vii.] INSTITUTE OF BANKERS. 213 



It was for a long time, indeed until the middle of the 

 last century, generally supposed that the rate of interest 

 would, apart from legislative enactment, be regulated by 

 the scarcity or abundance of money ; an extraordinary 

 fallacy, when it is considered that the interest itself is 

 payable in money. It is now, however, admitted, by 

 all those who have studied the subject, that the rate of 

 interest, is in the long run, ruled by the average rate 

 of profit derivable from the employment of capital. Of 

 this a striking proof is afforded by the case of Australia, 

 and still more by that of California, where, although, 

 in consequence of their gold mines that metal was 

 peculiarly abundant, the rate of interest has been ex- 

 tremely high. The high rates which prevailed so 

 generally in ancient times were, to a great extent, due 

 to the uncertainty of repayment, both from the unsettled 

 state of politics and from the uncertainty of the laws. 

 I trust I may put in a word for ancient bankers by 

 pointing out that the high rates which they charged 

 were not due to their covetousness, but to this insecurity 

 of repayment. Instead, however, of endeavouring to 

 cure the evil by removing the cause, legislators 

 attempted to put down high rates of interest by 

 rendering them illegal. In this they were not only 

 not successful, but they produced the very opposite 

 effect from that which they intended. Thus, in 

 France the legal rate, which had been 5 per cent., 

 was lowered in 1766 to 4 per cent., but the result 

 was to raise, not to lower the real rate, because the 

 borrower had not only to pay interest, but to com- 

 pensate the lender for the additional risk. 



Again, in Mohammedan countries, notwithstanding 



