The diminution of the capital stock of the society, or of the funds destined for the maintenance of industry, however, as it lowers the wages of labour, so it raises the profits of stock, and consequently the interest of money.By the wages of labour being lowered, the owners of what stock remains in the society can bring their goods at less expense to market than before, and less stock being employed in supplying the market than before, they can sell them dearer.Their goods cost them less, and they get more for them.Their profits, therefore, being augmented at both ends, can well afford a large interest.The great fortunes so suddenly and so easily acquired in Bengal and the other British settlements in the East Indies may satisfy us that, as the wages of labour are very low, so the profits of stock are very high in those ruined countries.The interest of money is proportionably so.In Bengal, money is frequently lent to the farmers at forty, fifty, and sixty per cent and the succeeding crop is mortgaged for the payment.As the profits which can afford such an interest must eat up almost the whole rent of the landlord, so such enormous usury must in its turn eat up the greater part of those profits.Before the fall of the Roman republic, a usury of the same kind seems to have been common in the provinces, under the ruinous administration of their proconsuls.The virtuous Brutus lent money in Cyprus at eight-and-forty per cent as we learn from the letters of Cicero.
In a country which had acquired that full complement of riches which the nature of its soil and climate, and its situation with respect to other countries, allowed it to acquire;which could, therefore, advance no further, and which was not going backwards, both the wages of labour and the profits of stock would probably be very low.In a country fully peopled in proportion to what either its territory could maintain or its stock employ, the competition for employment would necessarily be so great as to reduce the wages of labour to what was barely sufficient to keep up the number of labourers, and, the country being already fully peopled, that number could never be augmented.In a country fully stocked in proportion to all the business it had to transact, as great a quantity of stock would be employed in every particular branch as the nature and extent of the trade would admit.The competition, therefore, would everywhere be as great, and consequently the ordinary profit as low as possible.
But perhaps no country has ever yet arrived at this degree of opulence.China seems to have been long stationary, and had probably long ago acquired that full complement of riches which is consistent with the nature of its laws and institutions.But this complement may be much inferior to what, with other laws and institutions, the nature of its soil, climate, and situation might admit of.A country which neglects or despises foreign commerce, and which admits the vessels of foreign nations into one or two of its ports only, cannot transact the same quantity of business which it might do with different laws and institutions.In a country too, where, though the rich or the owners of large capitals enjoy a good deal of security, the poor or the owners of small capitals enjoy scarce any, but are liable, under the pretence of justice, to be pillaged and plundered at any time by the inferior mandarins, the quantity of stock employed in all the different branches of business transacted within it can never be equal to what the nature and extent of that business might admit.In every different branch, the oppression of the poor must establish the monopoly of the rich, who, by engrossing the whole trade to themselves, will be able to make very large profits.Twelve per cent accordingly is said to be the common interest of money in China, and the ordinary profits of stock must be sufficient to afford this large interest.
A defect in the law may sometimes raise the rate of interest considerably above what the condition of the country, as to wealth or poverty, would require.When the law does not enforce the performance of contracts, it puts all borrowers nearly upon the same footing with bankrupts or people of doubtful credit in better regulated countries.The uncertainty of recovering his money makes the lender exact the same usurious interest which is usually required from bankrupts.Among the barbarous nations who overran the western provinces of the Roman empire, the performance of contracts was left for many ages to the faith of the contracting parties.The courts of justice of their kings seldom intermeddled in it.The high rate of interest which took place in those ancient times may perhaps be partly accounted for from this cause.
When the law prohibits interest altogether, it does not prevent it.Many people must borrow, and nobody will lend without such a consideration for the use of their money as is suitable not only to what can be made by the use of it, but to the difficulty and danger of evading the law.The high rate of interest among all Mahometan nations is accounted for by Mr.
Montesquieu, not from their poverty, but partly from this, and partly from the difficulty of recovering the money.
The lowest ordinary rate of profit must always be something more than what is sufficient to compensate the occasional losses to which every employment of stock is exposed.It is this surplus only which is neat or clear profit.What is called gross profit comprehends frequently, not only this surplus, but what is retained for compensating such extraordinary losses.The interest which the borrower can afford to pay is in proportion to the clear profit only.
The lowest ordinary rate of interest must, in the same manner, be something more than sufficient to compensate the occasional losses to which lending, even with tolerable prudence, is exposed.Were it not more, charity or friendship could be the only motive for lending.