[NTEREST. 



tricacy. Hence the origin of "Merchants," who ferve as 

 agents between different parts of the ftate ; and in all the 

 tranfadlions which this bufinefs of connefting agency or 

 merchandize occafions, it is neceflary and reafonablc that a 

 conliderable part of the commodities and labour ihoiild be- 

 long to the merchant, to wiiom, in a great meafure, they are 

 owing. Thefe commodities he will fometimes preferve in 

 kind, or more commonly convert into money, which is their 

 common reprefentation. If gold and filver have increafed 

 in tlie ftate, together with the indullry, it will require a great 

 quantity of thefe metals to reprefent a great quantity of 

 commodities and labour. If induftry alone has increafed, 

 the prices of every thing muft fink, and a fmall quantity of 

 fpecic will ferve as a reprefentative. Trade, fays Mr. Hume, 

 increafes frugality, and among merchants there is the fame 

 overplus of mifers above prodigals, as, among the pofieflbrsof 

 land, there is the contrary. Commerce increafes induftry, as 

 wel! as frugality. Merchants begtt induftry, and by their fru- 

 gality they acquire great power over that induftry, and col- 

 left a large property in the labour and commodities which 

 they are the chief inllruments in producing. Without com- 

 merce the ftate muft confift chiefly of landed gentry, whofe 

 prodigality and expence make a continual demand for bor- 

 rowing ; and of peafants, who have no fums to fupply that 

 demand. The money never gathers into large ftocks or 

 fums, which can be lent at intereft. Commerce alone af- 

 fembles it into confiderablc fums ; and this effecl it has 

 merely from the induftiy which it begets, and the frugality 

 wliich it infpires, independent of that particular quantity of 

 precious metal which may circulate in the ftate. Thus an 

 increafe of commerce neceflarily raifes a great number of 

 lenders, and by that means produces lownefs of intereft. 

 The next confideration is, that this increafe of com- 

 merce diminilhes the profits arifing from that profeftion, 

 and gives rife to the ihird circiunftance, above-mentioned, 

 requifite to produce lownefs of intereft. When commerce 

 has become extenfive, and employs large ftocks, there muft 

 arife rivaldiips among the merchants, which diminifh the 

 profits of trade, at the fame time that they increafe the 

 trade itfelf The low profits of merchandize induce the 

 merchants to accept more willingly of a low intereft, when 

 they leave off bufinefs, and begin to indulge themfelves in eafe 

 and indrlence. Low intereft and low profits both arife from 

 an extenfive commerce, and mutually forward each other. 

 No man will accept of low profits, where he can have high 

 intereft ; and no man will accept of low intereft, where he can 

 have high profits.. An extenfive commerce, by producing 

 large ftocks, diminifhes both intereft and profits; and is 

 aUvavs afliiied, in its diminution of the one, by the propor- 

 tional fiwking of the other. Thofe, fays our author, who 

 have afferted, that the plenty of money was the caufe of low 

 intereft, feem to have taken a collateral effeft for a caufe ; 

 fince the fame induftry, which finks the intereft, commonly 

 acquires great abundance of the precious metals. But 

 though plenty of money and low intereft naturally arife from 

 commerce and induftry, they are altogether independent of 

 each other. As to the rcduif ion of intereft, which has taken 

 place in England, France, and other kingdoms of Europe, 

 that have no mines, it has been gradual ; and has not pro- 

 ceeded, fays Mr. Hup e, from the increafe of money, con- 

 fidercd merely in ilfclf ; but from that of induftry, which is 

 the naiural effeft of the former increaie, in that interval, 

 before it raifes the price of labour and provifions. Dr. 

 Sir.ith (Wealth of Nations, vol. ii. p. 39.) coincides in 

 opinion with Mr. Hume, and propofes a very ftiort and plain 

 argument, which, bethinks, may ferve to explain the fallacy 

 by which thofe have been mifled who afcribe the lowering 



of the rate of intereft to tlie increafe of the quantity of gold 

 and filver. Before the difcovcry of the Spanifti Weft Indies, 

 loper ant. feems to have been the common rate of intereft 

 through the greater part of Europe. It has fince that time 

 in difterent countries funk to 6, 5, 4, and ^ per cnit. Let us 

 fuppofe that in every particular country the value of filver 

 has funk precifely in the fame proportion as the rate of in- 

 tereft ; ai d that in thofe countries, for example, where in- 

 tereft has been reduced from 10 to ^ per ctr.t., the fame 

 quantity of filver can now purchafe juft half the quantity of 

 goods which it could have purcbafed before. This fuppofi- 

 tion will not, as Dr. Smith believes, be found any where 

 agreeable to the truth, but it is the moft favourable to the 

 opinion now examined ; and even upon this fuppofition it is 

 utterly impoffible that the lowering of the value of filver 

 could have the fmalleft tendency to lower the rate of in- 

 tereft. If 100/. are in thefe countries now of no more 

 value than 50/. were then, lo/. muft now be of no more 

 value than 5/. were then. Whatever were the caufes which 

 lowered the value of the capital, the lame muft neceffarily 

 have lowered that of the intereft, and exaflly in the fame 

 proportion. The proportion between the value of the ca- 

 pital and that of the intereft muft have remained the fame, 

 though the rate had never been altered. By altering the 

 rate, on the contrary, the proportion between thefe two 

 values is neceffarily altered. If too/, now are worth no more 

 than 50/. were then, 5/. now can be worth no more than 

 7.1. IOJ-. were then. By reducing the rate of intereft, there- 

 fore, from 10 to 5/.-;- cent., we give for the ufe of a capital, 

 which is fuppofed to be equal to one-half of its former 

 value, an intereft which is equal to one-fourth only of the 

 valr.e of the former intereft. Any increafe in the quantity 

 of filver, while that of the commodities circulated by means 

 of it remained the fame, could have no other effeft than to 

 diminifh the value of that metal. The nominal value of all 

 forts of goods would be greater, but their real value would 

 be precifely the fame as before. They would be exchanged 

 for a greater number of pieces of filver, but the quantity of 

 labour which they could command, the number of people 

 whom they could maintain and employ, would be precifely 

 the fame. The capital of the country would be the fame, 

 though a great number of pieces might be requifite for con- 

 veying any equal portion of it from one hand to another. 

 The funds for maintaining produiSive labour being the fame, 

 the demand for it would be the fame. Its price, or wages, 

 therefore, though nominally greater, would really be tlie 

 fame, they would be paid in a greater number of pieces of 

 filver ; but they would purchafe only the fame quantity of 

 goods. The profits of ftock would be the fame both nomi- 

 nally and really. The profits of ftock are not computed by 

 the number of pieces of filver with which they are paid, 

 but by the proportion which thofe pieces bear to the whole 

 capital employed. The common proportion between capital 

 and profit would be the fame, and confequently the common 

 intereft of money ; what can commonly be given for the ufe 

 of money being neceffarily regulated by what can commonly 

 be made of it. The intereft of money, keeping pace always 

 with the profits of ftock, might be greatly diminilhed, though 

 the value of money, or the quantity of goods which any 

 particular fum could purchafe, was greatly augmented. 



In countries, fays our ingenious author, where intereft is 

 permitted, the law, in order to prevent the extenfion of 

 ui^ury, generally fixes the higheft rale which can be taken 

 without incurring a penalty. This rate ought always to be 

 fomewhat above the loweft market price, or the price which 

 is commonly paid for the ufe of money by thofe who can 

 give the nxoft undoubted fecurity. If thib legal rale flipuld 



be 



