ESSAY IV.

OF INTEREST.

NOTHING is esteemed a more certain sign of the flourishing condition of any nation than the lowness of interest and with reason, though I believe the cause is somewhat different from what is commonly apprehended. Lowness of interest is generally ascribed to plenty of money. But money, however plentiful, has no other effect, if fixed, than to raise the price of labor. Silver is more common than gold, and therefore you receive a greater quantity of it for the same commodities. But do you pay less interest for it? Interest in Batavia and Jamaica is at 10 per cent., in Portugal at 6, though these places, as we may learn from the prices of every thing, abound more in gold and silver than either London or Amsterdam.

Were all the gold in England annihilated at once, and one and twenty shillings substituted in the place of every guinea, would money be more plentiful, or interest lower? No, surely we should only use silver, instead of gold. Were gold rendered as common as silver, and silver as common as copper, would money be more plentiful, or interest lower? We may assuredly give the same answer. Our shillings would then be yellow,

and our halfpence white; and we should have no guinNo other difference would ever be observed; no alteration on commerce, manufactures, navigation, or interest; unless we imagine that the color of the metal is of any consequence.

Now, what is so visible in these greater variations of scarcity or abundance in the precious metals, must hold in all inferior changes. If the multiplying of gold and silver fifteen times makes no difference, much less can the doubling or tripling them. All augmentation has no other effect than to heighten the price of labor and commodities; and even this variation is little more than that of a name. In the progress towards these changes, the augmentation may have some influence, by exciting industry; but after the prices are settled, suitably to the new abundance of gold and silver, it has no manner of influence.

An effect always holds proportion with its cause. Prices have risen near four times since the discovery of the Indies; and it is probable gold and silver have multiplied much more: but interest has not fallen much above half. The rate of interest, therefore, is not derived from the quantity of the precious metals.

Money having chiefly a fictitious value, the greater or less plenty of it is of no consequence, if we consider a nation within itself; and the quantity of specie, when once fixed, though ever so large, has no other effect than to oblige every one to tell out a greater number of those shining bits of metal for clothes, furniture, or equipage, without increasing any one convenience of life. If a man borrow money to build a house, he then carries home a greater load; because the stone, timber, lead, glass, &c. with the labor of the masons and carpenters, are represented by a greater quantity of gold and

silver. But as these metals are considered chiefly as representations, there can no alteration arise from their bulk or quantity, their weight or color, either upon their real value or their interest. The same interest, in all cases, bears the same proportion to the sum. And if you lent me so much labor and so many commodities, by receiving five per cent. you always receive proportional labor and commodities, however represented, whether by yellow or white coin, whether by a pound or an ounce. It is in vain, therefore, to look for the cause of the fall or rise of interest in the greater or less quantity of gold and silver, which is fixed in any nation.

High interest arises from three circumstances: a great demand for borrowing, little riches to supply that demand, and great profits arising from commerce: and the circumstances are a clear proof of the small advance of commerce and industry, not of the scarcity of gold and silver. Low interest, on the other hand, proceeds from the three opposite circumstances: a small demand for borrowing; great riches to supply that demand; and small profits arising from commerce and these circumstances are all connected together, and proceed from the increase of industry and commerce, not of gold and silver. We shall endeavor to prove these points; and shall begin with the causes and the effects of a great or small demand for borrowing.

When a people have emerged ever so little from a savage state, and their numbers have increased beyond the original multitude, there must immediately arise an inequality of property; and while some possess large tracts of land, others are confined within narrow limits, and some are entirely without landed property. Those who possess more land than they can labor, employ those who possess none, and agree to receive a deter

minate part of the product. Thus the landed interest is immediately established; nor is there any settled government, however rude, in which affairs are not on this footing. Of these proprietors of land, some must presently discover themselves to be of different tempers from others; and while one would willingly store up the produce of his land for futurity, another desires to consume at present what should suffice for many years. But as the spending of a settled revenue is a way of life entirely without occupation; men have so much need of somewhat to fix and engage them, that pleasures, such as they are, will be the pursuit of the greater part of the landholders, and the prodigals among them will always be more numerous than the misers. In a state, therefore, where there is nothing but a landed interest, as there is little frugality, the borrowers must be very numerous, and the rate of interest must hold proportion to it. The difference depends not on the quantity of money, but on the habits and manners which prevail. By this alone the demand for borrowing is increased or diminished. Were money so plentiful as to make an egg be sold for sixpence; so long as there are only landed gentry and peasants in the state, the borrowers must be numerous, and interest high. The rent for the same farm would be heavier and more bulky: but the same idleness of the landlord, with the high price of commodities, would dissipate it in the same time, and produce the same necessity and demand for borrowing.*

* I have been informed by a very eminent lawyer, and a man of great knowledge and observation, that it appears, from ancient papers and records, that about four centuries ago, money in Scotland, and probably in other parts of Europe, was only at five per cent., and afterwards rose to ten, before the discovery of the West Indies. The fact is curious; but might easily be recon

Nor is the case different with regard to the second circumstance which we proposed to consider, namely, the great or little riches to supply the demand. This effect also depends on the habits and way of living of the people, not on the quantity of gold and silver. In order to have, in any state, a great number of lenders, it is not sufficient nor requisite that there be great abundance of the precious metals. It is only requisite that the property or command of that quantity, which is in the state, whether great or small, should be collected in particular hands, so as to form considerable sums, or compose a great moneyed interest. This begets a number of lenders, and sinks the rate of usury; and this, I shall venture to affirm, depends not on the quantity of specie, but on particular manners and customs, which make the specie gather into separate sums or masses of considerable value.

For, suppose that, by miracle, every man in Great Britain should have five pounds slipped into his pocket in one night; this would much more than double the whole money that is at present in the kingdom; yet there would not next day, nor for some time, be any more lenders, nor any variation in the interest. And were there nothing but landlords and peasants in the state, this money, however abundant, could never gather into sums, and would only serve to increase the prices of every thing, without any further consequence. The prodigal landlord dissipates it as fast as he receives it; and the beggarly peasant has no means, nor view, nor am

ciled to the foregoing reasoning. Men in that age lived so much at home, and in so very simple and frugal a manner, that they had no occasion for money; and though the lenders were then few, the borrowers were still fewer. The high rate of interest among the early Romans is accounted for by historians from the frequent losses sustained by the inroads of the enemy. -EDITIONS F, G, H.