Whatever were the causes which lowered the
value of the capital, the same must necessarily
have lowered that of the interest, and exactly
in the same proportion. The proportion between
the value of the capital and that of the
interest must have remained the same, though
the rate had never been altered. By altering
the rate, on the contrary, the proportion between
those two values is necessarily altered.
If L.100 now are worth no more than L.50
were then, L.5 now can be worth no more
than L.2, 10s. were then. By reducing the
rate of interest, therefore, from ten to five per
cent. we give for the use of a capital, which
is supposed to be equal to one half of its former
value, an interest which is equal to one
fourth only of the value of the former interest.
An increase in the quantity of silver, while
that of the commodities circulated by means
of it remained the same, could have no other
effect than to diminish the value of that metal.
The nominal value of all sorts of goods would
be greater, but their real value would be precisely
the same as before. They would be exchanged
for a greater number of pieces of silver;
but the quantity of labour which they
could command, the number of people whom
they could maintain and employ, would be
precisely the same. The capital of the country
would be the same, though a greater number
of pieces might be requisite for conveying any
equal portion of it from one hand to another.
The deeds of assignment, like the conveyances
of a verbose attorney, would be more cumbersome;
but the thing assigned would be precisely
the same as before, and could produce
only the same effects. The funds for maintaining
productive labour being the same, the
demand for it would be the same. Its price
or wages, therefore, though nominally greater,
would really be the same. They would be
paid in a greater number of pieces of silver,
but they would purchase only the same quantity
of goods. The profits of stock would be
the same, both nominally and really. The
wages of labour are commonly computed by
the quantity of silver which is paid to the labourer.
When that is increased, therefore,
his wages appear to be increased, though they
may sometimes be no greater than before.
But the profits of stock are not computed by
the number of pieces of silver with which they
are paid, but by the proportion which those
pieces bear to the whole capital employed.
Thus, in a particular country, 5s. a-week are
said 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
same as before, the competition between the
different capitals of individuals into which it
was divided would likewise be the same.
They would all trade with the same advantages
and disadvantages. The common proportion
between capital and profit, therefore,
would be the same, and consequently the common
interest of money; what can commonly
be given for the use of money being necessarily
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 same, would, on the contrary,
produce many other important effects, besides
that of raising the value of the money. The
capital of the country, though it might nominally
be the same, would really be augmented.
It might continue to be expressed by the same
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 consequently
the demand for that labour. Its wages would
naturally rise with the demand, and yet might
appear to sink. 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 composed would naturally be augmented
along with it. The owners of those particular
capitals would be obliged to content
themselves 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 sum could purchase,
was greatly augmented.
In some countries the interest of money
has been prohibited by law. But as something
can everywhere be made by the use of
money, something ought everywhere to be
paid for the use of it. This regulation, instead
of preventing, has been found from experience
to increase the evil of usury. 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 compensation for
that use, he is obliged, if one may say so, to
insure his creditor from the penalties of usury.
In countries where interest 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 somewhat 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 same as those of a total
prohibition of interest. The creditor will not
lend his money for less than the use of it is
worth, and the debtor must pay him for the
risk which he runs by accepting the full value