of that use. If it is fixed precisely at the
lowest market price, it ruins, with honest people
who respect the laws of their country, the
credit of all those who cannot give the very
best security, and obliges them to have recourse
to exorbitant usurers. In a country
such as Great Britain, where money is lent to
government at three per cent. and to private
people, upon good security, at four and four
and a-half, the present 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 lowest market rate. If
the legal rate of interest in Great Britain,
for example, was fixed so 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 use of it, and thrown into
those which were most likely to waste and destroy
it. Where the legal rate of interest, on
the contrary, is fixed but a very little above
the lowest market rate, sober people are universally
preferred, as borrowers, to prodigals
and projectors. The person who lends money
gets nearly as much interest from the former
as he dares to take from the latter, and his
money is much safer in the hands of the one
set of people than in those 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
interest from five to four per cent. money
continued to be lent in France at five per
cent. the law being evaded in several different
ways.
The ordinary market price of land, it is to
be observed, depends everywhere upon the ordinary
market rate of interest. 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
should buy land with it, or lend it out at interest.
The superior security of land, together
with some other advantages which almost
everywhere attend upon this species of
property, will generally dispose him to content
himself with a smaller revenue from land,
than what he might have by lending out his
money at interest. These advantages are sufficient
to compensate a certain difference of
revenue; but they will compensate a certain
difference only; and if the rent of land should
fall short of the interest of money by a greater
difference, nobody would buy land, which
would soon reduce its ordinary price. On
the contrary, if the advantages should much
more than compensate the difference, everybody
would buy land, which again would
soon raise its ordinary price. When interest
was at ten per cent. land was commonly sold
for ten or twelve years purchase. As interest
sunk to six, five, and four per cent. the price
of land rose to twenty, five-and-twenty, and
thirty years purchase. The market rate of
interest is higher in France than in England,
and the common price of land is lower. In
England it commonly sells at thirty, in France
at twenty years purchase.
CHAP. V.
OF THE DIFFERENT EMPLOYMENTS OF
CAPITALS.
Though all capitals are destined for the maintenance
of productive labour only, yet the
quantity of that labour which equal capitals
are capable of putting into motion, varies extremely
according to the diversity of their employment;
as does likewise 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, first, in procuring the rude
produce annually required for the use and
consumption of the society; or, secondly, in
manufacturing and preparing that rude produce
for immediate use and consumption; or,
thirdly in transporting either the rude or manufactured
produce from the places where
they abound to those where they are wanted;
or, lastly, in dividing particular portions of
either into such small parcels as suit the occasional
demands of those who want them.
In the first way are employed the capitals of
all those who undertake improvement or cultivation
of lands, mines, or fisheries; in the
second, those of all master manufacturers; in
the third, those of all wholesale merchants;
and in the fourth, those of all retailers. It is
difficult to conceive that a capital should be
employed in any way which may not be classed
under some one or other of these four.
Each of those four methods of employing
a capital is essentially necessary, either to the
existence or extension of the other three, or
to the general conveniency of the society.
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