Chapter 19 interests

Money lent at interest is always regarded by the lender as capital.The lender always hopes that the property will return to him at the end of the loan period, and the borrower has to pay him a certain amount of annual rent because he has used the property during the loan period.Such means, in the hands of the borrower, may be employed as capital, or as means reserved for present consumption.If used as capital, it is used to maintain productive laborers, to reproduce value, and to provide profits.In this case he can repay the capital and its interest without ceding or eroding any other source of income.If employed as a means for present consumption, he becomes a prodigal, who deprives the fund of the industrious class to maintain the idler.In this case, he cannot repay the capital, pay the interest, unless he erodes some source of income, such as land or ground rent.

The stock lent at interest, no doubt, is sometimes employed for both purposes, but more often of the former than of the latter.A person who borrows money to squander will not be able to stand for a long time, and a person who lends money to him will often regret it.A loan like this is of no benefit to either party except the usurer.It is inevitable that there will be such incidents of lending in society, but because everyone is benefiting, it can be believed that it will not happen as often as we imagine.Any prudent rich man who asks him whether he would lend most of his wealth to those who make money or to those who spend money, will probably only laugh at you for asking such a non-problematic question.Although the borrowers are not well-known frugalists in the world, among them, there will be far more frugal than extravagant, and more industrious than idle.

The only people who borrow money for squandering are the country gentry.The borrowings of the squires, usually on the security of their property, were not very often for any profitable use.But even the squires did not borrow all their money to waste.The money borrowed is often used up long before it is borrowed.They often buy on credit from shopkeepers for their daily enjoyment, and they often get a lot of credit. They have to borrow money at interest to pay off their accounts. Others borrow money to pay back.He does not borrow money in this case to spend it, but only to replace the previously spent capital.

Loans at interest are mostly lent out of money, either in banknotes or in gold and silver.But what the borrower needs and the lender supplies is not actually money but the value of money, in other words, the goods that money can buy.If what he asks for is immediate wealth, then what he borrows is goods that can be used immediately.If what he asks for is capital for the revitalization of industry, what he borrows are the tools, materials, and food necessary for the work of the laborer.The thing about lending is actually that the lender transfers to the borrower the right to use a certain part of the annual products of his land and labor, allowing him to use it as he pleases.

Money is always the means of borrowing and lending in the country of all kinds, whether in notes or in coin.How much a country can lend at interest, or, as it is generally said, how much money can be lent at interest, is not governed by the value of money, but by the value of a particular part of the annual produce.As soon as this particular part of the annual produce has been produced from the land, or produced by the laborers of production, it is designated for capital, while the proprietor, having no intention of using it himself, lends it to others.Because the lending and repayment of this capital is done in money, it is called a pecuniary interest.This differs not only from an agricultural interest, but also from a commercial interest, in which the owner of capital employs his own capital.But we should know that even in terms of pecuniary interests, money is no more than a contract of alienation, in which A transfers to B capital that he has no intention of using himself.The amount of capital transferred in this way is immeasurably greater than the amount of money used as the means of transfer.The same coin or the same banknote.It can be purchased many times, and it can be borrowed continuously for many times.For example, if A lends B £1,000, B immediately uses it to buy goods from C for £1,000.Since C does not need money, he lends the thousand pounds to D, and D immediately uses it to buy 1,000 pounds of goods from E.E also lends the thousand pounds to Ji because he does not need money, and Ji immediately buys goods from Geng for a thousand pounds.So the currency is still the original coins or paper money, but within a few days, the loan has been made three times, and the purchase has been made three times.Each time, in value, it is equal to this sum of money.A, C, and E are people who lend money, and B, D, and I are people who want to borrow money.What they borrowed was really only the ability to buy those goods.In this purchasing power lies the value and utility of lending.The three rich men lent money equal to the value of the goods that the money could buy, so the money lent in these three loans was actually three times the value of the money with which they were purchased.Provided that the goods purchased by the debtor are properly used, and can repay the original value and interest within a certain period of time, this kind of loan is very reliable.Moreover, this money can be used as a means of borrowing three times its value, or for the same reason thirty times its value, so that it can also be continuously used as a means of paying debts.

From this point of view, lending capital to borrowers for interest is no different from letting the lender transfer a certain part of the annual product to the borrower.But in order to repay this transfer, the borrower must transfer a smaller part of the annual production to the lender every year during the loan period, which is called interest payment; The part of the annual products given to him is transferred to the lender, which is called repayment.In the transfer of the smaller part as well as the larger part, the money, though both as evidence of transfer, is quite different from what it transfers.

If that part of the annual produce, which arises from the land, or is produced by productive labourers, is designated for the replacement of capital, increases, so does the so-called pecuniary interest.As capital generally increases, so must the capital which the proprietor has no intention of employing himself, but expects some income from it.In other words, as the assets increase, the assets lent at interest will also gradually increase. As the stock which is lent at interest increases, the price which must be paid for the employment of it, the interest, must necessarily fall.The general causes which lower the market-prices of goods as their quantity increases, are certainly one of the causes of the lower interest at this time; but besides this we can trace several particular causes.First, as the capital of a country increases, the profits from investment must decrease.Finding profitable ways to invest new capital at home will become increasingly difficult.Competition between capitals thus occurs, and capital owners often compete with each other in an effort to drive out the original investors.But to squeeze out the original investors, the only way is to relax some of the requirements.Not only does he want to sell cheap, but sometimes he has to buy expensive because he wants to sell.Secondly, as the funds for maintaining productive labor increase, the demand for productive labor must also increase.Therefore, workers do not worry about having no one to hire, but capitalists worry about having no one to hire.Competition among capitalists raises the wages of labor and lowers the profits of capital.As the profit from the employment of capital is reduced, the price paid for the employment of capital, that is, the rate of interest, must be reduced accordingly.

Locke, Lowe, Monteshon, and many other writers, conceived that the increase in the quantity of gold and silver, owing to the discovery of the Spanish West Indies, was the real cause of the low rate of interest in most of Europe.The two metals, they say, are less valuable in themselves, so that the use of a particular part of them is of lesser value, and consequently the price which can be paid for their use is also less.This notion may seem plausible at first glance, but it is actually wrong.This error has been fully exposed by Hume, and we probably need not repeat it.But the following very concise discussion may further illustrate the fallacies that have confused these gentlemen.

The common rate of interest in the greater part of Europe, before the discovery of the Spanish West Indies, seems to have been ten per cent.Since then he has reduced the common rate of interest in various countries to six, five, four, and even three per cent.Suppose for a moment that the price of silver in any country has fallen in exactly the same proportion as the rate of interest.Where, say, the rate of interest has been reduced from ten to five per cent, an equal quantity of silver will now buy half as much goods as before.Does this assumption really match the facts?I believe that this is by no means the case, but this supposition favors the theory which I now examine.And, even on this assumption, we can never say that the fall in the value of silver has any tendency to lower the rate of interest by any degree.For if the present value of a hundred pounds is only equal to the former value of fifty pounds, then the present value of ten pounds is only equal to the former value of five pounds.Whatever the cause which reduces the value of the capital, it must also reduce the value of the interest, and in the same proportion.The ratio of the value of the stock to the value of the interest must necessarily remain the same, though the rate of interest has not been changed.If the rate of interest were really changed, the proportion between these two values ​​would have to be changed.If the present value of a hundred pounds is only equal to the former value of fifty pounds, then the present value of five pounds is only equal to the former value of two and a half pounds.If, therefore, the rate of interest is reduced from 10 per cent to 5 per cent when the value of the stock is halved, the value of the interest paid on the employed capital will be but one-fourth of the former value of the interest.

An increase in the quantity of silver, at a time when the quantity of the commodities which circulate in it, has not increased, can but diminish its value.At this time, the nominal value of various goods will increase, but their real value will remain unchanged.They may exchange for more silver, but the quantity of labor at their disposal, and the number of laborers they can maintain and employ, must remain the same.The quantity of silver required to transfer an equal amount of capital from A to B may have increased, but the capital has not.The transfer certificate, like a lengthy power of attorney, is much more cumbersome, but the items transferred are still the same, and can only produce the same effect.As the funds for maintaining productive labor remain the same, the demand for productive labor also remains the same.The price or wages of productive labour, therefore, though nominally increased, remain unchanged in practice.Wages increased in terms of the amount of silver paid, but remained the same in terms of the amount of goods that could be purchased.The profit of capital remains unchanged, both in name and in reality.The wages of labour, being always calculated by the amount of silver paid, sometimes appear to have increased, though not increased, when the amount of silver paid increased.Not so with the profits of capital.Capital profit is not calculated by the amount of silver received.When calculating profit, we only calculate the ratio of the amount of silver received to the capital invested.For example, when we talk about wages, we often say that the common wages in this country are five shillings a week; when we talk about profits, we often say that the common profit in this country is ten per cent.But as all the capital in the country remains the same as before, the competition of the capitals of the individual individuals in the country who share in it must also be the same as before.They do business with the same ease and with the same difficulties as before.The ordinary proportion of capital to profit, therefore, remains unchanged, and the ordinary interest of money remains unchanged.The interest generally payable by the use of money must be governed by the profit generally obtainable by the use of money.

The increase in the quantity of commodities which are annually circulated in the country, where the quantity of money in the domestic circulation remains constant, has, besides that of an increase in the value of money, a number of other important effects.At this time, the capital of a country, though it remains the same in name, actually increases.It may continue to be expressed by the same amount of money, but it can command a larger amount of labor.As the quantity of productive labor which it can maintain and employ increases, the demand for labor increases accordingly.Wages will of course rise with the increasing demand for labor, but may appear to be falling on the face of it.The laborer may then receive as wages a smaller quantity of money than before, but this less money will now buy a greater quantity of goods than formerly more money could have purchased.But capital is less profitable, both in real and nominal terms.As the stock of all capitals in the country has increased, the competition among them will of course also increase.Even if the result of the capitalists' respective investments is a smaller proportion than before of the products of the labor employed by their respective capitals, they can only consider themselves unlucky.Since the interest on money advances and retreats with the profit of capital, although the value of money increases greatly, in other words, although the quantity of goods that can be purchased by a given amount of money increases greatly, the interest on money may still decrease greatly. The laws of some countries prohibit interest on currency.But as profit is made wherever the capital is employed, it should be paid with interest wherever it is employed.Experience teaches us that such laws, instead of preventing the evil of usury, aggravate it, and obligate the debtor not only to pay for the use of money, but also to pay a fee to the lender at the risk of accepting it.In other words, to insure the lender that he is not subject to the penalties imposed for usury. In countries where the lending of money at interest is not prohibited, the laws, in order to prohibit usury, often fix the lawful highest rate of interest.This highest rate of interest should always be slightly above the lowest market rate of interest, or the price at which money is commonly paid by borrowers who can furnish absolutely sure security.If this legal rate of interest is lower than the minimum market rate of interest, the result will be tantamount to the result of prohibiting money lending at interest altogether.The creditor would not lend money if he received less than what the use of money was worth, and so the debtor had to pay a fee for the creditor's risk of receiving the full value of the use of money.If the statutory rate of interest is equal to the lowest market rate of interest, those who generally have no safe security will not be able to borrow money from honest people who obey the laws of the country, but will have to be exploited by usurpers.At present in Great Britain, money is loaned to the government at an annual interest rate of 3 per cent, and to private individuals at an annual interest rate of 4 per cent or 4.5 per cent per annum, so that a country like England It may not be more appropriate to stipulate 5% as the legal interest rate. It must be noted that although the statutory interest rate should be slightly higher than the minimum market interest rate, it should not be too high.If, for example, the legal rate of interest in England was fixed at eight or ten per cent, a great part of the money to be borrowed would go to profligate and speculators, for they alone , willing to pay such a high interest rate.Honest people can only use a part of the profits from using money as rewards for using money, so they dare not compete with them.Thus the greater part of the capital of a country will turn from the honest to the profligate, and will not be employed in a profitable use, but in a use which wastes and destroys it.On the other hand, where the statutory rate of interest is only a little above the lowest market rate of interest, those who have money to lend will prefer to lend to honest people rather than to profligate and speculators.For the interest lent to an honest man is almost the same as that charged to a wasteful man, and money is much safer in the hands of an honest man.In this way, a large part of the capital of a country is divided into the hands of honest people, and the capital in the hands of these people is probably used to their advantage. There is no law capable of reducing interest below the lowest common market rate at that time.In 1766, the King of France stipulated that the interest rate must be reduced from 5% to 4%, but as a result, the people used various methods to evade the law, and the interest rate of private loans remained at 5%. It should be remarked that the ordinary market price of land depends on the ordinary market rate of interest.Those who have capital which they do not want to employ themselves, but who wish to receive some income from it, are usually in constant deliberation as to whether it is better to use it to buy land, or to lend it out at interest.Land property is extremely secure, and most have several other interests besides this.Therefore, in comparison, lending money to others and charging interest, although the income is more, but he usually prefers to buy land for a smaller income.These benefits can make up for a certain difference in income, but they can only make up for a certain difference in income.If the rent of land were so much inferior to the interest of money, no one would be willing to buy land, and the ordinary price of land must therefore fall.If, on the other hand, these interests had paid off the difference, there would be a great deal left over, and no one would prefer to buy land, and the ordinary price of land would rise.At the rate of interest of ten per cent, land is frequently sold for ten or twelve times the annual rent.When the interest rate drops to 6%, 5%, or 4%, the selling price of the land rises to 20, 25, or even 30 times the annual rent.The rate of interest in the French market is higher than in England; the common price of land in France is lower than in England.Land in England is often sold for thirty times the annual rent; land in France is often sold for twenty times the annual rent.CHAPTER V OF CAPITAL