Defence of Usury [39]
colonies, whose petitions for these six years we have not been able to find time to listen to, the discontent is as notorious as it is just. May it be effectual!
POSTSCRIPT
SHORT OBSERVATIONS ON THE INJUSTICE AND IMPOLICY OF FORCED REDUCTIONS OF THE RATE OF INTEREST
Since the writing of the preceding Letters, I have heard of some other advantages supposed to result from the limitation of the rate of interest which, I must confess, had not then occurred to me as resulting from the restraints thus laid on the liberty of contracting. These are 1. Encreasing the sum of national wealth. 2. Enabling the state to take and to keep money at interest upon more advantageous terms than it could otherwise, and thus diminishing the sum of the public burthens which are the deductions from national wealth, encreasing therefore in this negative way the clear sum of national wealth upon the whole. Examine into these supposed advantages, you will find them both altogether illusory, and that, did they not only exist, but exist in the utmost degree that was ever attributed to them, they could not be obtained but at the expence of inconveniences much more considerable. The first of them does not exist in point of fact: such a limitation has scarce any perceptible tendency in any way whatever to add to the mass of national wealth, and it tends in a variety of ways to diminish it. As to the second, neither does that exist in the shape of an advantage. The public may or may not hold money of individuals at interest upon more advantageous terms, but from this circumstance the mass of national wealth is not rendered a jot more considerable than it would be otherwise. At no time, therefore, does the nation, collectively considered, derive any advantage from this limitation: and as often as any fresh imitation is applied whereby the restraint is drawn tighter, the nation suffers the inconvenience of an unequal and very heavy tax. without reaping the advantages that it does from other taxes. First supposed advantage -- Encreasing in a direct way the mass of national wealth in the hands of individuals. This advantage, I say, will not be found to result in any degree from this measure. Every accession made to the national stock of wealth, is the result of labour employed by the help of capital, the result of preceding labour. No accession to wealth in any hands, public or private, can take place but in one or other of two ways: 1. By the augmentation of the mass of capital employed in giving motion to industry: 2. By a more advantageous application of the existing stock of capital, its application in a more advantageous manner. That the measure in question can contribute in the latter of these two modes to the encrease of wealth, has never been, nor ever will be supposed. On the other hand I have already shewn that it has a contrary effect. Every more advantageous mode than was before known of applying a part of the quantity of capital in hand is, previously to trial and success, a Project: and the effect of this limitation in discouraging projects has already been displayed. 2. It has no particular tendency to encrease the quantity of capital. It has, it is true, a tendency to modify in a certain manner the distribution of wealth among the different sharers: it is only in proportion as it has this tendency, that this or any other regulation relative to property can have any effect at all. It must also be admitted that, if in any degree it tends to augment the quantity of wealth employed in the shape of capital, with reference to, and at the expence of, that part which is employed in the shape of unproductive consumption and expenditure, it must in proportion operate in augmentation of the mass of capital employed as capital in the production of wealth, and thence of the growing stock of national wealth. Whoever saves money, as the phrase is, adds proportionably to the general mass of capital. There is scarce any description of people that does not include some individuals
POSTSCRIPT
SHORT OBSERVATIONS ON THE INJUSTICE AND IMPOLICY OF FORCED REDUCTIONS OF THE RATE OF INTEREST
Since the writing of the preceding Letters, I have heard of some other advantages supposed to result from the limitation of the rate of interest which, I must confess, had not then occurred to me as resulting from the restraints thus laid on the liberty of contracting. These are 1. Encreasing the sum of national wealth. 2. Enabling the state to take and to keep money at interest upon more advantageous terms than it could otherwise, and thus diminishing the sum of the public burthens which are the deductions from national wealth, encreasing therefore in this negative way the clear sum of national wealth upon the whole. Examine into these supposed advantages, you will find them both altogether illusory, and that, did they not only exist, but exist in the utmost degree that was ever attributed to them, they could not be obtained but at the expence of inconveniences much more considerable. The first of them does not exist in point of fact: such a limitation has scarce any perceptible tendency in any way whatever to add to the mass of national wealth, and it tends in a variety of ways to diminish it. As to the second, neither does that exist in the shape of an advantage. The public may or may not hold money of individuals at interest upon more advantageous terms, but from this circumstance the mass of national wealth is not rendered a jot more considerable than it would be otherwise. At no time, therefore, does the nation, collectively considered, derive any advantage from this limitation: and as often as any fresh imitation is applied whereby the restraint is drawn tighter, the nation suffers the inconvenience of an unequal and very heavy tax. without reaping the advantages that it does from other taxes. First supposed advantage -- Encreasing in a direct way the mass of national wealth in the hands of individuals. This advantage, I say, will not be found to result in any degree from this measure. Every accession made to the national stock of wealth, is the result of labour employed by the help of capital, the result of preceding labour. No accession to wealth in any hands, public or private, can take place but in one or other of two ways: 1. By the augmentation of the mass of capital employed in giving motion to industry: 2. By a more advantageous application of the existing stock of capital, its application in a more advantageous manner. That the measure in question can contribute in the latter of these two modes to the encrease of wealth, has never been, nor ever will be supposed. On the other hand I have already shewn that it has a contrary effect. Every more advantageous mode than was before known of applying a part of the quantity of capital in hand is, previously to trial and success, a Project: and the effect of this limitation in discouraging projects has already been displayed. 2. It has no particular tendency to encrease the quantity of capital. It has, it is true, a tendency to modify in a certain manner the distribution of wealth among the different sharers: it is only in proportion as it has this tendency, that this or any other regulation relative to property can have any effect at all. It must also be admitted that, if in any degree it tends to augment the quantity of wealth employed in the shape of capital, with reference to, and at the expence of, that part which is employed in the shape of unproductive consumption and expenditure, it must in proportion operate in augmentation of the mass of capital employed as capital in the production of wealth, and thence of the growing stock of national wealth. Whoever saves money, as the phrase is, adds proportionably to the general mass of capital. There is scarce any description of people that does not include some individuals