An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith (ebook reader macos .TXT) 📕

would be greater, but their real value would be precisely the same as

before. They would be exchanged for a greater number of pieces of silver;

but the quantity of labour which they could command, the number of people

whom they could maintain and employ, would be precisely the same. The

capital of the country would be the same, though a greater number of pieces

might be requisite for conveying any equal portion of it from one hand to

another. The deeds of assignment, like the conveyances of a verbose

attorney, would be more cumbersome; but the thing assigned would be

precisely the same as before, and could produce only the same effects. The

funds for maintaining productive labour being the same, the demand for it

would be the same. Its price or wages, therefore, though nominally greater,

would really be the same. They would be paid in a greater number of pieces

of silver, but they would purchase only the same quantity of goods. The

profits of stock would be the same, both nominally and really. The wages of

labour are commonly computed by the quantity of silver which is paid to the

labourer. When that is increased, therefore, his wages appear 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, 5s. 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 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 or 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 EMPLOYMENTS 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 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 those 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