John Ramsay McCulloch.

A select collection of scarce and valuable economical tracts, Volume 7 online

. (page 24 of 45)
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his own^ he has a right to keep it^ nothing can imply a
duty in him to lend it ; if then he does lend^ he may
annex such a condition to the loan as he chuses^ in this
he does no injury to the borrower, since the latter agrees
to the conditions, and has no sort of right over the sum
lent. The profit which money can procure the borrower,
is doubtless one of the most prevailing motives to deter-
mine him to borrow on interest ; it is one of the means
which facilitates his payment of the interest, but this is
by no means that which gives a right to the lender to
require it ; it is sufficient for him that his money is his
own, and this is a right inseparable from property. He
who buys bread, does it for his support, but the right the
baker has to exact a price is totally independent of the
use of bread ; the same right he would possess in the sale
of a parcel of stones, a right founded on this principle
only, that the bread is his own, and no one has any right
to oblige him to give it up for nothing.

§ 75. Answer to an objection.

This reflection brings us to the consideration of the
application made by an author, of the text, mutuum date
nihil inde sperantes, and shews how false that application
is, and how distant from the meaning of the Gospel.
The passage is clear, as interpreted by modem and rea-
sonable divines as a precept of charity. All mankind are

55 bound

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296 , Reflections oil the Formation

bound to assist each other ; a rich man who should see
his fellow creature in distress, and who, instead of gra-
tuitously assisting, should sell him what he needed, would
be equally deficient in the duties of Christianity and of
humanity. In such circumstances, charity does not only
require us to lend without interest, she orders us to lend,
and even to give if necessary. To convert the precept of
charity into a precept of strict justice, is equally repug-
nant to reason, and the sense of the text. Those whom I
here attack do not pretend that it is a duty of justice to
lend their money ; they must be obliged then to confess,
that the first words of the passage, mutuum date, contain
only a precept of charity. Now I demand why they
extend the latter part of this passage to a principle of
justice. What, is the duty of lending not a strict precept,
and shall its accessory only, the condition of the loan, be
made one ; it would have been said to man, *' It is free
for you to lend or not to lend, but if you do lend, take
care you do not require any interest for your money, and
even when a merchant shall require a loan of you for an
undertaking, in which he hopes to make a large profit, it
will be a crime in you to accept the interest he oflFers you ;
you must absolutely either lend to him gratuitously, or
not lend to him all ? You have indeed one method to
make the receipt of interest lawful, it is to lend your
capital for an indefinite term, and to give up all right to
be repaid it, which is to be optional to your debtor, when
he pleases, or when he can. If you find any inconve-
nience on the score of Security, or if you foresee you shall
want your money in a certain number of years, you have
no other course to take but not to lend : It is better for
you to deprive this merchant of this most fortimate op-
portunity, than to commit a sin by assisting him.'' Tlds
is what they must have seen in these five words, mutuum
date nihil inde speranies, when they have read them under
these false prejudices.

56 Every

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and Distribution of Wealth. 297

Every man who shall read this text unprejudiced^ will
soon find its real meaning ; that is^ '^ as men^ as Chris-
tians^ you are all brothers, all friends ; act towards each
other as brethren and friends ; help each other in your
necessities ; let your purses be reciprocally open to each
other, and do not sell that assistance which you are mu-
tually indebted to each other, in requiring an interest for
a loan which charity requires of you as a duty/' This is
the true sense of the passage in question The obligation
to lend without interest, and to lend, have evident relation
to each other ; they are of the same order, and both in-
culcate a duty of charity, and not a precept of rigorous
justice, applicable to all cases of lending.

§ 76. The rate of interest ought to be fixed, as the
price of every other merchandize, by the course of
trade alone,

I have already said, that the price of money borrowed,
is regulated like the price of all other merchandize, by
the proportion of the money at market with the demand
for it: thus, when there are many borrowers who are
in want of money, the interest of money rises ; when
there are many possessors who are ready to lend, it falls.
It is therefore an error to believe that the interest of
money in trade ought to be fixed by the laws of princes.
It has a current price fixed like that of all other mer-
chandize. This price varies a little, according to the
greater or less security which the lender has ; but on
equal security, he ought to raise and fall his price in pro-
portion to the abundance of the demand, and the law no
more ought to fix the interest of money than it ought to
regulate the price of any other merchandizes which have
a currency in trade.

57 § 77, Money

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298 Reflections on the Formation

§ 77. Money Jias in commerce two different valuations.
One expresses the quantity of money or silver we give
to procure different sorts of commodities; the other
expresses the relation a sum of money has, to the in-
terest it will procure in the course of trade.

It seems by this explanation of the manner in which
money is either sold or lent for an annual interest^ that
there are two ways of valuing money in commerce. In
buying and selling a certain weight of silver represents a
certain quantity of labour, or of merchandize of every
species ; for example, one ounce of silver is equal to a
certain quantity of com, or to the labour of a man for a
certain number of days. In lending, and in the com-
merce of money, a capital is the equivalent of an equal
rent, to a determinate portion of that capital ; and recipro-
cally an annual rent represents a capital equal to the
amount of that rent repeated a certain number of times,
according as interest is at a higher or lower rate.

§ 78. ITiese two valuations are independent of each other ^
and are governed by quite different principles.

These two diflferent methods of fixing a value, have
much less connection, and depend much less on each
other than we should be tempted to believe at first sight.
Money may be very common in ordinary commerce, may
hold a very low value, answer to a very small quantity of
commodities, and the interest of money may at the same
time be very high.

I will suppose there are one million oimces of silver in
actual circulation in commerce, and that an ounce of
silver is given in the market for a bushel of com. I will
suppose that there is brought into the country in some

58 manner

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and Distribution of Wealth. 299

maimer or other, another million of ounces of silver^ and
this augmentation is distributed to every one in the same
proportion as the first million^ so that he who had before
two ounces, has now four. The silver considered as a
quantity of metal, will certainly diminish in price, or
which is the same thing, commodities will be purchased
dearer, and it becomes necessary, in order to procure the
same measure of com which he had before with one ounce
of silver, to give more silver, perhaps two ounces instead
of one. But it does not by any means follow from thence,
that the interest of money falls, if all this money is car-
ried to market, and employed in the current expences of
those who possess it, as it is supposed the first million
of ounces of silver was ; for the interest of money falls
only when there is a greater quantity of money to be lent,
in proportion to the wants of the borrowers, than there
was before. Now the silver which is carried to market is
not to be lent ; it is money which is hoarded up, which
forms the accumulated capital for lending ; and the aug-
mentation of the money in the market, or the diminution
of its price in comparison with commodities in the ordi-
nary course of trade, are very far from causing infallibly,
or by a necessary consequence, a decrease of the interest
of money ; on the contrary, it may happen that the cause
which augments the quantity of money in the market,
anil which consequently increases the price of other com-
modities by lowering the value of silver, is precisely the
same cause which augments the hire of money, or the rate
of interest.

In effect, I will suppose for a moment, that all the
rich people in a country, instead of saving from their
revenue, or from their annual profits, shall expend the
whole; that, not satisfied with expending their whole
revenue, they dissipate a part of their capital ; that a man
who has 100,000 livres in money, instead of emplojdng
them in a profitable manner, or lending them, consumes

59 them

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300 Reflections on the Formation

them by degrees in foolish expences ; it is apparent that
on one side there will be more silver employed in com-
mon circulation, to satisfy the wants and humours of each
individual, and that consequently its value will be lowered;
on the other hand there will certainly be less money to be
lent ; and as many people will in this situation of things
ruin themselves, there will clearly be more borrowers.
The interest of money will consequently augment, while
the money itself will become more plenty in circulation,
and the value of it will fall, precisely by the same cause.

We shall no longer be surprised at this apparent in-
consistency, if we consider that the money brought into
the market for the purchase of corn, is that which is daily
circulated to procure the necessaries of life; but that
which is offered to be lent on interest, is what is actually
drawn out of that circulation to be laid by and accumu-
lated into a capital.

§ 79. In comparing the value of money with that of
commodities, we consider silver as a metal, which is an
object of commerce. In estimating the interest of money,
we attend to the use of it during a determinate time.

In the market a measure of corn is purchased with a
certain weight of silver, or a quantity of silver is bought
with a certain commodity, it is this quantity which is
valued and compared with the value of other commodi-
ties. In a loan upon interest, the object of the valuation
is the use of a certain quantity of property during a cer-
tain time. It is in this case no longer a mass of silver,
compared with a quantity of corn, but it is a portion of
effects compared with a certain portion of the same, which
is become the customary price of that mass for a certain
time. Let twenty thousand ounces of silver be an equi-
valent in the market for twenty thousand measures of com,
or only for ten thousand, the use of those twenty thousand

60 ounces

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and Distnhution of Wealth. 301

ounces of silver for a year is not worth less on a loan than
the twentieth part of the principal sum, or one thousand
ounces of silver, if interest is at five per cent.

§ 80. Tlie price of interest depends immediately on the.
proportion of the demand of the borrowers, unth the offer
of the lenders, and this proportion depends principally
on the quantity of personal property , accumulated by an
excess of revenue and of the annual produce to form
capitals, whether these capitals exist in money or in
any other hind of effects having a value in commerce.

The price of silver in circulation has no influence but
with respect to the quantity of this metal employed in
common circulation ; but the rate of interest is governed
by the quantity of property accumulated and laid by to
form a capital. It is indifferent whether this property
is in metal or other effects, provided these effects, are
easily convertible into money. It is far from being the
case, that the mass of metal existing in a state, is as large
as the amount of the property lent on interest in the
course of a year; but all the capitals in fiimiture, mer-
chandize, tools, and cattle, supply the place of silver and
represent it. A paper signed by a man, who is known to
be worth 100,000 livres, and who promises to pay 100
marks in a certain time is worth that sum ; the whole
property of the man who has signed this note is answer-
able for the payment of it, in whatever the nature of
these effects consists, provided they are in value 100,000
livres. It is not therefore the quantity of silver existing
as merchandize which causes the rate of interest to rise or
fall, or which brings more money in the market to be
lent ; it is only the capitals existing in commerce, that is
to say, the actual value of personal property of every
kind accumtdated, successively saved out of the revenues
and profits to be employed by the possessors to procure
them new revenues and new profits. It is these accumu-

61 lated

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302 Rejections on tfie Foi^mation

lated savings which are oflfered to the borrowers, and the
more there are of them, the lower the interest of money
will be, at least if the number of borrowers is not aug-
mented in proportion.

§ 81. The spirit of ceconomy continually augments the
amount of capitals, luxury continually tends to destroy

The spirit of ceconomy in any nation tends incessantly
to augment the amount of the capitals, to increase the
number of lenders, and to diminish that of the borrowers.
The habit of luxury has precisely a contrary effect, and
by what has been already remarked on the use of capitals
in all undertakings, whether of cultivation, manufacture,
or commerce, we may judge if luxury enriches a nation^
or impoverishes it.

§ 82. The lowering of interest proves, that in Europe
ceconomy has in general prevailed over luxury.

Since the interest of money has been constantly dimi-
nishing in Europe for several centuries, we must conclude,
that the spirit of ceconomy has been more general than
the spirit of luxury. It is only people of fortune who
run into luxury, and among the rich, the sensible part of
them confine their expences within their incomes, and
pay great attention not to touch their capital. Those
who wish to become rich are far more numerous in a
nation than those which are already so. Now, in the
present state of things, as all the land is occupied, there is
but one way to become rich, it is either to possess, or to
procure in some way or other, a revenue or an annual
profit above what is absolutely necessary for subsistence,
and to lay up every year in reserve to form a capital, by
means of which they may obtain an increase of revenue

62 or

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and Distribution of Wealth. 303

or annual profit^ which will again produce another savings
and become capital. There are consequently a great
number of men interested and employed in amassing

§ 83. Recapitulation of the five different methods of
employing capitals.

I have reckoned five different methods of employing
capitals, or of placing them so as to procure a profit.

1st. To buy an estate^ which brings in a certain

2d. To employ money in undertakings of cultiva-
tion ; in leasing lands whose produce should render back,
besides the expences of farming, the interest on the
advances, and a recompense for the labour of him who
employs his property and attention in the cultivation.

3d. To place a capital in some undertaking of
industry or manufactures.

4th. To employ it in commerce.

5th. Tojiend it to those who want it, for an annual

§ 84. The influence which the different methods of
employing money have on each other.

It is evident that the annual returns, which capitals,
placed in different employs, will produce, are proportionate
to each other, and all have relation to the actual rate of
the interest of money.

§ 85. Money invested in land, necessarily produces
the least.

The person who invests his money in land let to a
solvent tenant, procures himself a revenue which gives

63 him

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304 Reflections on the Formation

him very little trouble in receiving, and which he may
dispose of in the most agreeable manner, by indulging all
his inclinations. There is a greater advantage in the pur-
chase of this species of property, than of any other, since
the possession of it is more guarded against accidents.
We must therefore purchase a revenue in land at a higher
price, and must content ourselves with a less revenue for
an equal capital.

§ 86. Money on interest ought to bring a little more
income, than land purchased tvith an equal capital.

He who lends his money on interest, enjoys it still
more peaceably and freely than the possessor of land, but
the insolvency of his debtor may endanger the loss of his
capital. He will not therefore content himself with an
interest equal to the revenue of the land which he could
buy with an equal capital. The interest of money lent,
must consequently be larger than the revenue of an estate
purchased with the same capital; for if the proprietor
could find an estate to purchase of an equal income, he
would prefer that.

§ 87. Money employed in cultivation^ mamtffictures, or
commerce, ought to produce more than the interest of
money on loan.

By a like reason, money employed in agriculture, in
manufactures, or in commerce, ought to produce a more
considerable profit than the revenue of the same capital
employed in the purchase of lands, or the interest of
money on loan : for these iindertakings, besides the capi-
tal advanced, requiring much care and labour, and if they
were not more lucrative, it would be much better to
secure an equal revenue, which might be enjoyed without

64 labour.

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and Distribution of Wealth. 305

labour. It is necessary then^ that^ besides the interest of
the capital, the undertaker should draw every year a profit
to recompence him for his care, his labour, his talents, the
risque he runs, and to replace the wear and tear of that
portion of his capital which he is obliged to invest in
efi^ects capable of receiving injury^ and exposed to all
kinds of accidents.

§ 88. Meantime the freedom of these variotu employments
are limited by each other , and maintain, notwithsta$iding
their inequality, a species of equilibrium.

The different uses of the capitals produce very un-
equal profits ; but this inequality does not prevent them
firom having a reciprocal influence on each other, nor from
establishing a species of equilibrium among themselves,
like that between two liquors of unequal gravity, and which
communicate with each other by means of a reversed
syphon, the two branches of which they fill ; there can
be no height to which the one can rise or fall, but the
liquor in the other branch will be affected in the same

I will suppose, that on a sudden, a great number of
proprietors of lands are desirous of selling them. It is
evident that the price of lands will fall, and that with a
less sum we may acquire a larger revenue ; this cannot
come to pass without the interest of money rising, for the
possessors of money would chuse rather to buy lands, than
to lend at a lower interest than the revenue of the lands
they could purchase. If, then, the borrowers want to
have money, they will be constrained to pay a greater
rate. If the interest of the money increases, they will
prefer lending it, to setting out in a hazardous manner on
enterprises of agiiculture, industry, and commerce : and
they will be aware of any euterprizes but those that pro-
duce, besides the retribution for their trouble, an emolu-

65 ment

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306 Refl€ctio7is on the FormatiQn

ment by far greater than the rate of the lender's produce.
In a word^ if the profits^ springing from an use of money,
augment or diminish^ the capitals are converted by with-
drawing them from other employings^ or are withdrawn
by converting them to other ends, which necessarily alters,
in each of those employments, the proportion of profits on
the capital to the annual product. Generally, money
converted into property in land, does not bring in so
much as money on interest ; and money on interest brings
less than money used in laborious enterprizes : but the
produce of money laid out in any way whatever, cannot
augment or decrease without implying a proportionate
augmentation, or decrease in other employments of

§ 89. The current interest of money is the standard by
which the abundance or scarcity of capitals may be
judged ; it is the scale on which the extent of a nation's
capacity for enterprizes in agriculluref mainxfactvreSy
and commerce, may be reckoned.

Thus the current interest of money may be considered
as a standard of the abundance or scarcity of capitals in a
nation, and of the extent of enterprizes of every denomi-
nation, in which she may embark : it is manifest, that the
lower the interest of money is, the more valuable is the
land. A man that has an income of fifty thousand livres,
if the land is sold but at the rate of twenty years purchase
is an owner of only one million ; he has two millions, if
the land is sold at the rate of forty. If the interest is at
five per cent, any land to be brought into cultivation
would continue fallow, if, besides the recovery of the
advances, and the retribution due to the care of the culti-
vator, its produce would not afford five per cent. No
manufactory, no commerce can exist, that does not bring
in five per cent, exclusively of the salary and equivalents

66 for

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and Distribution of Wealth. 307

for the risque and trouble of the undertaker. If there i«
a neighbouring nation in which the interest stands only
at two per cent, not only it will engross all the branches
of commerce^ from which the nation where an interest at
five per cent, is established^ is excluded^ but its mannfac-^
turers and merchants^ enabled to satisfy themselves with
a lower interest^ will also sell their goods at a more mode-
rate price^ and will attract the almost exclusive commerce
of all articles^ which they are not prevented to sell by
particular circumstances of excessive dearth, and expences
of carriages, from the nation in which the interest bears
five per cent.

§ 90. Influence of the rate of interest of money on all
hurative enterprizes.

The price of the interest may be looked upon as a
kind of levels under which all labour, culture, industry,
or commerce, acts. It is like a sea expanded over a vast
country ; the tops of the mountains rise above the sur-
face of the water, and form fertile and cultivated islands.
If this sea happens to give way, in proportion as it
descends^ sloping ground, then plains and vallies appear^
which cover themselves with productions of every kind.
It wants no more than a foot elevation, or falling, to in-
undate or to restore culture to unmeasurable tracts of
land. It is the abundance of capitals that animates enter-
prize ; and a low interest of money is at the same time
the effect and a proof of the abundance of capitals.

§ 91. The totalBichesof a nation consists, 1. in the dear
revenue of all the real estates, multiplied by the rate of
the price of land, 2. in the sum of dU the moveable
riches existing in a nation.

Real estates are equivalent to any capital equal to their
annual revenue, multiplied by the current rate at which

67 lands

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308 Reflections on the Formation

lands are sold. Thus if we add the revenue of all lands, viz.
the clear revenue they render to the proprietor, and to all
those that share in the property, as the lord that levies a
rent, the curate that levies the tythe, the sovereign that
levies the tax ; if say I, we should add all these sums,
and multiply them by the rate at which lands are sold,
we would have the sum of all the wealth of a nation in
real estates. To have the whole of a nation^s wealth,
the moveable riches ought to be joined, which consist in
the sum of capitals converted into enterprizes of culture,
industry, and commerce, which is never lost ; as all
advances, in any kind of undertaking, must imceasingly
return to the undertaker, to be unceasingly converted
into enterprizes, which without that could not be con-
tinued. It would be a gross mistake to confound the im-

Online LibraryJohn Ramsay McCullochA select collection of scarce and valuable economical tracts, Volume 7 → online text (page 24 of 45)