to be increased, though they may sometimes be no greater than
before. But the profits of stock are not computed by the number
of pieces of silver with which they are paid, but by the
proportion which those pieces bear to the whole capital employed.
Thus in a particular country five shillings a week are said to be
the common wages of labour, and ten per cent the common profits
of stock. But the whole capital of the country being the same as
before, the competition between the different capitals of
individuals into which it was divided would likewise be the same.
They would all trade with the same advantages and disadvantages.
The common proportion between capital and profit, therefore,
would be the same, and consequently the common interest of money;
what can commonly be given for the use of money being necessarily
regulated by what can commonly be made by the use of it.
Any increase in the quantity of commodities annually
circulated within the country, while that of the money which
circulated them remained the same, would, on the contrary,
produce many other important effects, besides that of raising the
value of the money. The capital of the country, though it might
nominally be the same, would really be augmented. It might
continue to be expressed by the same quantity of money, but it
would command a greater quantity of labour. The quantity of
productive labour which it could maintain and employ would be
increased, and consequently the demand for that labour. Its wages
would naturally rise with the demand, and yet might appear to
sink. They might be paid with a smaller quantity of money, but
that smaller quantity might purchase a greater quantity of goods
than a greater had done before. The profits of stock would be
diminished both really and in appearance. The whole capital of
the country being augmented, the competition between the
different capitals of which it was composed would naturally be
augmented along with it. The owners of those particular capitals
would be obliged to content themselves with a smaller proportion
of the produce of that labour which their respective capitals
employed. The interest of money, keeping pace always with the
profits of stock, might, in this manner, be greatly diminished,
though the value of money, or the quantity of goods which any
particular sum could purchase, was greatly augmented.
In some countries the interest of money has been prohibited
by law. But as something can everywhere be made by the use of
money, something ought everywhere to be paid for the use of it.
This regulation, instead of preventing, has been found from
experience to increase the evil of usury; the debtor being
obliged to pay, not only for the use of the money, but for the
risk which his creditor runs by accepting a compensation for that
use. He is obliged, if one may say so, to insure his creditor
from the penalties of usury.
In countries where interest is permitted, the law, in order
to prevent the extortion of usury, generally fixes the highest
rate which can be taken without incurring a penalty. This rate
ought always to be somewhat above the lowest market price, or the
price which is commonly paid for the use of money by those who
can give the most undoubted security. If this legal rate should
be fixed below the lowest market rate, the effects of this
fixation must be nearly the same as those of a total prohibition
of interest. The creditor will not lend his money for less than
the use of it is worth, and the debtor must pay him for the risk
which he runs by accepting the full value of that use. If it is
fixed precisely at the lowest market price, it ruins with honest
people, who respect the laws of their country, the credit of all
those who cannot give the very best security, and obliges them to
have recourse to exorbitant usurers. In a country, such as Great
Britain, where money is lent to government at three per cent and
to private people upon a good security at four and four and a
half, the present legal rate, five per cent, is perhaps as proper
as any.
The legal rate, it is to be observed, though it ought to be
somewhat above, ought not to be much above the lowest market
rate. If the legal rate of interest in Great Britain, for
example, was fixed so high as eight or ten per cent, the greater
part of the money which was to be lent would be lent to prodigals
and projectors, who alone would be willing to give this high
interest. Sober people, who will give for the use of money no
more than a part of what they are likely to make by the use of
it, would not venture into the competition. A great part of the
capital of the country would thus be kept out of the hands which
were most likely to make a profitable and advantageous use of it,
and thrown into those which were most likely to waste and destroy
it. Where the legal rate of interest, on the contrary, is fixed
but a very little above the lowest market rate, sober people are
universally preferred, as borrowers, to prodigals and projectors.
The person who lends money gets nearly as much interest from the
former as he dares to take from the latter, and his money is much
safer in the hands of the one set of people than in those of the
other. A great part of the capital of the country is thus thrown
into the hands in which it is most likely to be employed with
advantage.
No law can reduce the common rate of interest below the
lowest ordinary market rate at the time when that law is made.
Notwithstanding the edict of 1766, by which the French king
attempted to reduce the rate of interest from five to four per
cent, money continued to be lent in France at five per cent, the
law being evaded in several different ways.
The ordinary market price of land, it is to be observed,
depends everywhere upon the ordinary market rate of interest. The
person who has a capital from which he wishes to derive a
revenue, without taking the trouble to employ it himself,
deliberates whether he should buy land with it or lend it out at
interest. The superior security of land, together with some other
advantages which almost everywhere attend upon this species of
property, will generally dispose him to content himself with a
smaller revenue from land than what he might have by lending out
his money at interest. These advantages are sufficient to
compensate a certain difference of revenue; but they will
compensate a certain difference only; and if the rent of land
should fall short of the interest of money by a greater
difference, nobody would buy land, which would soon reduce its
ordinary price. On the contrary, if the advantages should much
more than compensate the difference, everybody would buy land,
which again would soon raise its ordinary price. When interest
was at ten per cent, land was commonly sold for ten and twelve
years' purchase. As interest sunk to six, five, and four per
cent, the price of land rose to twenty, five-and-twenty, and
thirty years' purchase. The market rate of interest is higher in
France than in England; and the common price of land is lower. In
England it commonly sells at thirty, in France at twenty years'
purchase.
CHAPTER V
Of the Different Employment of Capitals
THOUGH all capitals are destined for the maintenance of
productive labour only, yet the quantity of that labour which
equal capitals are capable of putting into motion varies
extremely according to the diversity of their employment; as does
likewise the value which that employment adds to the annual
produce of the land and labour of the country.
A capital may be employed in four different ways: either,
first, in procuring the rude produce annually required for the
use and consumption of the society; or, secondly, in
manufacturing and preparing that rude produce for immediate use
and consumption; or, thirdly, in transporting either the rude or
manufactured produce from the places where they abound to those
where they are wanted; or, lastly, in dividing particular
portions of either into such small parcels as suit the occasional
demands of those who want them. In the first way are employed the
capitals of all those who undertake the improvement or
cultivation of lands, mines, or fisheries; in the second, those
of all master manufacturers; in the third, those of all wholesale
merchants; and in the fourth, those of all retailers. It is
difficult to conceive that a capital should be employed in any
way which may not be classed under some one or other of those
four.
Each of these four methods of employing a capital is
essentially necessary either to the existence or extension of the
other three, or to the general conveniency of the society.
Unless a capital was employed in furnishing rude produce to
a certain degree of abundance, neither manufactures nor trade of
any kind could exist.
Unless a capital was employed in manufacturing that part of
the rude produce which requires a good deal of preparation before
it can be fit for use and consumption, it either would never be
produced, because there could be no demand for it; or if it was
produced spontaneously, it would be of no value in exchange, and
could add nothing to the wealth of the society.
Unless a capital was employed in transporting either the
rude or manufactured produce from the places where it abounds to
those where it is wanted, no more of either could be produced
than was necessary for the consumption of the neighbourhood. The
capital of the merchant exchanges the surplus produce of one
place for that of another, and thus encourages the industry and
increases the enjoyments of both.
Unless a capital was employed in breaking and dividing
certain portions either of the rude or manufactured produce into
such small parcels as suit the occasional demands of those who
want them, every man would be obliged to purchase a greater
quantity of the goods he wanted than his immediate occasions
required. If there was no such trade as a butcher, for example,
every man would be obliged to purchase a whole ox or a whole
sheep at a time. This would generally be inconvenient to the
rich, and much more so to the poor. If a poor workman was obliged
to purchase a month's or six months' provisions at a time, a
great part of the stock which he employs as a capital in the
instruments of his trade, or in the furniture of his shop, and
which yields him a revenue. he would be forced to place in that
part of his stock which is reserved for immediate consumption,
and which yields him no revenue. Nothing can be more convenient
for such a person than to be able to purchase his subsistence
from day to day, or even from hour to hour, as he wants it. He is
thereby enabled to employ almost his whole stock as a capital. He
is thus enabled to furnish work to a greater value, and the
profit, which he makes by it in this way, much more than
compensates the additional price which the profit of the retailer
imposes upon the goods. The prejudices of some political writers
against shopkeepers and tradesmen are altogether without
foundation. So far is it from being necessary either to tax them
or to restrict their numbers that they can never be multiplied so
as to hurt the public, though they may so as to hurt one another.
The quantity of grocery goods, for example, which can be sold in
a particular town is limited by the demand of that town and its
neighbourhood. The capital, therefore, which can be employed in
the grocery trade cannot exceed what is sufficient to purchase
that quantity. If this capital is divided between two different
grocers, their competition will tend to make both of them sell
cheaper than if it were in the hands of one only; and if it were
divided among twenty, their competition would be just so much the
greater, and the chance of their combining together, in order to
raise the price, just so much the less. Their competition might
perhaps ruin some of themselves; but to take care of this is the
business of the parties concerned, and it may safely be trusted
to their discretion. It can never hurt either the consumer or the
producer; on the contrary, it must tend to make the retailers
both sell cheaper and buy dearer than if the whole trade was
monopolized by one or two persons. Some of them, perhaps, may
sometimes decoy a weak customer to buy what he has no occasion
for. This evil, however, is of too little importance to deserve
the public attention, nor would it necessarily be prevented by
restricting their numbers. It is not the multitude of ale-houses,
to give the most suspicious example, that occasions a general
disposition to drunkenness among the common people; but that
disposition arising from other causes necessarily gives
employment to a multitude of ale-houses.
The persons whose capitals are employed in any of those four
ways are themselves productive labourers. Their labour, when
properly directed, fixes and realizes itself in the subject or
vendible commodity upon which it is bestowed, and generally adds
to its price the value at least of their own maintenance and
consumption. The profits of the farmer, of the manufacturer, of
the merchant, and retailer, are all drawn from the price of the
goods which the two first produce, and the two last buy and sell.
Equal capitals, however, employed in each of those four different
ways, will immediately put into motion very different quantities
of productive labour, and augment, too, in very different
proportions the value of the annual produce of the land and
labour of the society to which they belong.
The capital of the retailer replaces, together with its
profits, that of the merchant of whom he purchases goods, and
thereby enables him to continue his business. The retailer
himself is the only productive labourer whom it immediately
employs. In his profits consists the whole value which its
employment adds to the annual produce of the land and labour of
the society.
