Chap。II
OftheNatureofObligationstobeperformed，inconsequenceofCreditgiven；andofwhatismeantbythetermsregorgingandstagnatingofmoneyWehavealreadysaid，thatallobligationscontractedwithaviewtobeperformedinfuturetime，consistindoingorgivingsomethinginconsiderationofsomethingdoneorgiven。
Whenactionsonlyarestipulatedincontracts，creditinastrictacceptationofthetermislittleconcerned；becausenoadequatesecuritycanbegivenforperforminganaction:suchcontractsstandwhollyuponthewillingnessandcapacityofacting，whichdependmoreuponthepersonthanuponthefacultiesofthedebtor。Tosupplythisdefect，weseepenaltiesusuallystipulatedinsuchcases；whichreducethosecontractstoanalternativeobligationofeitherdoingorgiving。
Weshallthereforethrowouttheconsiderationofthefirstaltogether，asbeingforeigntoourpurpose；andadheretothelater，whichisthetrueobjectofcredit。Again:
Inallobligationstogiveanyparticularthing，thereisconstantlyimpliedanalternativealso；towit，eitherthethingstipulated，orthevalueidquodinterest，accordingtothelawyers:thismustberelativetomoney；whichisthecommonpriceofallthingsincommerceamongmen。
Thuswehavebroughtcredittotheobjectunderwhichwearetoconsiderit，viz。theobligationtopaymoney，eitherforvaluereceived，orforsomeconsiderationrelativetotheparties，whichmaybethejustgroundofacontract。
Creditanddebtsarethereforeinseparable，becausetheynecessarilyimplyeachother；andveryproperlycometobeexaminedtogetherinthisbook。
Whenmoneyistobepaidatadistantperiodoftime，theobligationmayeitherbe，foroneprecisesum；orforthatsumwithinterest，duringtheintervalbetweencontractingandfulfillingtheobligation。
Thelendingofmoneywithoutinterest，wasverycommonbeforetheintroductionoftradeandindustry。Moneythenwasconsideredasabarrenstock，incapableofproducingfruit；andwheneverthequantityofit，inanycountry，exceededtheusesofcirculation，theremainderwaslockedupintreasures:inwhichcase，theexactingofinterestforitappearedunreasonable。
Thingsarenowchanged:nomoneyiseverlockedup；andwhenborrowed，theregularpaymentofinterestforit，isasessentialtotheobtainingofcredit，astheconfidenceofbeingrepaidthecapital。Theseperiodicalpaymentsareaconstantcorroborationofthisconfidence；sothatitmaybesaidwithtruth，thathewhocangivegoodsecurity，topaytoperpetuity，aregularinterestformoney，willobtaincreditforanysum，althoughitshouldappearevident，thathenevercanbeinacapacitytorefundthecapital。
Thereasonofthismaybegatheredfromtheprinciplesalreadydeduced，andfromtheplanofourmodernoeconomy。
Wehavesaidinthesecondbook，thatthecurrentmoneyofacountryisalwaysinproportiontothetrade，industry，consumption，andalienation，whichregularlytakeplaceinit；
andwhenithappensthatthemoneyalreadyinthecountryisnotsufficientforcarryingonthesepurposes，apartofthesolidproperty，equaltothedeficiency，maybemelteddownaswehavecalleditandmadetocirculateinpaper:thatassoonagainasthispaperaugmentsbeyondthisproportion，apartofwhatwasbeforeincirculation，mustreturnuponthedebtorinthepaper，andberealizedanew。
Letusnowconsiderwhatisunderstoodbyrealized。Bythistermismeant，thattheregorgingpaper，orthatquantityofcurrencywhichanationpossessesoverandabovewhatisnecessaryforitscirculation，mustbeturnedintosomeshapewherebyitmayproduceanincome；foritisnowamaxim，thatnomoneyistobesufferedtoremainuselesstotheproprietorofit。2*
Whenthisregorgingorstagnatingpaperthencomesuponthedebtorinit，ifheshouldpaythevalueofitinhardspecie，howwouldtheconditionofthecreditorbeimproved？
Wesupposethecreditofthepaperequaltothecreditofthecoinwithinthecountry。Wealsosupposethatthepaperhassostagnatedinthehandsofthebearer，thathecanneitherlendit，orpurchasewithitanyspeciesofsolidproperty，withinthecountry，capabletoproduceanincome:forifanywayofdisposingitusefullycanbefound，thiscircumstancewillprovethatcirculationisnotoverstockedatthattime；consequently，themoneydoesnotregorge。Butletussupposethatitdoesregorge:thenhemusteitherobligethedebtorinthepapertopayincoin，thathemaylockitupinhiscofferaswasthecaseofold；orhemustsendhiscointoothercountries，wherecirculationisnotfullystocked，andwhereanincomemaybeboughtwithit。Thisconstantlyhappenswhencirculationiseitheroverstocked，orwhenthequantityofcirculationbeginstodiminishinacountry。
Letmenextsuppose，thatinacountryoverstockedwithmoney，asuddendemandforit，farbeyondtheordinaryrateofcirculation，shalloccur:supposeawartobreakout，whichabsorbs，inashorttime，moremoneythan，perhaps，allthecoinandallthepapercansupply。Thestateuponthisoccasionimposesatax，which，letmesuppose，mayproduceasumequaltotheinterestofthemoneyrequired。Isitnotverycertain，thatsuchpersonswhofoundadifficultyinplacingtheirregorgingcapitals，willbebetterpleasedtopurchaseapartofthisannualinterest，thantolendittoanypersonwhomightpayitbackinashorttime；bywhichrepaymentthelenderwouldagainbethrownintothesameinconvenienceasbefore，offindingaproperout-letforit？Thisisawayofrealizingsuperfluousmoney，moreeffectualthanturningitintogoldorsilver。
WhenIspeak，therefore，ofrealizingpapermoney，I
understandeithertheconvertingofitintogoldandsilver，whichisthemoneyoftheworld；ortheplacingofitinsuchawayastoproduceaperpetualfundofannualinterest。
Werepublicborrowing，therefore，toworktheeffectofbringingthemoneyincirculationbelowtheproportionrequiredforcarryingonalienation，trade，etc。thenanobligationtorepaythecapitalwouldbenecessary，andcomplaintswouldbeheardagainstthestatefornotpayingofftheirdebts；becausetherebytheprogressofindustrywouldbeprevented。Butwhentheoperationsofcreditareallowedtointroduceamethodofcreatingmoneyanew，inproportionastradeandindustryshalldemandit，thenthestatehasnooccasiontopaybackthecapitals；becausethepubliccreditorsenjoyfarbetterconditionsintheirannualincome，thaniftheircapitalswererefunded。
Letmeillustratethisbyanexample。
Wemusttakeitforgranted，thatineverynationinEurope，thereisasumincirculation，nearlyequaltothealienation，trade，etc。whichgoesonactuallyatthetime。Wemustalsotakeitforgranted，thattheamountofalldebtswhatsoever，publicandprivate，payinginteresttotheclassofcreditors，iseverywhereaverygreatsum:nowletussuppose，thattheclassofdebtorsshouldbeenablednomatterbywhatmeanstopayoffwhattheyowe，incoinnewlyacquired；wouldnot，bythesupposition，asumoftheoldcurrencynearlyequaltothiscoinnewlyacquired，immediatelyfallintostagnation，andwoulditnotbeimpossibletodrawanyincomefromthisstagnatedcoin？
Thiswasexactlythecaseofold。Thecoinfarexceededtheusesofcirculation，andstagnatedintreasures。Warsbroughtitout；
becausethencirculationaugmented；peaceagaincuttingofftheseextraordinarydemands，thecoinstagnatedagain，andreturnedtothetreasures。
Whatisthecaseatpresent？
Moneyandcoinareneverfoundtosurpasstheusesofcirculationincommercialcountries。Whenwarcomes，whichdemandsanextraordinarysupply，recourseishadtoborrowinguponinterest；nottotreasures:andthedesireofpurchasingthisinterest，whichwecallanannuity，drawstreasuresevenfromtheenemiesofthosenationswhohavethebestcredit。
Again，attheendofawar，inplaceofanemptytreasury，aswasthecaseofold，wefindahugesumofpublicdebts。Asoeconomyfilledthetreasurythen，sooeconomymustpayoffthedebtsnow。
Fromwhathasbeensaid，itplainlyappears，thatinterestisnowbecomesoabsolutelyessentialtocredit，thatitmaybeconsideredastheprincipalrequisiteandbasisonwhichthewholefabricstands:weshallthereforebeginbyexaminingtheoriginandnatureofinterest，andalsotheprincipleswhichinfluencetherate，andregulatethefluctuationsofit。
Chap。III
OftheInterestofMoneyIshallleaveittodivinesandcausiststodeterminehowfartheexactingofinterestformoneyislawful，accordingtotheprinciplesofourreligion。
ItwasforbiddentotheJews，bythelawsofMoses，tolendatinteresttotheirbrethren，butitwaspermittedtolendtostrangers。Deut。chap。xxiii，ver。19，20。Thisisoneofthewisestpoliticalinstitutionstobemetwithinsoremoteantiquity，asweshallhereafterexplain。
Intheprimitiveagesofchristianity，thelendingofmoneyatinterestwascertainlyreputedtobeunlawfulonmostoccasions。Thatspiritofcharitytoallwhowereinwant，wassoworkedinwiththedoctrineofourreligion，thataborrowerwasconstantlyconsideredtobeinthatsituation。Tradewaslittleknown；tradingmenweregenerallyilllookedupon；andthosewhodebatedsofarfromthespiritofthetimes，astothinkofaccumulatingwealthbytheuseoftheirmoney，commonlydegeneratedintousurers。
Inthemiddlecenturies，whenamistakenzealanimatedchristianitywithamostungodlythirstforthebloodofinfidels，theJewswere，ineverynationinEurope，almosttheonlymoney-lenders。Thiscircumstancestillmoreengagedthechurchtodartherthunderagainstthispractice；andtheloanuponinterestnevertookrootamongchristians，untilaspiritoftradeandindustrysprungupinItalyinthetimeoftheLombards，andfromthencespreaditself，throughthechanneloftheHans-towns，overseveralnations。
Thenthechurchbegantoopenhereyesandsawtheexpediencyofintroducingmanymodifications，inordertolimitthegeneralanathemawhichshehaddenouncedagainstthewholeclassofmoney-lenders。Atonetimeitwasdeclaredlawfultolendatinterest，whenthecapitalsharedanyrisqueinthehandsoftheborrower；atanother，itwasfoundallowable，whenthecapitalwasnotdemandablefromthedebtor，whilehepaidtheinterest；
again，itwaspermitted，whenthedebtorwasdeclaredbysentenceofajudge，tobeinmorainacquittinghisobligation:atlast，itwaspermittedonbillsofexchange。Inshort，inmostRomancatholiccountries，interestisnowpermittedineveryinterestforcasealmost，exceptinobligationsincludingastipulationofsumsdemandableatanytimeafterthetermofpayment；anditisasyetnowhereconsideredtobesoessentialtoloan，astobedueonalldebtswhatsoever；notevenuponobligationspayableondemand。
Expediencyandthegoodofsocietypoliticallyspeakingaretheonlyruleforjudging，whentheloanuponinterestshouldbepermitted，whenforbidden。Whilepeopleborrowedinorderonlytoprocureacirculatingequivalentforprovidingtheirnecessaries，untiltheycouldhavetimetodisposeoftheireffects；andwhiletherewasseldomanycertainprofittobemadebytheuseofthemoneyborrowed，asnow，byturningitintotrade，itwasverynaturaltoconsiderthelenderinanunfavourablelight；becauseitwassupposedthathismoney，haditnotbeenlent，musthaveremainedlockedupinhiscoffers。Butatpresent，whenweseesomanypeopleemployedinprovidingstoresofnecessariesforothers，which，withoutmoney，cannotbedone；weretheloanuponinterestforbidden，itwouldhavetheeffectoflockinguptheveryinstrumentmoneywhichisnecessaryforsupplyingthewantsofthesociety。Theloan，therefore，uponinterest，associetynowstandscomposed，isestablished，notinfavourofthelenders，butofthewholecommunity；andtakingthematterinthislight，noone，Isuppose，willpretendthatwhatisbeneficialtoawholesocietyshouldbeforbidden，becauseofitsbeingproportionablyadvantageoustosomeparticularmembersofit。
Ifitbethenallowed，thattheloanuponinterestisagoodpoliticalinstitution，relativelytothepresentsituationofEuropeansocieties，thenextquestionis，todetermineaproperstandardforit，soastoavoidtheoppressionofusurers，ononehand，andontheother，toallowsuchareasonableprofittothelender，asmayengagehimtothrowhismoneyintocirculationforthecommonadvantage。
Thisquestionleadsusdirectlytotheexaminationoftheprincipleswhichregulatetherateofinterest；andifwecandiscoveracertainrule，arisingfromthenatureofthings，andfromtheprinciplesofcommerce，whichmaydirectastatesmanhowtoestablishaproperregulationinthismatter，wemayconcludewithcertaintyconcerningtheexactlimits，betweenunlawfulandpinchingusury，exactedbyavicioussetofmen，whoprofitofthedistressofindividuals；andthatreasonableequivalentwhichmenhavearighttoexpectfortheuseoftheirmoney，lentforcarryingonthecirculationoftrade，andtheemploymentofthelowerclassesofapeoplewhomustsubsistbytheirindustryorlabour。
Chap。IV
OfthePrincipleswhichregulatetheRateofInterestWemustnowrecaltomindtheprinciplesofdemandandcompetition，sofullydeducedinthesecondbook，inordertoanswerthefollowingquestion，viz。
Whatistheprinciplewhichregulates，atalltimes，thejustandadequaterateofinterestformoney，inanyparticularstate？
Ianswer，Thatatalltimes，thereisineverystateacertainnumberofpersonswhohaveoccasiontoborrowmoney，andacertainnumberofpersonswhodesiretolend:thereisalsoacertainsumofmoneydemandedbytheborrowers，andacertainsumofferedtobelent。Theborrowersdesiretofixtheinterestaslowastheycan；thelendersseek，fromalikeprincipleofself-interest，tocarrytherateofitashighastheycan。
Fromthiscombinationofinterestsarisesadoublecompetition，whichfluctuatesbetweenthetwoparties。Ifmorebedemandedtobeborrowed，thanthereisfoundtobelent，thecompetitionwilltakeplaceamongtheborrowers。Suchamongthemashavethemostpressingoccasionformoney，willofferthehighestinterest，andwillbepreferred。If，onthecontrary，themoneytobelentexceedthedemandoftheborrowers，thecompetitionwillbeupontheotherside。Suchofthelenders，ashavethemostpressingoccasiontodrawaninterestfortheirmoney，willofferitatthelowestinterest，andthisofferwillbeaccepted。
Ineednotlaunchoutintoarepetitionofwhathasbeensaidconcerningtheinfluenceofdoublecompetition，infixingthepriceofcommodities；asIsupposetheseprinciplestobenowwellunderstood，andwellretained，bythosewhoreadthischapter；Ishallthereforeconfinemyselfheretowhatispeculiartothedemandformoney。
Thepriceofcommoditiesisextremelyfluctuating:theyareeveryonecalculatedforparticularuses；moneyserveseverypurpose。Commodities，thoughofthesamekind，differingoodness:moneyisall，oroughttobeallofthesamevalue，relativelytoitsdenominations。Hencethepriceofmoneywhichiswhatweexpressbytheterminterestissusceptibleofafargreaterstabilityanduniformity，thanthepriceofanyotherthing。
Wehaveshewninthe28thchapterofthesecondbook，inexaminingtheprincipleswhichregulatethepriceofsubsistence，thattheonlythingwhichcanfixastandardforit，isfrequentandfamiliaralienation。Thesameholdstrueofmoney。Werewetosupposeastate，whereborrowingandlendingarenotcommon，andwherethelawsfixnodeterminateinterestformoney，itwouldhardlybepossibletoascertaintherateofitatanytime。Thiswasthecaseofold。
BeforethereignofHenryVIIIofEngland，in1545，therewasnostatuteregulatingtherateofinterest，inthatkingdom。Thereasonisveryplain。Inthosedaystherewaslittlecirculation，andtheborrowingofmoneyuponinterestwasconsideredasamortalsin。Theconsequenceofthiswas，thatusurers，havingnothingbutconsciencetorestrainthem，carriedthepriceoftheirmoneytoalevelwiththepressingoccasionofspendthrifts，whileothers，fromfriendship，lentfornointerestatall。Henryfixedtherateofinterestat10percentandhiscontemporary，FrancisIofFrance，in1522，whowasthefirstwhoborrowedmoneyinaregularmanneruponthetownhouseofParisfixedtheinterestatthe12thpenny，thatis，at81/3
percent。
Inthosedays，itwasimpossibleforastatesmantodetermineanyjustrateforinterest；andaccordinglywefindhistoryfilledwiththeextortionofusurers，ononehand，andtheviolenceandinjusticeofprincesandministerstowardsthosewhohadlentthemmoney，ontheother:wasitthenanywonder，thatlendingatinterestwasuniversallycriedoutagainst？Itreallyproducedverylittlegood，andwasthecauseofmanifoldcalamitiestoastate。WhenthePrinceborrowed，itwasinthemosturgentdistress:thosewhohadmoney，foresawthedangerofbeingplunderediftheyrefusedtolendittohim，andofbeingdefraudedassoonasthepublicdistresswasover:forthisreasontheyexactedthemostexorbitantinterest:theconsequencewas，thatthepeoplewereloadedwiththemostgrievoustaxes，andthetax-gathererswerethePrince’screditors，towhomsuchtaxeswereassigned。
Inourdays，trade，industry，andacallformoney，enabletheborrowertoenrichhimself，tosupplythewantsofthestate，andtopayhisinterestregularly。
Ifwecomparethetwosituations，weshallfindeverydisadvantageattendingtheformer，andeveryadvantageconnectedwiththelatter。
Withoutgoodfaiththeircanbenocredit；withoutcredittherecanbenoborrowingofmoney，notrade，noindustry，nocirculation，nobreadforthelowerclasses，noluxury，noteventheconveniencesoflife，fortherich。Underthesecircumstances，therecanbenorulefortherateofinterest；
becauseborrowingcannotbefrequentandfamiliar。
Inproportion，therefore，asborrowingbecomesfrequentandfamiliar，theruleforfixingtherateofalegalinterestbecomesmorepracticabletoastatesman。Letmemakeastepfarther。
Wehavesaid，thatitisthefluctuationofthedoublecompetitionbetweenborrowersandlenders，whichoccasionstheriseandfalloftherateofinterest；Imustnowpointouttheprincipleswhichoccasionthisfluctuation。
Weretheinterestsoftradeandindustrysoexactlyestablished，astoproducethesameprofitoneverybranchofthem，themoneyborrowedforcarryingthemon，wouldnaturallybetakenatthesamerate；butthisisnotthecase:somebranchesaffordmore，somelessprofit。Inproportion，therefore，totheadvantagestobereapedfromborrowedmoney，theborrowersmayoffermoreorlessfortheuseofit。
Besidestheclassofmenwhoborrowinordertoprofitbytheloan，thereisanotherclass，whoborrowinordertodissipate。
Thefirstclassnevercanofferaninterestwhichexceedstheproportionoftheirgains:thesecondclass，findingnothingbutwantofcredittolimittheirexpence，becomeapreytousurers。
Wereitnotthenuponaccountoftheselast，therewouldbenooccasionforastatutetoregulatetherateofinterest。Theprofitsontradewouldstrikeanaverageamongtheindustriousclasses；andthisaveragewouldfallandrise，inproportiontotheflourishingordecayofcommerce。
Letusnextexaminetheprincipleswhichpreventthemoniedmenfromcommittingextortions，andwhichobligethemtolendtheirmoneyforthatrateofinterestwhichisinproportiontotheprofitsupontradeandindustry。
Ineverycountrythereisfoundasumofmoneythatis，ofcirculatingvalue，nomatterwhethercoinorpaperproportionedtothetradeandindustryofit。Howthissumisdetermined，andhowitismadetoaugmentanddiminishinproportiontoindustry，wehavealreadyexplainedinthe26thchapterofthesecondbook:
wearenowtoexaminesomeoftheconsequenceswhichresultfromtheaccidentalstagnationofanypartofittotheprejudiceofalienation；andwemustshewhowtheloanuponinterestisthemeansofthrowingitagainintocirculation。
Thereareineverystatesomewhospendmore，andsomewhospendlessthantheirincome。Whatisnotspentmuststagnate；ormustbelenttothosewhospendmorethantheproduceoftheirownfunds。Werethefirstclassfoundsotopreponderate，astorequiremoremoneytoborrowthanallthatistobelent，theconsequencewouldbe，topreventtheborrowingofmerchants；toraiseinterestsohighastoextinguishtrade；andtodestroyindustry；andtheseresourcescomingtofail，foreigncommoditieswouldbebroughtin，whileexportationwouldbestopped，moneywoulddisappear，andallwouldfallintodecay。
This，Ibelieve，isacasewhichseldomhappens；becausetheriseofinterestasstatesarenowformedhassomuchtheeffectofdepreciatingthevalueofeveryspeciesofsolidproperty，thatspendthriftsarequicklystrippedofit，bythegrowingaccumulationofthatcankerworm，interest；theirruinterrifiesmanyfromfollowingsohurtfulanexample，andtheirpropertyfallingintothehandsoftheotherclass，whospendlessthantheirincome；thesenewpossessorsintroduce，bytheirexample，amorefrugalsetofmanners。Thismaybethecaseincountrieswheretradeandindustryhavebeenintroduced；andwheretheoperationsofcredithavebeenabletodrawintocirculationalargequantityofsolidproperty，accordingtotheprinciplesdeducedinthechapterabovereferredto。Butinnationsofidleness，whocirculatetheircoinonly，andwhoaredeprivedoftheresourceofcredit；highinterestpreventsthemfromemergingoutoftheirsloth，andthelittletradetheyhave，continuestoproducegreatprofits，whichareincompatiblewithforeigncommerce:thismay，indeed，makethecointheyhavetocirculateforhome-consumption，butitcanbringnoaugmentationofwealthfromabroad。
Ontheotherhand，whentradeandindustryflourish，andwhenamoniedinterestisformed，inconsequenceofthemeltingdownofsolidproperty，andstillmoreinconsequenceofaState’scontractinggreatdebts；werethemoney-lenderstoattempttoraisetherateofinteresttothestandardofthespendthrift，thedemandsoftrade，etc，wouldsoonbecutoff:thestagnationwouldthenswellsofastintheirhands，thatitwouldinamannerchoakthem，andinalittletimeinterestwouldfalltonothing。Whereasbycontentingthemselveswiththestandardoftrade，thelargestsuppliesprovidedfortheborrowerseasilyfindavent，withoutraisingtherateofinterestsohighastobehurtfultoanyinterestwithinthestate。
Addtothis，thattheadvantageofrealizing，intolands，sounstableapropertyasmoney，mustnaturallythrowtheproprietorsofthemoneyintoacompetitionforthelandswhichdissipationbringstomarket；thus，byrisingthevalueoflands，themoniedmen，withtheirownhands，defeattheconsequencesofthedissipationofspendthrifts，andhurttheirowninterest，towit，theriseofthepriceofmoney。Fromacombinationofthesecircumstances，lendersbecomeobligedtopartwiththeirmoneyatthatrateofinterestwhichisthemostconsistentwiththatgoodofcommerce。
Wehavehithertopreservedourcombinationsassimpleaspossible。Wehavesuggestednoextrinsicobstacletoborrowingandlending。Ifmoneybetobelent，andifpeoplebefoundwhoinclinetoborrow，wehavetakenitforgranted，thatcirculationwillgoon；andthatthestagnationsinthehandsofthelenders，willfindareadyventbythedissipationoftheotherclass:wemustnowmakestillastepfarther。
Thespendthriftsmusthavecredit；thatis，theymusthaveitintheirpowertorepaywithinterestwhattheyhaveborrowed:
anyimpedimenttocredit，willhavetheeffecteitherofdiminishingthedemandformoney，andconsequentlyofloweringtherateofinterest，orofintroducingunlawfulusury。Ifwesupposetherateofinterestwelldetermined，andusurypreventedbyaregularexecutionofgoodlaws，itisverycertain，thatastatesmanbyhurtingthecreditofextravagantpeople，willkeeptherateofinterestwithinduebounds。
If，therefore，thelawsofanycountry，inourdays，appeardefective，astotheregulationofsecuritiesformoneylentuponthemortgageofsolidproperty，whiletherateofintereststandshigherthanisconsistentwiththegoodoftrade，andwithpubliccredit；weshouldbeslowinfindingfaultwithsuchadefect。
Themotivesofstatesmenlieverydeep；anditisnotalwayspropertoexplainthem。Anexampleofsuchdefectsareentailsuponlands，andthewantofproperregistersformortgages。
Didthedissipationoflandedmentendtopromoteforeigntrade，suchclogswouldbepernicious:butifthetendencyofdissipationbetopromotedomesticluxuryonly，andtherebytoraisethepriceoflabourandindustry，thecaseiswidelydifferent。Thisobservationismerelyincidental:ourobjectatpresentextendsnofartherthantoshew，thatthedissipationoflandedmen，andthecredittheyhavetoborrowmoney，influence，notalittle，therateofinterestineverymodernstate。
Thesearethegeneralprincipleswhich，arisingfromthingsthemselves，withouttheinterpositionofastatesman，tendtoregulatetherateofinterestincommercialnations。
Chap。V
OftheRegulationofInterestbyStatuteFromtheprinciplesdeducedtheprecedingchapter，wehaveseenhow，withouttheaidofanylaw，theinterestofmoney，inatradingnation，becomesdetermined，fromnaturalcauses，andfromtheirresistibleeffectsofcompetition。
Butasthereisnocountryintheworldsoentirelygiventocommerce，asnottocontaingreatnumbersofpeople，whoaretotallyunacquaintedwithit，someregulationwithrespecttotherateofinterestbecomesnecessaryinordertorestrain，ononehand，thefrenzyofthose，who，listeningtonothingbuttheviolenceoftheirpassions，arewillingtoprocuremoneyatanyrateforthegratificationofthem，letthepoliticalconsequencesoftheirdissipationproveeversohurtfultothestate；andontheother，toprotectthosewho，fromnecessity，maybeobligedtosubmittotheheavyoppressionoftheirusuriouscreditors。
Lawsrestrainingusury，aredirectlycalculatedforthesakeofthosetwoclasses，notengagedincommerce，andindirectlycalculatedforcommerceitself；whichotherwisemightreceiveawoundthroughtheirsides。
Inenteringuponthesubjectmentionedinthetitleofthischapter，Ithinkwemayagreeinthis，thathithertoallregulationsmadeconcerninginterest，havebeencalculatedeitherforbringingitdown，orforpreventingitsrise。Thedistresswhichmaycomeuponastate，byitsfallingtoolow，isaphaenomenonwhichhasnotyetmanifesteditselfinanymodernstate，byanysymptomIcanatpresentrecollect。
Nowifitbetrue，asIthinkithasbeenproved，thattheoperationsofdemandandcompetitionworkirresistibleeffectsindeterminingtherateofinterestincommercialstates；thestatesmanwhoisabouttomakearegulation，mustkeeptheseprinciplesconstantlyinhiseye。
Ifweexaminethewritingsofthosewhohavetreatedofthissubjectwithintelligenceamongwhom，Ithink，SirJosiahChildhasarighttostandintheforemostrank，weshallfindverylittleattentionbestoweduponthatmostnecessaryandrulingprinciple，competition。
Helaysitdownasanaxiom，thatlowinterestisthesouloftrade，inwhichheiscertainlyright；butheseemstothink，thatitisinthepowerofalegislature，bystatute，tobringinterestdowntothatlevelwhichismostadvantageoustotrade；
andinthisIdifferfromhim。Imustdohimthejusticetosay，thathenowheredirectlyaffirmsthisproposition；butbysuggestingnoneoftheinconvenienceswhichmayfollowuponanarbitraryreductionofinterestbystatute，heleaveshisreaderatlibertytosuppose，thattheloweringofitissolelyinthehandsofastatesman。
Itisveryplain，fromthehistoryhehasgivenusofthesuccessiveratesofinterestinEngland，from10to6percentthatwithouttheinterpositionofstatutes，suchdiminutionswouldnot，inthatperiod，havetakenplace，fromtheprincipleofcompetition:butIamnotsoclearthat，atthistime，whentradeissowellunderstood，andcreditsogenerallyestablishedinmanynationsofEurope，thatalikeadministrationwouldworkeffectsequallyadvantageous。
ItiswithgreatdiffidenceIpresumetodifferfromChilduponthissubject；andIfindasensiblesatisfactioninperceivingthatuponthewhole，myprinciplesbringmesoveryneartohissentimentsonthismatter。
ThestrongargumentsinfavourofChild’sopinion，aregroundeduponfacts。Hesays，thatwheninterestwasbroughtdownbystatute，1625，from10to8percentinsteadofproducinganybadeffect，ithadthatofbringingitstilllowerimmediatelyafterwards；andthesamethinghappened，anno1650，whenitwasreducedasecondtimebystatute，from8to6percent，atwhichrateitstoodatthetimehewrote。ThesefactsIgivecreditto，andshallnowaccountforthem，fromtheconsequencesofsuddenrevolutions。
Whenalawismadeforthereductionofinterest，alldebtorsimmediatelyprofitbyit。Uponthis，thecreditorsmusteithersubmit，orcallintheircapitals。Iftheysubmit，landimmediatelyrisesinitsvalue。Iftheycallintheircapitals，theymusthaveanoutletforlendingthemagain，beyondthelimitsofthejurisdictionofthelegislature。Nowthisoutletwasnotthentobefound；becausecreditwasnowherewellestablished，exceptinHolland，whereinterestwasstilllower。
Theywere，therefore，obligedtosubmit，andthusinterestwasviolentlybroughtdownbystatute；andagreatadvantageresultedfromittothecommercialinterestsofEngland。
Thesubsequentfallofinterest，inthenaturalway，isthuseasilyaccountedfor。
Theconsequenceofloweringtheinterest，was，thatthepriceoflandroseseveralyearsinpurchase:thelandedmen，whohadlonggroanedundertheheavyinterestof10percentfindingtheirlandsrisefrom12years’purchaseto15，uponreducingtheinterestto8percentsoldoffpartoftheirlands，andclearedthemselves。Thenaturalconsequenceofthiswas，tomakemoneyregorgeinthehandsofthemoniedmen；todiminishthenumberofborrowers；andconsequently，tobringtherateofintereststilllower。
Onesuddenrevolutionproducesanother。Wheninterestisbroughtdownbystatute，thepriceoflandmustrisebyajerk；
andlandedmenwillsuddenlyprofitofthechangeintheirfavour。Whenitfallsgently，byanaturalrevolutioninthestateofdemand，theeffectsaremoreinsensible；thesharpersightedonlyprofitofit；others，fromexpectationofastillgreaterriseinthepriceoftheirlands，neglecttosellintheproperpointoftime；andmayperhapsbedisappointedfromanewfluctuationinfavourofmoney。ThisisatpresentactuallythecaseinGreatBritain，sincethepeaceof1762。Iwritein1764。
ThesefactsspeakstronglyinfavourofChild’sopinion，namely，thatitisexpedienttohaverecoursedirectlytothestatute，wheneverthereisaprospectofadvancingtheinterestsoftradebyareductionofinterest。
Itisimpossibletoreplytomattersoffact:all，therefore，Ihavetoallegeinfavourofmyownopinion，is，thatitismoreconsistentwiththeveryprinciplesinwhichbothChildandI
agree；itimpliesnosuddenrevolution，andwill，inashorttime，operatethesameeffect。
Themethodofproceeding，accordingtomyprinciples，isshortlythis:
Sinceitisagreedonallhands，thatlowinterestisthesouloftrade，andthefirmestbasisofpubliccredit；thatitrisesinproportiontothedemandofborrowers，andsinksinproportionasmoneyismadetoregorgeinthehandsofthemoniedinterest；
Thestatesmanshouldsetoutbysuchstepsofadministrationaswilldiscourageborrowinginthosewhoemploytheirmoneyinprodigalityanddissipation，asfarasmaybeconsistentwiththeinterestofthelowerclassesemployedinsupplyinghomeconsumption，accordingtotheprincipleslaiddowninthesecondbook。Heshouldabstainfromborrowinghimself，andevenfromcreatingnewoutletsformoney，exceptfromthemostcogentmotives。Bythishewill，inashorttime，gentlyreducetherateofinterest。Thenbystatutehemaybringitdownalittle，butnotsoverylowastheforegoingoperationsmayhavereducedit；
contentinghimselfwithhavingfartherrestrictedtheextentoftheordinaryfluctuations。
Asforexample:letussupposeinterestlimitedbylawto5
percent。andthatbygoodmanagementthestatemaybeenabledtoborroweasilyat3percent。Ibelievetherewouldresultanotableadvantage，inreducingthelegalrateto4percentandwereitbroughtdownto3percenttheremightfollowaverygreatinconveniencetolandedmen，incaseawarshouldsuddenlyoccasionarevolutioninfavourofmoney。
ThedifferencethenbetweenChildandme，is，thatIammorescrupulousthanhe，inintroducingrestraintintopoliticaloeconomy；andmyonlyreasonagainstapplyingthestatute，asheproposes，isforfearoftheimmediatebadeffectswhichmightfollowinmanywaysimpossibletobeforeseenuponasuddenandviolentrevolution，inapointsoexcessivelydelicateaspubliccredit。
Inhisdays，creditwasnotsowellestablished，norwasitstretchedasatpresent:itwasmoreaccustomedtoviolentshocks，andcouldbeararoughertreatment。Butinordertocomethebettertoathoroughknowledgeofthismatter，letusexaminewhatmightbetheconsequence，ifGreatBritainshould，atthistime，bringdown，bystatute，therateofinterestbelowthelevelofthestocks，whichItaketobethebestrulefordeterminingthepresentvalueofmoney；andthisisalsothebestmethodofexaminingtheexpediencyofChild’smethodofreducinginterest，underthepresentstateofallourpoliticalcircumstances。
Chap。VI
WhatwouldbetheConsequenceofreducing，byaBritishStatue，thelegalInterestofMoneybelowthepresentleveloftheStocks？
WhenGreatBritainborrowsmoneyuponthepublicfaith，therateofinterestisalwaysstipulated，andthesestipulationsmustbereligiouslyfulfilled，orcreditwillbeatanend。
Theregulationsthenproposedtobemade，mustrefertocontractsofloanenteredintobyprivatepartiesonly。
Thecurrentvalueofmoney，Ithink，isbesttobedeterminedbythepriceofstocks。Ifa4percentsellsatpar，moneymaybesaidtobethenat4percent。Ifthesamestockfallto89，thenthevalueofmoneyrisestonear41/2:ifthesamestockriseto114，thenthevalueofmoneyfallstoabout31/2；andsoinproportion。
According，therefore，asstockisfoundtorise，thepriceofmoneyfalls，andviceversa。
Suppose，then，thepriceofmoneytobeat4percentandthatgovernmentshouldpassalaw，forbiddinganymantolendatabove3percentwhatwouldbetheconsequence？ThisisexactlytheexpedientproposedbyChild:moneythenwasat6percentandheproposes，byalaw，tobringit，allatonce，to4percentwithoutallegingthatmoneywasthencommonlygotbyprivateconventionatsolowarate。
Wouldnottheconsequencebe，thatthecreditorsofprivatepeoplewoulddemandtheirmoney，inordertoget4percentinbuyingstock，andwouldnotthisadditionaldemandforstocksmakethemrise？Ianswerintheaffirmative，unlessmoneycouldbeemployedabroad，soastoproduceatleast4percenttothelenders，freeofallchargeofcommission，etc。Ifitcouldnot，Ihavelittledoubt，butthatmoneywouldsoonfalltothelegalinterestof3percentlandwouldriseto40yearspurchase；andlandedmenwouldprofitoftherise，asChildsayswasthecaseinhistime。Thewholeinconveniencewouldbelimitedtotheimmediateeffectsofthesuddenrevolution；whichwouldoccasionsogreatademanduponthelandedinterestforthecapitalsduebythemastoreducethemtoanutterincapacityofansweringit。
Thismightbe，insomemeasure，prevented，byaclauseintheact，allowingacertaintimefortheliquidationoftheirdebts。
Butwhowillpretendtoforetelltheimmediateconsequencesofsogreatastagnationofcredit，andborrowingonlandsecurity？Thepursesofallmoniedpeople，would，forsometimeatleast，befastshutagainsttheirdemand。Whatashockagain，wouldthisbetoallinlandtrade，whatadiscouragementtoallthemanufacturinginterest，whatdistressuponallcreditorsforaccountsfurnished，anduponthosewhosupplydailywants！I
think，thatalthoughinayearortwo，thefirsteffectsmightcometodisappear，andanotableadvantageresult，inthemain，tothecommercialinterestofGreatBritain，yetthedistressintheintervalmightprovesohurtful，astorenderitquiteintolerable。Thecommonpeoplewholivebytheluxuryoftherich，inthecityofLondon，andwhoareconstantlyactuatedbytheimmediatefeelingsofpresentinconveniences，mightloseallpatience；andbeingblownintoaferment，bytheaddressofthemoniedinterestwhoseconditionwouldbemadetosufferbytheschememightthrowthestateintoconfusion，andevenimpressthenationwithabelief，thathighinterestformoney，insteadofbeinghurtful，wasessentialtotheirprosperity。
Ihavesaidabove，thatifwesupposethatthemoneydrawnfromdebtors，couldnotbeplacedabroad，freeofalldeductions，atarateequaltothethenvalueofmoneysupposedforthesakeofanexample，tobeat4percent，thenmoneywouldfallto3
percentandthestockswouldriseinproportion。
Butletussupposewhatperhapsisthematteroffactthattheextensiveoperationsoftradeandcredit，doactuallyfixanaverageforthepriceofstocks，fromthevalueofmoneyinothernationsinEurope。Wouldnotthentheconsequenceofbringingdowntherateoflegalinterest，belowthislevel，be，tosendoutofthekingdomallthemoneynowcirculatingonprivatesecurity，realandpersonal？Wouldnotthisdestroyallprivatecreditatoneblow？Woulditnothavetheeffectofpreventing，amongindividuals，theloanuponinterestaltogether？WhatwouldbecomeofthebankofEngland，andallotherbanks，whosepaperincirculationisallinthehandsofprivatepeople？Isnoteverymanwhohasabanknote，acreditoronthebank？Andwouldnotthesameinterestwhichmovedothercreditorstoexacttheirdebts，undersuchcircumstances，alsomovemanyholdersofbanknotestodemandpaymentofthem？Wouldnotarunofthisnature，forafewweeksonly，throwthewholenationintothemostdreadfuldistress？Maywenotevensuppose，thatuponsuchanoccasion，themoniedinterestfromacertaintyofdisappointingtheintentionofgovernmentinmakingthelawmightformaconcertamongthemselvestolockuptheirmoney，evenalthoughitshouldremaindeadintheirhandsforafewmonths？Whatwouldthenbecomeoftheimprovementofland？Isthereanindustriousfarmeranywheretobemetwith，whodoesnotborrowmoney，whichhecansoprofitablyturntoaccountuponhisfarm，eventhoughhereceiveitatthehighestlegalinterest？Theseandmanymoreinconveniencesmightmanifestthemselves，weregovernmenttoforcedownthevalueofmoney，beyondtheordinaryoperationsofdemandandcompetition:andtowhatpurposehaverecoursetoauthority，whenitismostcertain，thatwithoutanysuchexpedientthesameendmaybecompassed？
Ifitbetrue，asIbelieveitis，thatthefunds，orpublicdebtsofastatewherecreditiswellestablished，arecommonlynegotiatedabroad；theremust，fromsuchnegotiationsresultanaverageforthevalueofmoney，bytheoperationsofcreditoverthecommercialworld:andifitbetrue，thatnolawcanbeframedsoastorestrainmercantilepeople，andthosewhotradeinmoney，fromturningittothebestaccount；thenallthatshouldbeproposedbygovernment，is，topreservethevalueofitathome，withinthisstandard。Forwhichpurpose，nothingmoreisnecessarythantopreventthecompetitionofthedissipatingclassofinhabitants，fromdisturbingtheratewhichcommercemayestablishfromtimetotime。Thisisaccomplishedbythemethodsabovehintedat，andwhichinthenextchaptershallbemorelargelyinsistedon。If，byprudentmanagement，theconventionalrateofinterest，canthusbebroughtbelowthelegal，thentheremaybenoharmindiminishingthelatterbystatue，nothoweverquitesolowastheconventionalstandard；butsoastoleaveareasonablelatitudeforgentlefluctuationsaboveit。FromwhatI
havesaid，IstillthinkIhadreasontoobjecttoChild’splanforforcingdowntheinterestofmoneybystatute:andhadhelivedtothepresenttime，Iampersuadedhewouldhavecomeintothisopinion。
Chap。VII
MethodsofbringingdowntheRateofInterest，inConsequenceofthePrinciplesofDemandandCompetitionIhopetheargumentsusedintheforegoingchapterwillnotbeconstruedasanapologyforthehighinterestofmoney。
IentirelyagreewithSirJosiahChild，thatlowinterestisthesouloftrade；themostactiveprincipleforpromotingindustry，andtheimprovementofland；andarequisite，withoutwhichitishardlypossiblethatforeigncommercecanlongbesupported。
ThispropositionItaketobeatthistimeuniversallyadmittedtobetrue；anddidthereremain，concerningit，theleastdoubtinthemindofanyone，thewritingsofmany，muchbetterqualifiedthanIcanpretendtobe，andamongtherestthoseoftheauthorjustnowcited，aresufficientlycapabletoremoveit。Ishallnotthereforetroublemyreaderwithachapteruponthishead，butonlyobserve，thatthetermshighandlowareconstantlyrelative。Heretherelationmustbeunderstoodtoregardotherstates，becausewhenwespeakofarateofinterest，wearesupposedtomeansomethinggeneralinthecountrywearespeakingof:accordingly，ifwecouldsupposethat，withinthesamestate，therateofinterestshouldbelowerinonecitythananywhereelse，thiscircumstancewouldgiveanadvantagetosuchacityinallitsmercantileoperations。
Imustfartherobserve，forthesakeofconnectingthispartofoursubjectwithourgeneralplan，thatthelowinterestformoneyismostessentialtosuchstatesascarryonthemostextensiveforeigncommerce。
Intheinfancyofindustry，andbeforetradecomestobeestablished，itisverynaturalthatthecoinofthecountryshouldbefoundinagreatmeasurelockedupintreasures:highinteresttendstobringitforth，andinthisrespectworksagoodeffect。
Inproportionasalienationaugments，moneymaybemultiplied，bythemeltingdownofsolidproperty，ashasbeenexplained；andthenthebusinessofastatesmanwillbetocontriveexpedientsforbringingtherateofitaslowaspossible，inordertosupportforeigntrade，andtorivalallneighbouringnations，whereinterestishigher。Whenforeigntradeagaincomestodecline，fromthemultiplicationofabusesintroducedbyluxury，lowintereststillcontinuestobeuseful，forsupportingpubliccredit，sonecessaryfordefendinganationagainstherenemies。
Ifmoneyconsistedmerelyinthepreciousmetals，whicharenottobefoundineverycountry，butmustbepurchasedwiththeproduceofindustry，andbroughtfromfar；andifnootherexpedientcouldbefallenupontosupplytheirplacefortheusesofcirculation；thenthepossessorsofthesemetalswouldinamannerbemasterstoestablishfortheuseofthemwhatrateofinteresttheythoughtfit。
Butifthisbenotthecase，andifmoneycanbemadeofpaper，tothevalueofallthesolidpropertyofanation，asfarasoccasionisfoundforit，bytheownersofthatproperty，
theuseofthemetalswillbeinamannerreducedtothatofservingasastandard，forascertainingthevalueofthedenominationsofmoneyofaccompt；perhapsforfacilitatingthecirculationofsmallsums，andforpayingabalanceoftradetoothernations。
Whenthiscomestobethecase，astatesmanhasitinhispowertoincreaseordiminishtheextentofcreditandpapermoneyincirculation，byvariousexpedients，whichgreatlyinfluencetherateofinterest。
Theprogressofcredithasbeenveryrapidsincethebeginningofthiscentury。Thishasbeenalmostentirelyowingtothemechanicalcontrivancesoftradingmen。Lawgivershavehithertohadbutimperfectnotionsconcerningthenatureofit；
andtherestillremains，inthewombofnature，somemightygenius，borntogovernacommercialnation，whoalonewillbeabletosetitonitstrueprinciples。Letusinthemeantimespeculateconcerningthem。
Wehavesaid，andeveryonefeels，thatinterestfallsinproportiontotheredundancyofmoneytobelent。
Nowwhatisthismoneybutproperty，ofonekindorother，thrownintocirculation？Ispeakoftradingnations，whoarenotconfinedtothequantityoftheirspeciealone。
Whenamanofpropertywantsmoney，mayhenotgotoabank，whichlendsuponmortgage，andbypledginghissecurity，receivemoney，whichisinthesameinstantcreatedforhisuse？Donotthosenotescirculateaslongastheyarefoundnecessaryforcarryingontheaffairsofthenation？thatistosay，theaccomptsofdebtorsandcreditorsofalldenominations；andassoonasthequantityofthemexceedsthisproportion，theystagnate，andreturnonthedebtorsinthem，thebank，whoisenabledtorealizethem，becausetheoriginalsecurityisstillintheirhands，whichwasatfirstpledgedwhenthenoteswereissued。Thisrealizationiscommonlymadeinthemetals；becausetheyarethemoneyoftheworld:theyarerealandtrueriches，asmuchasland；andtheyhavethisadvantageoverland，thattheyaretransportableeverywhere。
Now，doesitnotappearevident，thatwhatwehavebeendescribingisaround-aboutoperation，whichitispossibletoshorten？
Ibegofmyreader，toattendtoonething；namely，thatIamnotheretreatingof，orproposingaplan，butlabouringtodeduceprinciplesinanintricatesubject。
Isay，whenlandedmengotosuchabank，andreceivepaperforalandsecurity，thatthisoperationmaybeshortened。
Donotthenoteshegetsstandthoughthisbenotexpressed
uponthesecurityofhisland？Now，cananymanassignanyotherreasonbutcustom，whyhisownnotes，caringexpresslyintheirbosomthesamesecurity，mightnotbeissued，withouthisbeingobligedtointerposethebankbetweenthepublicandhimself:Andforwhatdoeshepaythisinterest？Notbecausehehasgratuitouslyreceivedanyvaluefromthebank，sinceinhisobligationhehasgivenafullequivalentforthenotes；buttheobligationhehasgivencarriesinterest，andthenotescarrynone。Why？Becausetheonecirculateslikemoney，theotherdoesnot。Forthisadvantage，therefore，ofcirculation，notforanyadditionalvalue，doesthelandedmanpayinteresttothebank。
Hadlandedmen，andnotmerchants，inventedthismethodofturningtheirpropertyintocirculation，andhadtheybeenallassembledinonebody，withalegislativeauthority，Iimaginetheywouldhavehadwitenoughtofindoutthatalandbankwasathingpracticableinitsnature。
Supposetheyshouldagreethatalltheirlandsshouldbeletbytheacre，andthatlandpropertyshouldbeesteemedatacertainnumberofyearspurchase，inproportiontotherateofinterestatthetime，wherewouldbethegreatdifficultyinpayinginlands？
Thisismerelyahint，towhichathousandobjectionsmaybemade，asmattersstand:allIsay，is，thatthereisnothinghereagainstprinciples；andthoughinconveniencesmightresulttothelandedinterest，ineverywaysuchaplancouldbelaiddown；yetstilltheseinconvenienceswouldhardlycounterbalancethatoflandedmen’sbeingobligedtopayinterestforeverypennytheyborrow。
Itisdemanded，whatadvantagewouldresulttothenationfromsucharegulation？
Ianswer，thatbyitalltheborrowingsoflandedmenwouldbestruckoutofthecompetitionatthemoney-market。Themoniedinterestalonewouldborrowamongthemselvesforthepurposesoftrade，formoniedmendonotborrowtosquander，andlandedmenwouldconsequentlypaywiththeirownpaper，ineverycase，wherenowtheyborrowinordertopay。Thusinterestwouldberegulatedbythedemandsoftrade，andtherateofitwouldnotbedisturbedbythecompetitionofspendthrifts。
Whocansayhowfartheconsequencesofsuchaschememightreach？Mightnotlandedmenbeginintimetoissuenotesbywayofloan，ataveryinconsiderableinterest？ButIamnotdisposedtocarrymyspeculationsfarther:perhapswhathasbeensaidmayappearsufficientlyaerial。
Ifastatesmanshallfindeverymodificationofthisideaimpracticable；eitherfromhisownwantofpower，orofskill，or，whichismoreprobable，fromtheoppositionofthemoniedinterest；hemusttakeothermeasuresforstrikingout，asmuchaspossible，thecompetitionofspendthriftsinthemoney-market。
Entails，andlamesecurities，aregoodexpedients；thoughtheyareproductiveofmanyinconveniences。Hisownfrugaloeconomyinstateaffairswillgomuchfartherthananysuchtriflingexpedients。
Didanationenjoyingpeace，althoughindebtedperhaps140
millionssterling，beginbypayingoffbut2percentoftheircapitalyearly，besidesthecurrentinterest；whilenoneighbouringstatewasborrowingany；whatwouldinterestfalltoinashorttime！Itmaybeanswered，thattheconsequencewouldbe，toenrichothernations；becausethemoneyregorgingathome，wouldbesentabroad。TowhichIreply，byaskinghowanystatecanbeenrichedbytheirborrowing？Andinwhatdoessuchlendingtoforeignersdifferfromthenation’spayingofftheirforeigncreditors？Willnotthereturnofinterestfromabroadcompensate，protanto，thesumssentoutforthelikepurpose？
Butifitbesaid，thattheconsequencewillbetoenableothernationstobringdowntheirownrateofinterest；Iallowittobeso；andsomuchthebetter，aslongasitremainsproportionallylowerwithus；whichitmustdo，aslongaswecanlendabroad。Wehavesaid，andIbelievewithtruth，thatascreditisnowextended，ageneralaverageisstruckeverywhereuponthevalueofmoneywellsecured，consequently，thelowerthatinterestisreducedabroad，thelowerstillwillitremainathome，aslongasmerchantsandexchangersdosubsist。
Fromthiscircumstanceoftheaverageontherateofinterest，theDutchmust，Ithink，havelostthegreatadvantagetheyformerlyenjoyed，fromthelowrateofitinHolland，relativelytoothernations。
InChild’stime，theDutchwerefamiliarlybuyingupsugarsinLondon，abovethepricepaidbyEnglishsugar-bakers；and，notwithstandingtheadditionalfreightandcharges，theygrewrichbytheirtrade，whiletheotherswerehardlymakinganyprofit。Thisheaccountsforfromthelowrateoftheirinterest。
HesupposesbothDutchandEnglishtohavecarriedonthistradewithborrowedmoney；forwhichthefirstpaid3percentandtheother6percent。
Butatpresent，wereitpossibletoget6percentformoneyinLondon，whatDutchmanwouldlendhisfatherashillingat3
percent？TheEnglishstocksareascurrentlyboughtandsold，nay，allthestockjobbingtricksarepractisedwiththesamesubtletyatAmsterdamasinChange-Alley:fromwhichIconclude，thatagreatpartoftheadvantageoflowinterestisnowlosttothatnation；andIconcludefarther，thatitisthecommoninterestofalltradingnationstobringinterestaslowaspossibleeverywhere。
Anothercauseofhighinterestproceedsfromcertainclogslaiduponcirculation，whichflowmerelyfromcustomandprejudice。Ofthisnatureistheobligationlaidupondebtorstopayinthemetals，nothingbutcoinbeingalegaltender。
Theonlyreasonforsucharegulationwastheprecariousnessofcreditinformertimes。Wereallthecirculatingpaperinanationsecuredbylaw，eitheruponthelandsorrevenueofthecountryappropriatedforthatpurpose，therecouldbenoinjusticeorinconvenienceinmakingpapersosecuredalegaltenderinallpayments。Again，howextraordinarymustitappeartoanyreasonableman，thatthesamepaperwhichpassesononesideofariver，runningthroughthesamecountry，shouldnotpassonitsoppositebank？
Thereasonofthisisindeedveryplain:thesubalternjurisdictionsoneachsidearedifferent；andthedebtorsinthepaperaredifferent:butifthepaperofbothstooduponasecurityequallygood，whatistohinderbothtobereceivedasalegaltenderinallpaymentsoverthekingdom？Shouldnotlittleprivateobjectsofprofitamongbankerswhoaretheservantsofthestate，andwhoaresowellpaidfortheirservicebeover-ruled，whentheconsequencesoftheirdisputesarefoundtobesohurtful？Butofthismore，whenwecometospeakofbanks。
Theonlyoccasionwherealargequantityofcoinisnecessaryintheliquidationofpaper，isforpaymentofthebalanceoftradewithforeignnations。Ofthisalsoweshalltreatmoreatlarge，whenwecometothedoctrineofexchange。Butsurelynothingcanbesoilljudged，astocreateanimaginarybalancewithinthesamestate；orrather，topermitmoney-jobberstocreateit；attheexpenceofraisinginterest，andhurtingtrade，intheveryplaceswhereitstandsmostinneedofencouragement。
Fromtheseprinciples，andotherswhichnaturallyflowfromthem，mayastatesmansteeraverycertaincourse，towardsbringingtherateofinterestaslowastheprosperityoftraderequires，ortheprinciplesofdoublecompetitionbetweenborrowersandlenderswillpermit。
Chap。VIII
IstheRateofInterestthecertainmeasureoftheStateofCommerce？
Somepoliticalwritersarefondofeveryexpedienttoreducewithinanarrowcompassmanyquestions，whichbeinginvolvedincombinations，cannotbereducedtooneprinciple。ThisthrowsthemintowhatIcallsystems；ofwhichwehaveanexampleinthequestionnowbeforeus。
Thereisnothingmoredifficultthantodeterminehowfarcommercerunsfavourably，andhowfarunfavourablyforanation。
Thiswouldnotbethecase，weretherateofinterestthecertainmeasureofit。Ihavefoundithoweveradvanced，thatnothingmoreisnecessarytobeknown，inordertoestimatetherelativeprofitsupontheforeigntradeoftwonations，thantocomparethecommonrateofinterestinboth，andtodecidethepreferenceinfavourofthatnationwhereitisfoundtobelowest。
Wemaysayconcerningthisproposition，asconcerningthecourseofexchange；thatthelownessofinterestandofthepriceofexchangearebothexceedinglyfavourabletotrade；buttheyarenoadequatemeasureoftheprofitsarisingfromit。
Thebestargumentinfavourofthisopinionwithregardtointerestis，thatthenationwhichsellsthecheapestatforeignmarketsisconstantlypreferred；and，consequently，wheretheuseofmoneyisthelowest，themerchantcansellthecheapest。
Ianswer，thatthisconsequencewouldbejust，werealltradecarriedonwithborrowedmoney，werethedifferenceofthepriceofthematerialsorfirstmatter，theeaseofprocuringthem，thepromptitudeofpayments，theindustryofthemanufacturer，andhisdexterity，allreckonedfornothing。Butsuchadvantagesarefrequentlyfoundinthesearticles，astobemorethansufficienttocounterbalancetheadditionalinterestwhichmaybepaidforthemoneyemployedintrade。Thisissotrue，thatweseethedexterityaloneoftheworkmanlivinginanexpensivecapital，wherethechargeoflivingmaybedoubleofwhatitisinthecountryenablinghimtoundersellhiscompetitorseverywhere:
thesamemaybetruewithregardtotheotherarticles。Farther，howabsurdisittosay，thatalltradeiscarriedonwithborrowedmoney？Averyinconsiderablepartoftradeiscarriedonwithborrowedmoney，inanycountryinEurope；andthatpart，whichiscarriedonwithborrowedmoney，isnotsomuchcloggedbythehighrateofinterest，asbywantofpunctualityinpayments。Amerchantwhocanturnhismoneyinthreemonths，borrowsascheaplyat6percentasanotherwhoturnshisinsixmonths，whenheborrowsat3percent。
Theobjectoftradeisproduceandmanufacture。Thesearepreparedforthemarketbyfarmersandtradesmen。Letuscomparethevalueofthem，whensoldatmarkettothemerchant，withtheinterestofthemoneyborrowedbythefarmersandtradesmen，inordertocarryontheirindustry，andweshallfindthattheinterestpaidbythem，bearshardlyanyproportionatall，tothevalueofwhattheyproduce。Example。Asheepborrowsnomoneyinordertoproducewool；spinnersandweaversborrownomoneyinordertoenablethemtospinandtoweave。Thusthewholemanufacturecomestomarketwithoutanychargeforinterest。
Dowenotseeeveryday，thatingeniousworkmen，whoobtaincreditforverysmallsums，aresoonenabled，bythemeansoftheirownindustry，toproduceasurprisingvalueinmanufactures，andnotonlytosubsist，buttoincreaseinriches？
Theinteresttheypayforthemoneyborrowedisinconsiderable，whencomparedwiththevalue，createdasitwerebytheproperemploymentoftheirtimeandtalents。
Ifitbesaid，thatthisisavagueassertion，supportedbynoproof；Ianswer，thatthevalueofaman’sworkmaybeestimatedbytheproportionbetweenthemanufacturewhenbroughttomarket，andthefirstmatter。Nothingbutthefirstmatter，andtheinstrumentsofmanufacture，canbeconsideredastheobjectsofborrowedmoney；unlesswegosofarastoestimatethenourishment，andeveryexpenceofthemanufacturer，andsupposethatthesearealsosuppliedfromborrowedmoney。Toaffirmthis，wouldbeturningargumentsintocavil。
Theobject，therefore，ofborrowedmoneyforcarryingontrade，ismorerelativetothemerchantthantothemanufacturer。
Borrowingisnecessaryforcollectingallthisproductandmanufactureintothehandsofmerchants。This，nodoubt，isverycommonlytheoperationofcredit:interestofmoney，here，comesin，toindemnifythegiverofcredit，fortheuseofhismoney:
butthisinterestisduefromthetimeonly，whentheborrowerpaysthosefromwhomhecollects，tothetimehereceivespaymentfromthosetowhomhesells。Thisintervalitisofthehighestimportancetothemerchanttoshorten。Inproportionasitislong，andinproportiontotherateofinterest，hemustraisehisprofits；andinproportionaspaymentsarequickandregular，andinterestlow，hemaydiminishthem。Whethermerchantsdoregulatetheirprofits，inallcommercialnations，accordingtotheexactproportionoftherespectiveratesofinterest，andpromptitudeofpaymentsamongthem；orwhetherthesearedeterminedbythecircumstancesofdemandandcompetitionintheseveralforeignmarketswherethetradeiscarriedon，Ileavetomerchantstodetermine。AllIshallremarkis，thatawellfoundedcredit，andpromptpayments，willdomoreservicetotrade，thananyadvantagetradingmencanreapfromthedifferentrateofinterestindifferentcountries。
Itmustnotbeconcludedfromthis，thatlowinterestisnotaverygreatadvantagetotrade；allIcontendfor，is，thatitisnotthemeasureofit。
Anothercircumstancewhichputsnations，inourdays，muchmoreonalevelthantheywereinformertimes，Ihavealreadyhintedat。Itisthatgeneralaveragewhichthegreatloadsofnationaldebts，andtheextensionofcredit，throughtheseveralnationsofEurope，whopayannuallylargesumsofinteresttotheircreditors，hasestablished。LetmesupposetheDutch，forexample，tohavefixed，byplacard，therateoftheirinterestat3percent。Isay，thatassoonasthegeneralaverageofinterestcomestostandabovethisrate，fromthepriceofpublicfundsinEnglandandFrance，wemaysafelyconclude，thattheirtradecannolongerbecarriedonwithanyveryconsiderablesumofmoneyborrowedat3percent。Theconsequencethenmustbe，tosendthemoneywhichregorgesinthehandsofthefrugalDutch，intoothercountries，whereitcanproduceabetterreturn，exclusiveofallexpencesofremittinganddrawing。WhattheconsequencesofthislendingtoforeignersmaybetoHolland，shallbeafterwardsexamined。
Toconclude；Ireckonitwillbefound，thatwhathadledsometobelievethatlowinterestisthemeasureofcommerce，hasbeenowingtothis；thatinsomeofthemostcommercialcountriesandcitiesinteresthasbeenfoundtobelowerthaningreatkingdoms:butthis，Iimagine，isentirelyowingtothefrugalityoftheirmanners，whichcutsofftheborrowingoftherichforthesakeofdissipation。Whenthisisaccomplished，tradealonewillabsorbthestagnationsofthefrugal，andthepriceofinterestwillfalltothatratewhichisthebestproportionedtotheprofitsuponcommerce；butthisalsowillbelessandlessthecaseeveryday，inproportiontothecreditandcirculationofpublicfundsindifferentnations。