver,whilethatofthecommoditiescirculatedbymeansofitremainedthesame,couldhavenoothereffectthantodiminishthevalueofthatmetal。
Thenominalvalueofallsortsofgoodswouldbegreater,buttheirrealvaluewouldbepreciselythesameasbefore。Theywouldbeexchangedforagreaternumberofpiecesofsilver;butthequantityoflabourwhichtheycouldcommand,thenumberofpeoplewhomtheycouldmaintainandemploy,wouldbepreciselythesame。Thecapitalofthecountrywouldbethesame,thoughagreaternumberofpiecesmightberequisiteforconveyinganyequalportionofitfromonehandtoanother。Thedeedsofassignment,liketheconveyancesofaverboseattorney,wouldbemorecumbersome,butthethingassignedwouldbepreciselythesameasbefore,andcouldproduceonlythesameeffects。Thefundsformaintainingproductivelabourbeingthesame,thedemandforitwouldbethesame。Itspriceorwages,therefore,thoughnominallygreater,wouldreallybethesame。Theywouldbepaidinagreaternumberofpiecesofsilver;buttheywouldpurchaseonlythesamequantityofgoods。Theprofitsofstockwouldbethesamebothnominallyandreally。Thewagesoflabourarecommonlycomputedbythequantityofsilverwhichispaidtothelabourer。Whenthatisincreased,therefore,hiswagesappeartobeincreased,thoughtheymaysometimesbenogreaterthanbefore。Buttheprofitsofstockarenotcomputedbythenumberofpiecesofsilverwithwhichtheyarepaid,butbytheproportionwhichthosepiecesbeartothewholecapitalemployed。
Thusinaparticularcountryfiveshillingsaweekaresaidtobethecommonwagesoflabour,andtenpercentthecommonprofitsofstock。Butthewholecapitalofthecountrybeingthesameasbefore,thecompetitionbetweenthedifferentcapitalsofindividualsintowhichitwasdividedwouldlikewisebethesame。
Theywouldalltradewiththesameadvantagesanddisadvantages。
Thecommonproportionbetweencapitalandprofit,therefore,wouldbethesame,andconsequentlythecommoninterestofmoney;
whatcancommonlybegivenfortheuseofmoneybeingnecessarilyregulatedbywhatcancommonlybemadebytheuseofit。
Anyincreaseinthequantityofcommoditiesannuallycirculatedwithinthecountry,whilethatofthemoneywhichcirculatedthemremainedthesame,would,onthecontrary,producemanyotherimportanteffects,besidesthatofraisingthevalueofthemoney。Thecapitalofthecountry,thoughitmightnominallybethesame,wouldreallybeaugmented。Itmightcontinuetobeexpressedbythesamequantityofmoney,butitwouldcommandagreaterquantityoflabour。Thequantityofproductivelabourwhichitcouldmaintainandemploywouldbeincreased,andconsequentlythedemandforthatlabour。Itswageswouldnaturallyrisewiththedemand,andyetmightappeartosink。Theymightbepaidwithasmallerquantityofmoney,butthatsmallerquantitymightpurchaseagreaterquantityofgoodsthanagreaterhaddonebefore。Theprofitsofstockwouldbediminishedbothreallyandinappearance。Thewholecapitalofthecountrybeingaugmented,thecompetitionbetweenthedifferentcapitalsofwhichitwascomposedwouldnaturallybeaugmentedalongwithit。Theownersofthoseparticularcapitalswouldbeobligedtocontentthemselveswithasmallerproportionoftheproduceofthatlabourwhichtheirrespectivecapitalsemployed。Theinterestofmoney,keepingpacealwayswiththeprofitsofstock,might,inthismanner,begreatlydiminished,thoughthevalueofmoney,orthequantityofgoodswhichanyparticularsumcouldpurchase,wasgreatlyaugmented。
Insomecountriestheinterestofmoneyhasbeenprohibitedbylaw。Butassomethingcaneverywherebemadebytheuseofmoney,somethingoughteverywheretobepaidfortheuseofit。
Thisregulation,insteadofpreventing,hasbeenfoundfromexperiencetoincreasetheevilofusury;thedebtorbeingobligedtopay,notonlyfortheuseofthemoney,butfortheriskwhichhiscreditorrunsbyacceptingacompensationforthatuse。Heisobliged,ifonemaysayso,toinsurehiscreditorfromthepenaltiesofusury。
Incountrieswhereinterestispermitted,thelaw,inordertopreventtheextortionofusury,generallyfixesthehighestratewhichcanbetakenwithoutincurringapenalty。Thisrateoughtalwaystobesomewhatabovethelowestmarketprice,orthepricewhichiscommonlypaidfortheuseofmoneybythosewhocangivethemostundoubtedsecurity。Ifthislegalrateshouldbefixedbelowthelowestmarketrate,theeffectsofthisfixationmustbenearlythesameasthoseofatotalprohibitionofinterest。Thecreditorwillnotlendhismoneyforlessthantheuseofitisworth,andthedebtormustpayhimfortheriskwhichherunsbyacceptingthefullvalueofthatuse。Ifitisfixedpreciselyatthelowestmarketprice,itruinswithhonestpeople,whorespectthelawsoftheircountry,thecreditofallthosewhocannotgivetheverybestsecurity,andobligesthemtohaverecoursetoexorbitantusurers。Inacountry,suchasGreatBritain,wheremoneyislenttogovernmentatthreepercentandtoprivatepeopleuponagoodsecurityatfourandfourandahalf,thepresentlegalrate,fivepercent,isperhapsasproperasany。
Thelegalrate,itistobeobserved,thoughitoughttobesomewhatabove,oughtnottobemuchabovethelowestmarketrate。IfthelegalrateofinterestinGreatBritain,forexample,wasfixedsohighaseightortenpercent,thegreaterpartofthemoneywhichwastobelentwouldbelenttoprodigalsandprojectors,whoalonewouldbewillingtogivethishighinterest。Soberpeople,whowillgivefortheuseofmoneynomorethanapartofwhattheyarelikelytomakebytheuseofit,wouldnotventureintothecompetition。Agreatpartofthecapitalofthecountrywouldthusbekeptoutofthehandswhichweremostlikelytomakeaprofitableandadvantageoususeofit,andthrownintothosewhichweremostlikelytowasteanddestroyit。Wherethelegalrateofinterest,onthecontrary,isfixedbutaverylittleabovethelowestmarketrate,soberpeopleareuniversallypreferred,asborrowers,toprodigalsandprojectors。
Thepersonwholendsmoneygetsnearlyasmuchinterestfromtheformerashedarestotakefromthelatter,andhismoneyismuchsaferinthehandsoftheonesetofpeoplethaninthoseoftheother。Agreatpartofthecapitalofthecountryisthusthrownintothehandsinwhichitismostlikelytobeemployedwithadvantage。
Nolawcanreducethecommonrateofinterestbelowthelowestordinarymarketrateatthetimewhenthatlawismade。
Notwithstandingtheedictof1766,bywhichtheFrenchkingattemptedtoreducetherateofinterestfromfivetofourpercent,moneycontinuedtobelentinFranceatfivepercent,thelawbeingevadedinseveraldifferentways。
Theordinarymarketpriceofland,itistobeobserved,dependseverywhereupontheordinarymarketrateofinterest。Thepersonwhohasacapitalfromwhichhewishestoderivearevenue,withouttakingthetroubletoemployithimself,deliberateswhetherheshouldbuylandwithitorlenditoutatinterest。Thesuperiorsecurityofland,togetherwithsomeotheradvantageswhichalmosteverywhereattenduponthisspeciesofproperty,willgenerallydisposehimtocontenthimselfwithasmallerrevenuefromlandthanwhathemighthavebylendingouthismoneyatinterest。Theseadvantagesaresufficienttocompensateacertaindifferenceofrevenue;buttheywillcompensateacertaindifferenceonly;andiftherentoflandshouldfallshortoftheinterestofmoneybyagreaterdifference,nobodywouldbuyland,whichwouldsoonreduceitsordinaryprice。Onthecontrary,iftheadvantagesshouldmuchmorethancompensatethedifference,everybodywouldbuyland,whichagainwouldsoonraiseitsordinaryprice。Wheninterestwasattenpercent,landwascommonlysoldfortenandtwelveyears’purchase。Asinterestsunktosix,five,andfourpercent,thepriceoflandrosetotwenty,five—and—twenty,andthirtyyears’purchase。ThemarketrateofinterestishigherinFrancethaninEngland;andthecommonpriceoflandislower。InEnglanditcommonlysellsatthirty,inFranceattwentyyears’
purchase。
CHAPTERV
OftheDifferentEmploymentofCapitalsTHOUGHallcapitalsaredestinedforthemaintenanceofproductivelabouronly,yetthequantityofthatlabourwhichequalcapitalsarecapableofputtingintomotionvariesextremelyaccordingtothediversityoftheiremployment;asdoeslikewisethevaluewhichthatemploymentaddstotheannualproduceofthelandandlabourofthecountry。
Acapitalmaybeemployedinfourdifferentways:either,first,inprocuringtherudeproduceannuallyrequiredfortheuseandconsumptionofthesociety;or,secondly,inmanufacturingandpreparingthatrudeproduceforimmediateuseandconsumption;or,thirdly,intransportingeithertherudeormanufacturedproducefromtheplaceswheretheyaboundtothosewheretheyarewanted;or,lastly,individingparticularportionsofeitherintosuchsmallparcelsassuittheoccasionaldemandsofthosewhowantthem。Inthefirstwayareemployedthecapitalsofallthosewhoundertaketheimprovementorcultivationoflands,mines,orfisheries;inthesecond,thoseofallmastermanufacturers;inthethird,thoseofallwholesalemerchants;andinthefourth,thoseofallretailers。Itisdifficulttoconceivethatacapitalshouldbeemployedinanywaywhichmaynotbeclassedundersomeoneorotherofthosefour。
Eachofthesefourmethodsofemployingacapitalisessentiallynecessaryeithertotheexistenceorextensionoftheotherthree,ortothegeneralconveniencyofthesociety。
Unlessacapitalwasemployedinfurnishingrudeproducetoacertaindegreeofabundance,neithermanufacturesnortradeofanykindcouldexist。
Unlessacapitalwasemployedinmanufacturingthatpartoftherudeproducewhichrequiresagooddealofpreparationbeforeitcanbefitforuseandconsumption,iteitherwouldneverbeproduced,becausetherecouldbenodemandforit;orifitwasproducedspontaneously,itwouldbeofnovalueinexchange,andcouldaddnothingtothewealthofthesociety。