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trious classes, the value of money should be reduced by a legislative enactment. Our object has merely been to explain the influence of changes, which, originating in variations in the cost of the precious metals, or in political or financial measures, or the abuse of banking, affect, without its being intended, the value of money. An intentional reduction of the standard would have the effects already mentioned; but it would also have others, which must not be lost sight of in estimating its probable influence. Besides diminishing the weight of taxation and of the other burdens laid upon the industrious classes, it would partially subvert the right of property, and go far to annihilate all confidence in the legislature. Whatever, therefore, might be gained on the one hand by such a measure, would, there is every reason to think, be much more than lost on the other. Public and private credit would, for a while, be destroyed; and a large amount of capital would be transferred to foreign countries, as to places of security. In this respect a degradation of the standard would be worse than an avowed public bankruptcy, to the same,1 or even to a greater extent; for the latter would affect the creditors of the state only, whereas the former would, besides them, affect the creditors of all private individuals, and would, in fact, defraud every one who had leut money or capital, or sold goods on credit, of a portion of his just claims! Perhaps, as Hume conjectures, credit might, at no distant period, grow up again, even after so flagrant a breach of faith; but such a result could hardly be expected, unless the country were to continue at peace, and to become decidedly more prosperous. Should we be involved in war, or should the measure not be followed by the anticipated effect in relieving the national distresses, it is very unlikely that credit should revive; for, in the former case, few would be willing, unless tempted by the offer of a large bonus, to lend to a government which

1 By the same extent is meant, that if the standard be reduced any given amount, as 10 per cent, the sums due the public creditor should be reduced in the same proportion, and conversely.

had so strikingly evinced its contempt for the most sacred engagements; and in the latter, the continuance of the distress would naturally excite a fear lest it should lead to a repetition of the same violence for which it had already been made the pretext. Nothing, in fact, can ever justify a government in resorting to such a dishonest, pettifogging trick as a reduction of the value of money. If the public affairs should ever be so desperate as to require that some extraordinary effort should be made to lighten the pressure on the national resources, the exigency should be met by a contribution on capital, or, if that should be impracticable, by compounding with the national creditors. The honour and wellbeing of a nation will always be best consulted by looking its difficulties fairly in the face; and will, on the contrary, be most deeply compromised by attempting to evade them by a miserable fraud. The advantages that a change in the value of money has occasionally conferred on the industrious classes, are the result of natural or fortuitous causes. They cannot be secured by voluntarily enfeebling the standard; for this, being a scheme to benefit one part of society by defrauding another part, is sure to bring along with it evils that will not merely neutralise, but very greatly overbalance its advantages. At bottom there is no real distinction between what is just and what is useful. The accidental conflagration of the fleets of their rivals would no doubt have increased the power of the Athenians; but had they adopted the advice ascribed to Themistocles, and attempted to secure their ascendency by the basest treachery, they would certainly have missed their end, and have become objects of universal hostility as well as of contempt. "Nihil est quod adhuc de republicá putem dictum, et quo possim longiùs progredi, nisi sit confirmatum, non modò falsum esse illud, sine injuriá non posse, sed hoc verissimum, sine summá justitia rempublicam regi non posse."

The statements now made sufficiently show, that loans 1 Cic. Frag. lib. ii. de Repub.

to government, and changes in the value of money, affect profits only by affecting wages, or the taxes, or other fixed charges which enter into the cost of production: so that whether government be borrowing or paying off debts, and whether the value of money be rising, falling, or stationary, it is still true that profits do not rise except when industry becomes more productive, or when wages or taxes are reduced; and that they do not fall except when industry becomes less productive, or wages or taxes are augmented.

We have seen in a previous chapter, that a low rate of profit, by lessening the means of accumulating capital, and stimulating its transfer to countries where profits are higher, can hardly fail to be, in the end, most injurious. The investigations in which we have now been engaged, show that this calamity can be averted, or, if it have occurred, can be got rid of, only by increasing the productiveness of industry, or diminishing the burdens that fall on the labouring classes. Hence the vast importance of economy in the national expenditure, and hence also a principal advantage of improvements in the arts, and of the opening of new facilities for commercial intercourse. Whatever tends to make industry more productive, and to diminish the burdens of the industrious classes, must in so far increase the rate of profit; and this is never increased without a corresponding increase of capital, or of the means of making new improvements and of employing more work-people.

CHAPTER VIII.

Interest and Nett Profit identical-Circumstances which occasion Variations in the Rate of Interest-Impolicy of Usury Laws.

WHEN an individual, instead of employing his own capital, lends it to another, he stipulates for a certain annual premium or return, which has been denominated interest.

In the preceding chapter we have considered profits as they are usually considered-that is, as consisting of the produce, or its equivalent, remaining to the undertaker of any sort of work, after his various outgoings have been replaced. But to ascertain the relation of profits and interest, this residue must be further analysed. Now it is obvious, that it consists of two portions, whereof one is the return to the capital employed, and the other the wages or remuneration of the capitalist for his skill and trouble in superintending its employment, with a compensation for such risks as it may not have been possible to provide against by insurance. Hence the distinction between gross and nett profits. The first comprises the wages of the capitalist, the return to his capital, and the compensation now alluded to, while the second consists of the return to capital only. In laying it down, when treating of the "Accumu lation and Employment of Capital," that high profits are the best criterion of national prosperity, we had gross profits only in view. And it is, indeed, evident, that the condition of those engaged in industrious undertakings depends on the magnitude of the produce or sum remaining to them, after their various expenses are deducted, without being in any degree influenced by the names they may give to portions thereof.

When the parties to a loan are left, without any sort of interference, to adjust its terms, and when the security

offered by the borrower is unexceptionable, and payment may be had on the shortest notice, the interest that will, under such circumstances, be stipulated for the capital or money advanced, will be identical with the rate of nett profit at the time. The lender having nothing to do with the employment of the loan, is not entitled to any compensation on that head; but he is entitled to all that can fairly be considered as the return to it after the risks, wages, and necessary emoluments of those who undertake its employment, are deducted; and this much he will get, and no more. Whatever else may be realised by the investment of the loan in an industrious undertaking, or otherwise, will belong to the borrower, and will form the wages or compensation due for his skill and trouble in superintendence, &c. We are supported in this view of the matter by the authority of Mr Tooke. "The rate of interest," says he, " is the measure of the nett profit on capital. All returns beyond this on the employment of capital, are resolvable into compensations under distinct heads for risk, trouble, or skill, or for advantages of situation or connexion." 1

Whatever, therefore, may at any time occasion a brisk demand for capital, without also occasioning an increase in the productiveness of industry, or a fall of wages or taxes, may raise the rate of interest, or of nett profit, without affecting gross profits, or profits in the customary acceptation of the term. And this, as has been already observed, is most commonly the immediate effect of government loans. They raise the rate of interest without affecting profits; the rise merely diminishing that part of the total produce falling to the employers of capital which is to be considered as wages, and making a corresponding addition to the other part, or that which is to be considered as the nett return or interest of capital.

Hence the advantage of a loan to the moneyed interest or to those who have capital to lend; and hence, also, its uni

1 "Considerations on the State of the Currency," 2d ed. p. 12.

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