Whatever were the causes which lowered the mon interest of money; what can commonly value of the capital, the same must necessarily be given for the use of money being necessa have lowered that of the interest, and exactly rily regulated by what can commonly be made in the same proportion. The proportion be- by the use of it.

tween the value of the capital and that of the Any increase in the quantity of commodi. interest must have remained the same, though ties annually circulated within the country, the rate had never been altered. By altering while that of the money which circulated them the rate, on the contrary, the proportion be- remained the same, would, on the contrary, tween those two values is necessarily altered. produce many other important effects, besides If L. 100 now are worth no more than L.50 that of raising the value of the money. The were then, L.5 now can be worth no more capital of the country, though it might nomithan 1..2, 10s. were then. By reducing the nally be the same, would really be augmented. rate of interest, therefore, from ten to five per It might continue to be expressed by the same cent. we give for the use of a capital, which quantity of money, but it would command a is supposed to be equal to one half of its for- greater quantity of labour. The quantity of mer value, an interest which is equal to one productive labour which it could maintain and fourth only of the value of the former interest. employ would be increased, and consequently

An increase in the quantity of silver, while the demand for that labour. Its wages would that of the commodities circulated by means naturally rise with the demand, and yet might of it remained the same, could have no other appear to sink. They might be paid with a effect than to diminish the value of that metal. smaller quantity of money, but that smaller The nominal value of all sorts of goods would quantity might purchase a greater quantity of be greater, but their real value would be pre- goods than a greater had done before. The cisely the same as before. They would be ex- profits of stock would be diminished, both changed for a greater number of pieces of sil- really and in appearance. The whole capital ver; but the quantity of labour which they of the country being augmented, the competi. could command, the number of people whom tion between the different capitals of which they could maintain and employ, would be it was composed would naturally be augmentprecisely the same. The capital of the country ed along with it. The owners of those partiwould be the same, though a greater number cular capitals would be obliged to content of pieces might be requisite for conveying any themselves with a smaller proportion of the equal portion of it from one hand to another. produce of that labour which their respective The deeds of assignment, like the conveyances capitals employed. The interest of money, of a verbose attorney, would be more cumber- keeping pace always with the profits of stock, some; but the thing assigned would be pre- might, in this manner, be greatly diminished, cisely the same as before, and could produce though the value of money, or the quantity of only the same effects. The funds for main- goods which any particular sum could purtaining productive labour being the same, the chase, was greatly augmented. demand for it would be the same. Its price In some countries the interest of money or wages, therefore, though nominally greater, has been prohibited by law. But as somewould really be the same. They would be thing can everywhere be made by the use of paid in a greater number of pieces of silver, money, something ought everywhere to be but they would purchase only the same quan- paid for the use of it. This regulation, intity of goods. The profits of stock would be stead of preventing, has been found from ex the same, both nominally and really. The perience to increase the evil of usury. The wages of labour are commonly computed by debtor being obliged to pay, not only for the the quantity of silver which is paid to the la- use of the money, but for the risk which his bourer. When that is increased, therefore, creditor runs by accepting a compensation for his wages appear to be increased, though they that use, he is obliged, if one may say so, to may sometimes be no greater than before. insure his creditor from the penalties of usury. But the profits of stock are not computed by In countries where interest is permitted, the the number of pieces of silver with which they law in order to prevent the extortion of usury, are paid, but by the proportion which those generally fixes the highest rate which can be pieces bear to the whole capital employed. taken without incurring a penalty. This rate Thus, in a particular country, 5s. a-week are ought always to be somewhat above the lowsaid to be the common wages of labour, and est market price, or the price which is com ten per cent. the common profits of stock; but monly paid for the use of money by those who the whole capital of the country being the can give the most undoubted security. It same as before, the competition between the this legal rate should be fixed below the lowdifferent capitals of individuals into which it est market rate, the effects of this fixation was divided would likewise be the same. must be nearly the same as those of a tota. They would all trade with the same advanta- prohibition of interest. The creditor will not ges and disadvantages. The common pro- lend his money for less than the use of it is portion between capital and profit, therefore, worth, and the debtor must pay him for the would be the same, and consequently the com- risk which he runs by accepting the full va

lue of that use. If it is fixed precisely at the difference only; and if the rent of land should lowest market price, it ruins, with honest peo- fall short of the interest of money by a greater ple who respect the laws of their country, the difference, nobody would buy land, which

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 univesally 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.

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. Note 19.

CHAP. 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 em. ployment; 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 ma

No law can reduce the common rate of interest below the lowest ordinary market rate at the time when that law is made. Notwith-nufactured produce from the places where standing the edict of 1766, by which the they abound to those where they are wanted French king attempted to reduce the rate of or, lastly, in dividing particular portions 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 |

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 furnish. ing rude produce to a certain degree of abun. dance, neither manufactures nor trade of any kind could exist.

Unless a capital was employed in manufac.

turing that part of the rude produce which and if it were divided among twenty, their requires a good deal of preparation before it competition would be just so much the greatcan be fit for use and consumption, it either er, and the chance of their combining towould never be produced, because there could gether. in order to raise the price, just so be no demand for it; or if it was produced much the less. Their competition might, perspontaneously, it would be of no value in ex- haps, ruin some of themselves; but to take change, and could add nothing to the wealth care of this, is the business of the parties of the society.

concerned, and it may safely be trusted to

Unless a capital was employed in trans- their discretion. It can never hurt either the porting either the rude or manufactured pro- consumer or the producer; on the contrary, duce from the places where it abounds to it must tend to make the retailers both sell those where it is wanted, no more of either cheaper and buy dearer, than if the whole could be produced than was necessary for the trade was monopolized by one or two persons. consumption of the neighbourhood. The ca- Some of them, perhaps, may sometimes decoy pital of the merchant exchanges the surplus a weak customer to buy what he has no occaproduce of one place for that of another, and sion for. This evil, however, is of too little thus encourages the industry, and increases importance to deserve the public attention, the enjoyments of both.

nor would it necessarily be prevented by re

Unless a capital was employed in breaking stricting their numbers. It is not the multiand dividing certain portions either of the tude of alehouses, to give the most suspicious rude or manufactured produce into such small example, that occasions a general disposition parcels as suit the occasional demands of those to drunkenness among the common people; who want them, every man would be obliged but that disposition, arising from other causes, to purchase a greater quantity of the goods necessarily gives employment to a multitude he wanted than his immediate occasions re- of alehouses.

quired. If there was no such trade as a The persons whose capitals are employed butcher, for example, every man would be in any of those four ways, are themselves pro. obliged to purchase a whole ox or a whole ductive labourers. Their labour, when prosheep at a time. This would generally be in-perly directed, fixes and realizes itself in the convenient to the rich, and much more so to subject or vendible commodity upon which the poor. If a poor workman was obliged to it is bestowed, and generally adds to its price purchase a month's or six months' provisions the value at least of their own maintenance at a time, a great part of the stock which he and consumption. The profits of the farmer, employs as a capital in the instruments of his of the manufacturer, of the merchant, and retrade, or in the furniture of his shop, and tailer, are all drawn from the price of the which yields him a revenue, he would be goods which the two first produce, and the forced to place in that part of his stock which two last buy and sell. Equal capitals, howis reserved for immediate consumption, and ever, employed in each of those four different which yields him no revenue. Nothing can be ways, will immediately put into motion very more convenient for such a person than to be different quantities of productive labour; and able to purchase his subsistence from day to augment, too, in very different proportions, day, or even from hour to hour, as he wants the value of the annual produce of the land it. He is thereby enabled to employ almost and labour of the society to which they be his whole stock as a capital. He is thus en- long.

abled to furnish work to a greater value; and The capital of the retailer replaces, together the profit which he makes by it in this way, with its profits, that of the merchant of whom much more than compensates the additional he purchases goods, and thereby enables him price which the profit of the retailer imposes to continue his business. The retailer him. upon the goods. The prejudices of some po- self is the only productive labourer whom it litical writers against shopkeepers and trades- immediately employs. In his profit consists men are altogether without foundation. So the whole value which its employment adds to far is it from being necessary either to tax the annual produce of the land and labour of them, or to restrict their numbers, that they the society.

can never be multiplied so as to hurt the pub- The capital of the wholesale merchant relic, though they may so as to hurt one an- places, together with their profits, the capitals ether. The quantity of grocery goods, for of the farmers and manufacturers of whom he example, which can be sold in a particular purchases the rude and manufactured protown, is limited by the demand of that town duce which he deals in, and thereby enables and its neighbourhood. The capital, there- them to continue their respective trades. It fore, which can be employed in the grocery is by this service chiefly that he contributes trade, cannot exceed what is sufficient to pur- indirectly to support the productive labour of chase that quantity. If this capital is divided the society, and to increase the value of its anbetween two different grocers, their competi- nual produce. His capital employs, too, the tion will tend to make both of them sell cheap- sailors and carriers who transport his goods er than if it were in the hands of one only; from one place to another; and it augmente the price of those goods by the value, not on- fertility of the land. It is the work of Naly of his profits, but of their wages. This is ture which remains, after deducting or comall the productive labour which it immediate- pensating every thing which can be regarded ly puts into motion, and all the value which as the work of man. It is seldom less than a it immediately adds to the annual produce. fourth, and frequently more than a third, of Its operation in both these respects is a good the whole produce. No equal quantity of deal superior to that of the capital of the re- productive labour employed in manufactures,

tailer.

Part of the capital of the master manufacturer is employed as a fixed capital in the instruments of his trade, and replaces, together

can ever occasion so great reproduci n. In them Nature does nothing; man does all; and the reproduction must always be in proportion to the strength of the agents that occasion it. with its profits, that of some other artificer of The capital employed in agriculture, therefore, whom he purchases them. Part of his circu- not only puts into motion a greater quantity lating capital is employed in purchasing ma- of productive labour than any equal capital terials, and replaces, with their profits, the ca- employed in manufactures; but in propopitals of the farmers and miners of whom he tion, too, to the quantity of productive lapurchases them. But a great part of it is al- bour which it employs, it adds a much great ways, either annually, or in a much shorter er value to the annual produce of the land period, distributed among the different work- and labour of the country, to the real wealth men whom he employs. It augments the va- and revenue of its inhabitants. Of all the lue of those materials by their wages, and by ways in which a capital can be employed, it is their masters' profits upon the whole stock of by far the most advantageous to society. wages, materials, and instruments of trade emThe capitals employed in the agriculture ployed in the business. It puts immediately and in the retail trade of any society, must alinto motion, therefore, a much greater quan- ways reside within that society. Their emtity of productive labour, and adds a much ployment is confined almost to a precise spot, greater value to the annual produce of the to the farm, and to the shop of the retailer. iand and labour of the society, than an equal They must generally, too, though there are capital in the hands of any wholesale mer- some exceptions to this, belong to resident

chant.

No equal capital puts into motion a greater quantity of productive labour than that of the farmer. Not only his labouring servants, but his labouring cattle, are productive labourers. In agriculture, too, Nature labours along with man; and though her labour costs no expense, its produce has its value, as well as that of the most expensive workmen. The most important operations of agriculture seen intended, not so much to increase, though they do that too, as to direct the fertility of Nature to wards the production of the plants most profitable to man. A field overgrown with briars

members of the society.

The capital of a wholesale merchant, on the contrary, seems to have no fixed or necessary residence anywhere, but may wander about from place to place, according as it can either buy cheap or sell dear.

The capital of the manufacturer must, no doubt, reside where the manufacture is carried on; but where this shall be, is not always necessarily determined. It may frequently be at a great distance, both from the place where the materials grow, and from that where the complete manufacture is consumed. Lyons is very distant, both from the places which

and brambles, may frequently produce as great afford the materials of its manufactures, and a quantity of vegetables as the best cultivated from those which consume them. The peovineyard or corn field. Planting and tillage ple of fashion in Sicily are clothed in silks frequently regulate more than they animate made in other countries, from the materials the active fertility of Nature; and after all which their own produces. Part of the wool their labour, a great part of the work always of Spain is manufactured in Great Britain, remains to be done by her. The labourers and some part of that cloth is afterwards sent and labouring cattle, therefore, employed in back to Spain.

agriculture, not only occasion, like the work- Whether the merchant whose capital exports men in manufactures, the reproduction of a the surplus produce of any society, be a navalue equal to their own consumption, or to tive or a foreigner, is of very little importance. the capital which employs them, together with If he is a foreigner, the number of their proits owner's profits, but of a much greater va- ductive labourers is necessarily less than if he lue. Over and above the capital of the far- had been a native, by one man only; and the mer, and all its profits, they regularly occasion value of their annual produce, by the profits of the reproduction of the rent of the landlord. that one man. The sailors or carriers wwhom This rent may be considered as the produce he employs, may still belong indifferently ei. of those powers of Nature, the use of which ther to his country, or to their country, or to the landlord lends to the farmer. It is great- some third country, in the same manner as it er or smaller, according to the supposed ex- he had been a native. The capital of a fotent of those powers, or, in other words, ac-reigner gives a value to their surplus produce cording to the supposed natural or improved equally with that of a native, by exchanging it for something for which there is a demand | After agriculture, the capital employed in ma at home. It as effectually replaces the capital nufactures puts into motion the greatest quan. of the person who produces that surplus, and tity of productive labour, and adds the greatas effectually enables him to continue his business, the service by which the capital of a wholesale merchant chiefly contributes to support the productive labour, and to augment the value of the annual produce of the society to which he belongs.

It is of more consequence that the capital of the manufacturer should reside within the

est value to the annual produce. That which is employed in the trade of exportation has the least effect of any of the three.

The country, indeed, which has not capital sufficient for all those three purposes, has not arrived at that degree of opulence for which it seems naturally destined. To attempt, however, prematurely, and with an insufficient

country. It necessarily puts into motion a capital, to do all the three, is certainly not the greater quantity of productive labour, and adds shortest way for a society, no more than it a greater value to the annual produce of the would be for an individual, to acquire a suffiland and labour of the society. It may, how-cient one. The capital of all the individuals ever, be very useful to the country, though it of a nation has its limits, in the same manner should not reside within it. The capitals of as that of a single individual, and is capable of the British manufacturers who work up the executing only certain purposes. The capital flax and hemp annually imported from the of all the individuals of a nation is increased in coasts of the Baltic, are surely very useful to the same manner as that of a single individual, the countries which produce them. Those by their continually accumulating and adding materials are a part of the surplus produce of to it whatever they save out of their revenue. those countries, which, unless it was annually It is likely to increase the fastest, therefore, exchanged for something which is in demand when it is employed in the way that affords there, would be of no value, and would soon the greatest revenue to all the inhabitants or cease to be produced. The merchants who the country, as they will thus be enabled to export it, replace the capitals of the people make the greatest savings. But the revenue who produce it, and thereby encourage them of all the inhabitants of the country is necesto continue the production; and the British sarily in proportion to the value of the annual manufacturers replace the capitals of those produce of their land and labour.

merchants.

It has been the principal cause of the rapid

A particular country, in the same manner progress of our American colonies towards as a particular person, may frequently not wealth and greatness, that almost their whole have capital sufficient both to improve and capitals have hitherto been employed in agri

cultivate all its lands, to manufacture and prepare their whole rude produce for immediate use and consumption, and to transport the surplus part either of the rude or manufactured produce to those distant markets, where it can be exchanged for something for which there is a demand at home. The inhabitants of many different parts of Great Britain have

culture. They have no manufactures, those household and coarser manufactures excepted, which necessarily accompany the progress of agriculture, and which are the work of the women and children in every private family. The greater part, both of the exportation and coasting trade of America, is carried on by the capitals of merchants who reside in Great

not capital sufficient to improve and cultivate Britain. Even the stores and warehouses from all their lands. The wool of the southern which goods are retailed in some provinces, counties of Scotland is, a great part of it, af- particularly in Virginia and Maryland, belong ter a long land carriage through very bad many of them to merchants who reside in the roads, manufactured in Yorkshire, for want of mother country, and afford one of the few a capital to manufacture it at home. There instances of the retail trade of a society being are many little manufacturing towns in Great carried on by the capitals of those who are Britain, of which the inhabitants have not ca- not resident members of it. Were the Amepital sufficient to transport the produce of ricans, either by combination, or by any other their own industry to those distant markets sort of violence, to stop the importation of shere there is demand and consumption for it. European manufactures, and, by thus giving If there are any merchants among them, they a monopoly to such of their own countrymen are, properly, only the agents of wealthier as could manufacture the like goods, divert merchants who reside in some of the great any considerable part of their capital into this

commercial cities.

employment, they would retard, instead of ac

When the capital of any country is not suf- celerating, the further increase in the value ficient for all those three purposes, in propor. of their annual produce, and would obstruct, tion as a greater share of it is employed in a- instead of promoting, the progress of their griculture, the greater will be the quantity of country towards real wealth and greatness. productive labour which it puts into motion This would be still more the case, were they within the country; as will likewise be the va- to attempt, in the same manner, to monopo lue which its employment adds to the annual lize to themselves their whole exportation produce of the land and labour of the society. trade.