Reflections on the Formation and Distribution of wealth [25]
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 commodities. In a loan upon interest, the object of the valuation is the use of a certain quantity of property during a certain 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 equivalent in the market for twenty thousand measures of corn, or only for ten thousand, the use of those twenty thousand 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. The price of interest depends immediately on the proportion of the demand of the borrowers, with 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 kind 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; hut 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 furniture, merchandize, 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 answerable 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 accumulated, 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 accumulated savings which are offered 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 augmented in proportion.
81. The spirit of oeconomy continually augments the amount of capitals, luxury continually tends to destroy them.
The spirit of oeconomy 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 oeconomy has in general prevailed over luxury.
Since the interest of money has been constantly diminishing in Europe for several centuries, we must conclude, that the spirit of oeconomy 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
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 commodities. In a loan upon interest, the object of the valuation is the use of a certain quantity of property during a certain 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 equivalent in the market for twenty thousand measures of corn, or only for ten thousand, the use of those twenty thousand 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. The price of interest depends immediately on the proportion of the demand of the borrowers, with 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 kind 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; hut 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 furniture, merchandize, 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 answerable 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 accumulated, 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 accumulated savings which are offered 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 augmented in proportion.
81. The spirit of oeconomy continually augments the amount of capitals, luxury continually tends to destroy them.
The spirit of oeconomy 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 oeconomy has in general prevailed over luxury.
Since the interest of money has been constantly diminishing in Europe for several centuries, we must conclude, that the spirit of oeconomy 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