We have seen that the quantity of money circulating in a state may be increased by working the mines which are found in it, by subsidies from foreign powers, by the immigration of Families of foreigners, by the residence of Ambassadors and Travellers, but above all by a regular and annual balance of trade from supplying merchandise to Foreigners and drawing from them at least part of the price in gold and silver. It is by this last means that a state grows most substantially, especially when its trade is accompanied and supported by ample navigation and by a considerable raw produce at home supplying the material necessary for the goods and manufactures sent abroad. As however the continuation of this Commerce gradually introduces a great abundance of money and little by little increases consumption, and as to meet this much Foreign produce must be brought in, part of the annual balance goes out to pay for it. On the other hand the habit of spending increasing the employment of labourers the prices of manufactured goods always go up. Without fail some foreign countries endeavour to set up for themselves the same kinds of manufactures, and so cease to buy those of the state in question; and though these new establishments of crafts and manufactures be not at first perfect they slacken and even prevent the exportation of those of the neighbouring state into their own country where they can be got cheaper. Thus it is that the state begins to lose some branches of its profitable trade: and many of its workmen and mechanics who see labour Fallen off leave the state to find more work in the countries with the new manufacture. In spite of this diminution in the balance of trade the custom of importing various products will continue. The articles and manufactures of the state having a great reputation, and the facility of navigation affording the means of sending them at little cost into distant countries, the state will for many years keep the upper hand over the new manufactures of which we have spoken and will still maintain a small Balance of trade, or at least will keep it even. If however some other maritime state tries to perfect the same articles and its navigation at the same time it will owing to the cheapness of its manufactures take away several branches of trade from the state in question. In consequence this state will begin to lose its balance of trade and will be forced to send every year a part of its money abroad to pay for its importations. Moreover, even if the state in question could keep a balance of trade in its greater abundance of money it is reasonable to suppose that this abundance will not arrive without many wealthy individuals springing up who will plunge into luxury. They will buy pictures and gems from the foreigner, will procure their silks and rare objects, and set such an example of luxury in the state that in spite of the advantage of its ordinary trade its money will flow abroad annually to pay for this luxury. This will gradually impoverish the state and cause it to pass from great power into great weakness. When a state has arrived at the highest point of wealth (I assume always that the comparative wealth of states consists principally in the respective quantities of money which they possess) it will inevitably fall into poverty by the ordinary course of things. The too great abundance of money, which so long as it lasts forms the power of states, throws them back imperceptibly but naturally into poverty. Thus it would seem that when a state expands by trade and the abundance of money raises the price of land and labour, the Prince or the Legislator ought to withdraw money from circulation, keep it for emergencies, and try to retard its circulation by every means except compulsion and bad faith, so as to forestall the too great dearness of its articles and prevent the drawbacks of luxury. But as it is not easy to discover the time opportune for this, nor to know when money has become more abundant than it ought to be for the good and preservation of the advantages of the state, the Princes and Heads of Republics, who do not concern themselves much with this sort of knowledge, attach themselves only to make use of the facility which they find through the abundance of their state revenues, to extend their power and to insult other countries on the most frivolous pretexts. And all things considered they do not perhaps so badly in working to perpetuate the glory of their reigns and administrations, and to leave monuments of their power and wealth; for since, according to the natural course of humanity, the state must collapse of itself they do but accelerate its fall a little. Nevertheless it seems that they ought to endeavour to make their power last all the time of their own administration. It does not need a great many years to raise abundance to the highest point in a state, still fewer are needed to bring it to poverty for lack of commerce and manufactures. Not to speak of the power and fall of the Republic of Venice, the Hanseatic Towns, Flanders and Brabant, the Dutch Republic, etc. who have succeeded each other in the profitable branches of trade, one may say that the power of France has been on the increase only from 1646 (when manufactures of cloths were set up there, which were until then imported) to 1684 when a number of Protestant Undertakers and artisans were driven out of it, and that kingdom has done nothing but recede since this last date. To judge of the abundance and scarcity of money in circulation. I know no better measure than the leases and rents of landowners. When land is let at high rents it is a sign that there is plenty of money in the state; but when land has to be let much lower it shows, other things being equal, that money is scarce. I have read in an Etat de la France that the acre of vineyard which was let in 1660 near Mantes, and therefore not far from the capital of France, for 200 livres tournois in money of full weight, only let in 1700 for 100 livres tournois in lighter money, though the silver brought from the West Indies in the interval should naturally have sent up the price of land in Europe. The author [of the Etat] attributes this fall in rent to defective consumption. And it seems that he had in fact observed that the consumption of Wine had diminished. But I think he has mistaken the effect for the cause. The cause was a greater rarity of money in France, and the effect of this was naturally a falling off in consumption. In this Essay I have always suggested, on the contrary, that abundant money naturally increases consumption and contributes above everything to the cultivation of land. When abundant money raises produce to respectable prices the inhabitants make haste to work to acquire it; but they are not in the same hurry to acquire produce or merchandise beyond what is needed for their maintenance. It is clear that every state which has more money in circulation than its neighbours has an advantage over them so long as it maintains this abundance of money. In the first place in all branches of trade it gives less land and labour than it receives: the price of land and labour being everywhere reckoned in money is higher in the state where money is most abundant. Thus the state in question receives sometimes the produce of two acres of land in exchange for that of one acre, and the work of two men for that of only one. It is because of this abundance of money in circulation in London that the work of one English embroiderer costs more than that of 10 Chinese embroiderers, though the Chinese embroider much better and turn out more work in a day. In Europe one is astonished how these Indians can live, working so cheap, and how the admirable stuffs which they send us cost so little. In the second place, the revenues of the state where money abounds, are raised more easily and in comparatively much larger amount. This gives the state, in case of war or dispute, the means to gain all sorts of advantages over its adversaries with whom money is scarce. If of two Princes who war upon each other for the sovereignty or conquest of a state one have much money and the other little money but many estates which may be worth twice as much as all the money of his enemy, the first will be better able to attach to himself Generals and Officers by gifts of money than the second will be by giving twice the value in lands and estates. Grants of land are subject to challenge and revocation and cannot be relied upon so well as the money which is received. With money munitions of war and food are bought even from the enemies of the state. Money can be given without witnesses for secret service. Lands, Produce, merchandise would not serve for these purposes, not even jewels or diamonds, because they are easily recognised. After all it seems to me that the comparative power and wealth of states consist, other things being equal, in the greater or less abundance of money circulating in them hic et nunc. It remains to mention two other methods of increasing the amount of money in active circulation in a state The first is when Undertakers and private individual borrow money from their foreign correspondents a interest, or individuals abroad send their money into the state to buy shares or government stocks there. This often amounts to very considerable sums upon which the state must annually pay interest to these foreigners These methods of increasing the money in the state make it more abundant there and diminish the rate of interest. By means of this money the Undertakers in the state find it possible to borrow more cheaply to set people on work and to establish manufactories in the hope of profit. The Artisans and all those through whose hands this money passes, consume more than they would have done if they had not been employed by means of this money, which consequently increases prices just as if it belonged to the state, and through the increased consumption or expense thus caused the public revenues derived from taxes on consumption are augmented. Sums lent to the state in this way bring with them many present advantages, but the end of them is always burdensome and harmful. The state must pay the interest to the foreigners every year, and besides this is at the mercy of the foreigners who can always put it into difficulty when they take it into their heads to withdraw their capital. It will certainly arrive that they will want to withdraw it at the moment when the state has most need of it, as when preparations for war are in hand and a hitch is feared. The interest paid to the foreigner is always much more considerable than the increase of pubic revenue which his money occasions. These loans of money are often seen to pass from one country to another according to the confidence of investors in the states to which they are sent. But to tell the truth it most commonly happens that states loaded with these loans, who have paid heavy interest on them for many years, fall at length by bankruptcy into inability to pay the capital. As soon as distrust is awakened the shares or public stocks fall, the foreign shareholders do not like to realise them at a loss and prefer to content themselves with the interest, hoping that confidence will revive. But sometimes it never revives. In states which decline into decay the principal object of ministers is usually to restore confidence and so attract foreign money by loans of this kind. For unless the ministry fails to keep faith and to observe its engagements the money of the subjects will circulate without interruption. It is the money of the foreigners which has the power of increasing the circulating currency in the state. But the resource of these borrowings which gives a present ease comes to a bad end and is a fire of straw. To revive a state it is needful to have a care to bring about the influx of an annual, a constant and a real balance of trade, to make flourishing by Navigation the articles and manufactures which can always be sent abroad cheaper when the state is in a low condition and has a shortage of money. Merchants are first to begin to make their fortunes, then the lawyers may get part of it, the Prince and the farmers of the revenue get a share at the expense of these, and distribute their graces as they please. When money becomes too plentiful in the state, luxury will instal itself and the state will fall into decay. Such is approximately the circle which may be run by a considerable state which has both capital and industrious inhabitants. An able minister is always able to make it recommence this round. Not many years are needed to see it tried and succeed, at least at the beginning which is its most interesting position. The increased quantity of money in circulation will be perceived in several ways which my argument does not allow me to examine now. As for states which have not much capital and can only increase by accidents and conjuncture it is difficult to find means to make them flourish by trade. No ministers can restore the Republics of Venice and Holland to the brilliant situation from which they have fallen. But as to Italy, Spain, France, and England, however low they may be fallen, they are always capable of being raised by good administration to a high degree of power by trade alone, provided it be undertaken separately, for if all these states were equally well administered they would be great only in proportion to their respective capital and to the greater or less industry of their people. The last method I can think of to increase the quantity of money actually circulating in a state is by violence and arms and this is often blended with the others, since in all Treaties of Peace it is generally provided to retain the trading rights and privileges which it has been possible to derive from them. When a state exacts contributions or makes several other states tributary to it, this is a very sure method of obtaining their money. I will not undertake to examine the methods of putting this device into practice, but will content myself with saying that all the nations who have flourished in this way have not failed to decline, like states who have nourished through their trade. The ancient Romans were more powerful in this wise than all the other peoples we know of. Yet these same Romans before losing an inch of the land of their vast states fell into decline by luxury and brought themselves low by the diminution of the money which had circulated among them, but which luxury caused to pass from their great Empire into oriental countries. So long as the luxury of the Romans (which did not begin till after the defeat of Antiochus, King of Asia about A.U.C. 564) was confined to the produce of the land and labour of all the vast estates of their dominion, the circulation of money increased instead of diminishing. The public was in possession of all the mines of gold, silver, and copper in the Empire. They had the gold mines of Asia, Macedonia, Aquilaea and the rich mines both of gold and silver of Spain and other countries. They had several mints where gold, silver and copper coins were struck. The consumption at Rome of all the articles and merchandise which they drew from their vast Provinces did not diminish the circulation of the currency, any more than pictures, statues and jewels which they drew from them. Though the patricians laid out excessive amounts for their feasts and paid 15,000 ounces of silver for a single fish, all that did not diminish the quantity of money circulating in Rome, seeing that the tribute of the Provinces regularly brought it back, to say nothing of what Praetors and Governors brought thither by their extortions. The amounts annually extracted from the mines merely increased the circulation at Rome during the whole reign of Augustus. Luxury was however already on a very great scale, and there was much eagerness not only for curiosities produced in the Empire but also for jewels from India, pepper and spices, and all the rarities of Arabia, and the silks which were not made with raw materials of the Empire began to be in demand there. The money drawn from the mines still exceeded however the sums sent out of the Empire to buy all these things. Nevertheless under Tiberius a scarcity of money was felt. That Emperor had shut up in his Treasury 2 milliards and 700 millions of sesterces. To restore abundance of circulation he had only to borrow 300 millions on the mortgage of his estates. Caligula in less than one year spent all this treasure of Tibetius after his death, and it was then that the abundance of money in circulation was at its highest in Rome. The fury of luxury kept on increasing. In the time of Pliny, the historian, there was exported from the Empire, as he estimated, at least 100 millions of sesterces annually. This was more than was drawn from the mines. Under Trajan the price of land had fallen by one-third or more, according to the younger Pliny, and money continued to decrease until the time of the Emperor Septimus Severus. It was then so scarce at Rome that the Emperor made enormous granaries, being unable to collect large treasure for his enterprises. Thus the Roman Empire fell into decline through the loss of its money before losing any of its estates. Behold what luxury brought about and what it always will bring about in similar circumstances.

Chapter 9 Of the Interest of Money and its Causes

Just as the prices of things are fixed in the altercations of the market by the quantity of things offered for sale in proportion to the quantity of money offered for them, or, what comes to the same thing, by the proportionate number of sellers and buyers, so in the same way the interest of money in a state is settled by the proportionate number of lenders and borrowers. Though money passes for a pledge in exchange it does not multiply itself or beget an interest in simple circulation. The needs of man seem to have introduced the usage of interest. A man who lends his money on good security or on mortgage runs at least the risk of the ill will of the borrower, or of expenses, lawsuits and losses. But when he lends without security he runs the risk of losing everything. For this reason needy men must in the beginning have tempted lenders by the bait of a profit. And this profit must have been proportionate to the needs of the borrowers and the fear and avarice of the lenders. This seems to me the origin of interest. But its constant usage in states seems based upon the profits which the Undertakers can make out of it. The land naturally produces, aided by human labour, 4, 10, 20, 50, 100, 150 times the amount of corn sown upon it, according to the fertility of the soil and the industry of the inhabitants. It multiplies fruits and cattle. The farmer who conducts the working of it has generally two thirds of the produce, one third pays his expenses and upkeep, the other remains for the profit of his enterprise. If the farmer have enough capital to carry on his enterprise, if he have the needful tools horses for ploughing, cattle to make the land he will take for himself after paying all expense of the produce of his farm. But if a competent labourer who lives from day to day on his wages and has no capital, can find some one willing to lend him land or money buy some, he will be able to give the lender all the third rent, or third part of the produce of a farm of which he will become the farmer or Undertaker. However he will think his position improved since he will find in the second rent and will become master instead man. If by great economy and pinching himself somewhat of his necessities he can gradually accumulate some little capital, he will have every year less to borrow, and will at last arrive at keeping the whole of his third rent. If this new Undertaker finds means to buy corn or cattle on credit, to be paid off at a long date when he can make money by the sale of his farm produce, he will gladly pay more than the market price for ready money. The result will be the same as if he borrowed cash to buy corn for ready money, paying as interest the difference between the cash price and the price payable at a future date. But whether he borrow cash or goods there must be enough left to him for upkeep or he will become bankrupt. The risk of this is the reason why he will be required to pay 20 or 30 per cent profit or interest on the amount of money or value of the produce or merchandise lent to him. Again, a master hatter who has capital to carry on his manufacture of hats, either to rent a house, buy beaver, wool, dye, etc. or to pay for the subsistence of his workmen every week, ought not only to find his upkeep in this enterprise, but also a profit like that of the farmer who has his third part for himself. This upkeep and the profit should come from the sale of the hats whose price ought to cover not only the materials but also the upkeep of the hatter and his workmen and also the profit in question. But a capable journeyman hatter with no capital may undertake the same manufacture by borrowing money and materials and abandoning the profit to anybody who is willing to lend him the money or entrust him with the beaver, wool, etc. for which he will pay only some time later when he has sold his hats. If when his bills are due the lender requires his capital back, or if the wool merchant and other lenders will not grant him further credit he must give up his business, in which case he may prefer to go bankrupt. But if he is prudent and industrious he may be able to prove to his creditors that he has in cash or in hats about the value of what he has borrowed and they will probably choose to continue to give him credit and he satisfied for the present with their interest or profit. In this way he will carry on and will perhaps gradually save some capital by retrenching a little upon his necessities. With the aid of this he will have every year less to borrow, and when he has collected a capital sufficient to conduct his manufacture, which will always be proportionable to his sales, the profit will remain to him entirely and he will grow rich if he does not increase his expenditure. It is well to observe that the upkeep of such a manufacturer is small compared with the sums he borrows in his trade or with the materials entrusted to him, and therefore the lenders run no great risk of losing their capital if he is respectable and hard working: but as it is quite possible that he is not so the lenders always require from him a profit or interest of 20 to 30 per cent of the value of their loan. Even then only those who have a good opinion of him will trust him. The same inductions may be made with regard to all the masters, artisans, manufacturers and other Undertakers in the state who carry on enterprises in which the capital considerably carry on enterprises in which the capital considerably exceeds the value of their annual upkeep. But if a water-carrier in Paris sets up as the Undertaker of his own work, all the capital he needs will be the price of two buckets which he can buy for an ounce of silver and then all his gains are profit. If by his labour he gains 50 ounces of silver a year, the amount of his capital or borrowing will be to that of his profit as 1 to 50. That is he will gain 5000 per cent while the hatter will gain only 50 per cent and will also have to pay 20 or 30 per cent to the lender. Nevertheless a money lender will prefer to lend 1000 ounces of silver to a hatmaker at 20 per cent interest rather than to lend 1000 ounces to 1000 water carriers at 500 per cent interest. The water carriers will quickly spend on their maintenance not only the money they gain by their daily labour but all that which is lent to them. These capitals lent to them are small compared with what they need for their maintenance: whether they be much or little employed they can easily spend all they earn. Therefore it is hardly possible to arrive at the profits of these little undertakers. It might well be that a water carrier gains 5000 per cent of the value of the buckets which serve as his capital, even 10,000 per cent if by hard work he gains 100 ounces of silver a year. But as he may spend on his living 100 ounces just as well as 50, it is only by knowing what he devotes to his upkeep that we can find how much he has of clear profit. The subsistence and upkeep of Undertakers must always be deducted before arriving at their profit. We have done this in the example of the farmer and of the hatmaker, but it can hardly be determined in the case of the petty Undertakers, who are for the most part insolvent when they are in debt. It is customary for the London brewers to lend a few barrels of beer to the keepers of ale-houses, and when these pay for the first barrels to continue to lend them more. If these ale-houses do a brisk business the brewers sometimes make a profit of 500 per cent per annum; and I have heard that the big brewers grow rich when no more than half the ale-houses go bankrupt upon them in the course of the year. All the merchants in a state are in the habit of lending merchandise or produce for a time to retailers, and proportion the rate of their profit or interest to that of their risk. This risk is always great because of the high proportion of the borrower's upkeep to the loan. For if the borrower or retailer have not a quick turnover in small business he will quickly go to ruin and will spend all he has borrowed on his own subsistence and will therefore be forced into bankruptcy. The fishwives, who buy fish at Billingsgate in London to sell again in the other quarters of the City, generally pay under a contract made by an expert scrivener, one shilling per guinea, or twenty-one shillings, interest per week, which amounts to 260 per cent per annum. The market-women at Paris, whose business is smaller, pay 5 sols for the week's interest on an ecu of 3 livres, which exceeds 430 per cent per annum. And yet there are few lenders who make a fortune from such high interest. These high rates of interest are not only permitted but are in a way useful and necessary in a state. Those who buy fish in the streets pay these high interest charges in the increased price. It suits them and they do not feel it. In like manner an artisan who drinks a pot of beer and pays for it a price which enables the brewer to get his 500 per cent profit, is satisfied with this convenience and does not feel the loss in so small a detail. The Casuists, who seem hardly suitable people to judge the nature of interest and of matters of trade, have invented a term, damnum emergens, by whose aid they consent to tolerate these high rates of interest; and rather than upset the custom and convenience of society, they have agreed and allowed to those who lend at great risk to exact in proportion a high rate of interest: and this without limit, for they would be hard put to it to find any certain limit since the business depends in reality on the fears of the lenders and the needs of the borrowers. Maritime merchants are praised when they can make a profit on their Adventures, even though it be 10,000 per cent; and whatever profit wholesale merchants may make or stipulate for in Selling on long credit produce or merchandise to smaller retail merchants, I have not heard that the Casuists make it a crime. They are or seem to be a little more scrupulous about loans in hard cash though it is essentially the same thing. Yet they tolerate even these loans by a distinction, lucrum cessans, which they have invented. I understand this to mean that a man who has been in the habit of making his money bring in 500 per cent in his trade may demand this profit when he lends it to another. Nothing is more amusing than the multitude of laws and canons made in every age on the subject of the interest of money, always by wiseacres who were hardly acquainted with trade and always without effect. From these examples and inductions it seems that there are in a state many classes and channels of interest or profit, that in the lowest classes interest is always highest in proportion to the greater risk, and that it diminishes from class to class up to the highest which is that of merchants who are rich and reputed solvent. The interest demanded in this class is called the current rate of interest in the state and differs little from interest on the mortgage of land. The bill of a solvent and solid merchant is as much esteemed, at least for a short date, as a lien upon land, because the possibility of a lawsuit or a dispute on this last makes up for the possibility of the bankruptcy of the merchant. If there were in a state no Undertakers who could make a profit on the money or goods which they borrow, the use of interest would probably be less frequent than it is. Only extravagant and prodigal people would contract loans. But accustomed as every one is to make use of Undertakers there is a constant source for Loans and therefore for interest. They are the Undertakers who cultivate the land and supply bread, meat, clothes, etc. to all the inhabitants of a city. Those who work on wages for these Undertakers seek also to set themselves up as Undertakers, in emulation of each other. The multitude of Undertakers is much greater among the Chinese, and as they all have lively intelligence, a genius for enterprise, and great perseverance in carrying it out, there are among them many Undertakers who are among us people on fixed wages. They supply labourers with meals, even in the fields. It is perhaps this multitude of small Undertakers and others, from class to class, who finding the means to gain a good deal by ministering to consumption without its being felt by the consumers, keep up the rate of interest in the highest class at 30 per cent while it hardly exceeds 5 per cent in our Europe. At Athens in the time of Solon interest was at 18 per cent. In the Roman Republic it was most commonly 12 per cent, but has been known to be 48, 20, 8, 6, and at the lowest 4 per cent. It was never so low in the free market as towards the end of the Republic and under Augustus after the conquest of Egypt. The Emperor Antoninus and Alexander Severus only reduced interest to 4 per cent by lending public money on the mortgage of land.

Chapter 10 and last Of the Causes of the Increase and Decrease of the Interest of Money in a State

It is a common idea, received of all those who have written on trade, that the increased quantity of currency in a state brings down the price of interest there, because when money is plentiful it is more easy to find some to borrow. This idea is not always true or accurate. For proof it needs only to be recalled that in 1720, nearly all the money in England was brought to London and over and above this the number of notes put out accelerated the movement of money extraordinarily. Yet this abundance of money and currency instead of lowering the current rate of interest which was before at 5 per cent and under, served only to increase the rate which was carried up to 50 and 60 per cent. It is easy to account for this increased rate of interest by the principles and the causes of interest laid down in the previous chapter. The reason is that everybody had become an undertaker in the South Sea scheme and wanted to borrow money to buy shares, expecting to make an immense profit out which it would be easy to pay this high rate of interest. If the abundance of money in the state comes from the hands of moneylenders it will doubtless bring down the current rate of interest by increasing the number of money lenders: but if it comes from the intervention of spenders it will have just the opposite effect and will raise the rate of interest by increasing the number of Undertakers who will have employment from this increased expense, and will need to borrow to equip their business in all classes of interest. Plenty or scarcity of money in a state always raises or lowers the price of everything in bargaining without any necessary connection with the rate of interest, which may very well be high in states where there is plenty of money and low in those where money is scarcer: high where everything is dear, and low where everything is cheap: high in London, low in Genoa. The rate of interest rises and falls every day upon mere rumours which tend to diminish or increase the security of lenders, without the prices of things in exchange being affected thereby. The most regular cause of a high rate of interest in a state is the great expense of nobles and landowners or other rich people. Undertakers and master craftsmen are in the custom of supplying the great houses in all their branches of expenditure. These Undertakers have nearly always need to borrow money in order to supply them: and when the nobility consume their revenues in advance and borrow money they contribute doubly to raise the rate of interest. On the contrary when the nobility of the state live economically and buy at first hand so far as they can, they get through their servants many things without their passing through the hands of Dealers, they diminish the profits and numbers of the Undertakers in the state and therefore of borrowers as well as the rate of interest, because this class of Undertakers working on their own capital borrow the least they can, and contenting themselves with small profits prevent those who have no capital from embarking in these enterprises on borrowed money. Such is today the position of the Republics of Genoa and Holland, where interest is sometimes at 2 per cent or under in the highest class, whilst in Germany, Poland, France, Spain, England and other countries the easiness and expense of noblemen and landowners always keep the Undertakers and master craftsmen of the country accustomed to large profits enabling them to pay a high rate of interest, which is higher still when they import everything from abroad with attendant risk. When the Prince or the state incurs heavy expense, such as making war, the rate of interest is raised for two such as making war, the rate of interest is raised for two reasons: the first is that this multiplies the number of Undertakers by several new large enterprises for war supplies, and so increases borrowing. The second is because of the greater risk which war always involves. On the contrary when the war is over risk diminishes, the number of Undertakers is lessened and war-contractors ceasing to be so retrench their expenses and become lenders of the money they have gained. If now the Prince or state offer to repay part of the debt it will interest, and this will have considerably reduce the rate of interest, and this will have a more assured result if part of the debt can be really paid off without borrowing elsewhere, because the repayments increase the number of lenders in the highest class of interest which will affect all the other classes. When the plentifulness of money in the state is due to a continuous Balance of trade, this money first passes through the hands of Undertakers, and although it increases consumption it does not fail to bring down the rate of interest, because most of the Undertakers then acquire enough capital to carry on their business without money, and even become lenders of the sums they have gained beyond what they need to carry on their trade. If there are not in the state a great number of noblemen and rich people who spend heavily then the abundance of money will certainly bring down the rate of interest, while increasing the price of goods and merchandise in exchange. This is what usually happens in Republics which have neither much capital nor considerable landed property and grow rich merely by foreign trade. But in states which have a large capital and great landowners the money brought in by foreign trade increases their rents, and enables them to incur heavy expenditure which maintains several Undertakers and mechanics besides those who trade with the foreigner. This always keeps interest at a high rate in spite of the abundance of money. When the nobility and landowners ruin themselves by extravagances, the money lenders who have mortgages on their lands often acquire the absolute ownership of them, and it may well arrive in the state that the lenders are creditors for much more money than there is circulating there, in which case one may consider them as subaltern owners of the land and goods mortgaged for their security. If not their capital will be lost by bankruptcies. In the same way one may consider the owners of shares and public funds as subaltern owners of the revenues of the state devoted to payment of their interest. But if the Legislature were compelled by the necessities of the state to employ these revenues for other purposes, the shareholders or owners of public funds would lose everything without the money circulating in the state being diminished on that account by a single liard. If the Prince or administrators of the state wish to regulate the current rate of interest by law, the regulation must be fixed on the basis of the current market rate in the highest class, or thereabout. Otherwise the law will be futile, because the contracting parties, obedient to the force of competition or the current price settled by the proportion of lenders to borrowers, will make secret bargains, and this legal constraint will only embarrass trade and raise the rate of interest instead of settling it. The Romans of old after several laws to restrict interest passed one to forbid altogether the lending of money. This law had no more success than its predecessors. The law of Justinian to restrain patricians from taking more than 4 per cent, those of a lower order 6 per cent, and traders 8 per cent was equally amusing and unjust, whilst it was not forbidden to make 50 and 100 per cent profit in all sorts of business. If it is allowable and respectable for a landlord to let a farm to a poor farmer at a high rental, risking the loss of the rent of a whole year, it seems that it should be permissible to a lender to advance his money to a needy borrower, at the risk of losing not only his interest or profit but also his capital, and to stipulate for so much interest as the borrower will freely consent to pay him. It is true that Loans of this character make more people wretched. Making away with both capital and interest they are more impotent to recover themselves than the farmer who does not carry off the land. But the bankruptcy laws being favourable enough to debtors to allow them to start again it seems that usury laws should always be adjusted to market rates, as in Holland. The current rate of interest in a state seems to serve as a basis and measure for the purchase price of land. If the current interest is 5 per cent or one-twentieth part the price of land should be the same. But as the ownership of land gives a standing and a certain jurisdiction in the state it happens that when interest is one-twentieth part, the price of land is at 1/24 or 1/25, though mortgages on the same land hardly pass the current rate of interest. After all, the price of land, like all other prices, naturally settles itself by the proportion of sellers to buyers, etc.; and as there will be many more buyers in London, for example, than in the Provinces, and as these buyers who live in the capital will prefer to buy land in their locality rather than in distant Provinces, they will rather buy land in the vicinity at 1/30 or 1/35 than land at a distance 1/25 or 1/22. There are often other reasons of expediency affecting the price of land, unnecessary to mention here, since they do not invalidate our explanations of the nature of interest.

When a state exchanges a small product of land for a larger in foreign trade, it seems to have the advantage; and if current money is more abundant there than abroad it will always exchange a smaller product of land for a greater. When the state exchanges its labour for the produce of foreign land it seems to have the advantage, since its inhabitants are fed at the foreigner's expense. When a state exchanges its produce conjointly with its labour, for a larger produce of the foreigner conjointly with equal or greater labour, it seems again to have the advantage. If the ladies of quality of Paris consume yearly Brussels lace to the value of 100,000 ounces of silver, a quarter of an acre of land in Brabant, which will grow 150 pounds weight of flax, to be made into fine lace in Brussels, will answer this value. This will require the yearly labour of about 2000 people in Brabant for the several parts of the work from the sowing of the flax to the final perfection of the lace. The lace merchant or undertaker at Brussels will advance the capital. He will directly or indirectly pay all the spinners and lace-women and the proportion of the labour of those who make their tools. All those who have taken part in the work will buy, directly or indirectly, their maintenance from the farmer in Brabant who pays in part the rent of his landlord. If in this economy the produce of the land attributed to these 2000 persons be put at 3 arpents per head as well for the maintenance of themselves as for that of their families who subsist in part upon it, there will be 6000 arpents of land in Brabant employed for the support of those who have worked on the lace, at the expense of the ladies of Paris who will pay for and wear the lace. The ladies of Paris will pay the 100,000 ounces of silver, each according to the amount she has bought. All this silver must be sent to Brussels in specie, less only the cost of remittance, and the entrepreneur at Brussels must find in it not only payment of all his advances and the interest of the money which he has perhaps borrowed, but also a profit on his undertaking for the maintenance of his family. If the price which the ladies pay for the lace does not cover all the costs and profits there will be no encouragement for this manufacture, and the entrepreneurs will cease to carry it on or become bankrupt; but as we have supposed this manufacture is continued, it is necessary that all costs be covered by the prices paid by the ladies of Paris, and the 100,000 ounces of silver sent to Brussels if the people of Brabant take no commodity from France to compensate this debt. The ladies of Paris will pay 100,000 ounces to him who sells and delivers to them the lace; he will pay them to the banker who will give him one or more bills of exchange on his Brussels corespondent. The banker will remit the money to the wine merchants in Champagne who have 100,000 ounces of silver at Brussels and who will give him their bills of exchange of the same value drawn upon him by his Brussels correspondent. Thus the 100,000 ounces paid for the Champagne wine at Brussels will balance the 100,000 ounces paid for the lace at Paris, and in this way the trouble of sending to Brussels the money received at Brussels will be avoided. This balance is effected by bills of exchange, the nature of which I will try to explain in the next chapter. Meanwhile this example shows that the 100,000 ounces which the ladies of Paris pay for the lace, come into the hands of the merchants who send Champagne wine to Brussels; and that the 100,000 ounces which the consumers of the Champagne pay for this wine at Brussels fall into the hands of the entrepreneurs or lace merchants. The entrepreneurs on each side distribute this money to those whose labour they employ, either on the wines or on the lace. It is clear from this that the ladies of Paris support and maintain all those who work on the lace in Brabant and cause money to circulate there, and equally that the consumers of Champagne wine at Brussels support and maintain in Champagne not only the vineyard keepers and others who take part in the production of the wine, the cartwrights, farriers, carters, etc. who take part in the transport, and the horses engaged in it, but that they also pay the value of the produce of the land for the wine, and cause a circulation of money in Champagne. Nevertheless this circulation or trade in Champagne, which makes so great a stir, which maintains the keeper of the vineyard, the farmer, the cartwright, the farrier, the carter, etc. and which pays precisely as well the rent of the owner of the vineyard as that of the owner of the pastures which serve to feed the carthorses, is in the present case a burdensome and unprofitable trade to France when considered by the effects that it produces. If the muid of wine sells at Brussels for 60 ounces of silver and if we suppose one arpent of vine land produces 4 muids there must be sent to Brussels the produce of 4166?arpents of land to correspond to 100,000 ounces of silver, and about 2000 arpents of pasture and arable for the hay and oats consumed by the cart horses if they are solely employed on this work all the year round. And so there will be about 6000 arpents of land abstracted from the maintenance of Frenchmen, and that of the people of Brabant increased by over 4000 arpents of produce, since the Champagne wine which they drink saves more than 4000 arpents which they would probably use to produce beer for their drink if they did not drink wine. However the lace with which all that is paid for costs the people of Brabant only one quarter of an arpent of flax. Thus with one arpent of produce allied to their labour, the people of Brabant pay for more than 16,000 arpents to the French, their conjoined labour being less. They obtain an increase of subsistence and give only an article of luxury which brings no real advantage to France, since the lace is worn and consumed there and cannot then be exchanged for anything useful. Following the rule of intrinsic values, the land used in Champagne for the production of the wine, the maintenance of the vineyard keepers, the coopers, the cartwrights, farriers, carters, carthorses, etc., ought to be equal to the land used in Brabant for the production of the flax, the support of the spinners and lace makers, and all those who have taken part in the manufacture of this lace. But if money is more abundant in circulation in Brabant than in Champagne land and labour will be dearer there and consequently, valuing in silver both sides, the French will lose still more considerably. This is an example of a branch of trade which strengthens the foreigner, lessen the number of inhabitants of the state, and without causing any circulating money to leave it weakens the same state. I have chosen it to show more strikingly how one state may be the dupe of another in trade, and the method of judging the advantages and disadvantages of foreign trade. It is by examining the results of each branch of commerce singly that foreign trade can be usefully regulated. It cannot be distinctly apprehended by abstract reasons. It will always be found by examining particular cases that the exportation of all manufactured articles is advantageous to the state, because in this case the foreigner always pays and supports workmen useful to the state: that the best returns or payments imported are specie, and in default of specie the produce of foreign land into which there enters the least labour. By these methods of trading states which have very little raw produce are often seen to support inhabitants in great numbers at the expense of foreigners, and large states maintain their inhabitants in greater ease and abundance. But as great states have no need to increase the number of their inhabitants it is enough to make those who are in it live there on the raw produce of the state with more comfort and ease and to increase the strength of the state for its defence and security. To do so by foreign trade it is needful to encourage as much as possible the export of goods and manufactures of the state in exchange so far as may be for gold and silver in kind. If by abundant harvest it happened that there was in the state much produce over and above the ordinary annual consumption it would be profitable to encourage the exportation of it in return for its value in gold and silver. These metals do not corrupt and disappear like the produce of the land, and with gold and silver one can always import into the state what is lacking there. It would not however be profitable to put the state into the annual custom of sending abroad large quantities of its raw produce in return for foreign manufactures. It would be to weaken and diminish the inhabitants and the strength of the state at both ends. But I have no intention of entering into detail as to the branches of trade which should be encouraged for the good of the state. Enough to say that it should always be endeavoured to import as much silver as possible. The increase in the quantity of silver circulating in a state gives it great advantages in foreign trade so long as this abundance of money lasts. The state then exchanges a small quantity of produce and labour for greater. It raises its taxes more easily and finds no difficulty in obtaining money in case of public need. It is true that the continued increase of money will at length by it abundance cause a dearness of land and labour in the state. The goods and manufactures will in the long run cost so much that the foreigner will gradually cease to buy them, and will accustom himself to get them cheaper elsewhere, and this will by imperceptible degrees ruin the work and manufactures of the state. The same cause which will raise the rents of landlords (which is the abundance of money) will draw them into the habit of importing many articles from foreign countries where they can be had cheap. Such are the natural consequences. The wealth acquired by a state through trade, labour and economy will plunge it gradually into luxury. States who rise by trade do not fail to sink afterwards. There are steps which might be, but are not, taken to arrest this decline. But it is always true that when the state is in actual possession of a balance of trade and abundant money it seems powerful, and it is so in reality so long as this abundance continues. Infinite inductions might be added to justify these ideas of foreign trade and the advantages of abundant money. It is astonishing to observe the disproportion in the circulation of money in England and in China. The manufactures of the Indies, like silks and printed calicoes, muslins, etc. in spite of a sea voyage of 18 months, are at a very low price in England, which would pay for them with the thirtieth part of her articles and manufactures if the Indians would buy them. But they are not so foolish as to pay extravagant prices for our work while work is done better and infinitely cheaper in their own country. So they sell us their manufactures only for ready cash, which we carry to them annually to increase their wealth and diminish our own. The Indian manufactures consumed in Europe only diminish our money and the work of our own manufactures. An American who sells beaver skins to a European is rightly astonished to learn that woollen hats are as serviceable as those made of beaver, and that all the difference, which causes so long a sea journey, is in the fancy of those who think beaver hats lighter and more agreeable to the eye and the touch. However as these beaver skins are ordinarily paid for to the American in articles of iron, steel, etc. and not in silver, it is a trade which is not injurious to Europe, especially since it supports workmen and particularly sailors, who in the needs of the state are very useful, whilst the trade with the manufactures of the East Indies carries off the money and diminishes the workmen of Europe. It must be admitted that the East India trade is profitable to the Dutch Republic and that she makes the loss of it fall on the rest of Europe by selling the spices and manufactures in Germany, Italy, Spain and the New World, which return to her all the money which she sends to the Indies and much more. It is even useful to Holland to clothe her women and other folk with the manufactures of India rather than with English or French fabrics. It suits the Dutch better to enrich the Indians than their neighbours who might profit by it to oppress them. Moreover they sell to the other peoples of Europe the cloths and small manufactures of their own raw produce much dearer than they sell the Indian manufactures at home where they are consumed. England and France would be mistaken to imitate the Dutch in this respect. These kingdoms have at home the means of clothing their women with their own raw material, and though their fabrics are dearer than those of Indian manufacture they should prevent their people from wearing the foreign material. They ought not to permit the falling off of their own articles and manufactures nor become dependent on the foreigner, still less allow their money to be taken away for that purpose. But as the Dutch find means to sell Indian merchandise in the other states of Europe, the English and French should do the same, whether to diminish the naval power of Holland or to increase their own, and above all to do without the aid of Holland in the branches of consumption which a bad habit has rendered necessary in these kingdoms. It is an evident disadvantage to allow the wearing of Indian fabrics in the kingdoms of Europe which have wherewith to clothe their people with their own products. Just as it is disadvantageous to a state to encourage foreign manufactures so it is to encourage foreign navigation. When a state sends abroad its articles and manufactures it derives the full advantage if it sends them in its own ships. It then maintains a good number of sailors who are as useful to the state as workmen. But if it leaves the carriage of them to foreign vessels it strengthens the foreign shipping and weakens its own. Navigation is an essential point in foreign trade. In the whole of Europe the Dutch are those who build ships the cheapest. Timber is floated down to them by river, and the proximity of the north supplies them at less expense with masts, wood, pitch, rope, etc. Their windmills for sawing wood facilitate the working of it. Also they navigate with smaller crews and their sailors live very cheaply. One of their windmills for sawing wood saves the labour of 80 men a day. Owing to these advantages they would be the only sea carriers in Europe if cheapness only were followed. And if they had enough of their own raw material to form an extensive commerce they would doubtless have the most flourishing maritime service in Europe. But the greater number of their seamen does not suffice without the interior strength of the state, for the superiority of their naval power. They would never arm warships nor sailors if the state had large revenues to build the ships and pay the men: they would profit in everything from extended markets. England, in order to prevent the Dutch from increasing at her expense their advantage on the sea by this cheapness, has forbidden any nation from bringing into England other merchandise than that of their own growth. In this way, the Dutch being unable to serve as carriers for England, the English have strengthened their own shipping. And though they sail at greater costs than the Dutch the wealth of their overseas cargoes renders these costs less considerable. France and Spain are maritime states which have rich produce sent to the north, whence goods and merchandise are brought to them. It is not surprising that their shipping is inconsiderable in proportion to their produce and the extent of their seaboard, since they leave it to foreign vessels to bring them all they receive from the north and to take away from them the goods which the states of the north receive from them. These states, France and Spain, do not take into account in their policy the consideration of trade in the way in which it would be advantageous. Most merchants in France and Spain who have to do with the foreigner are rather agents or clerks of foreign merchants than adventurers carrying on the trade on their own account. It is true that the states of the north are, by their situation and the vicinity of countries which produce all that is needed for building ships, in a position to carry everything cheaper than France and Spain could do. But if these two kingdoms took steps to strengthen their shipping, this obstacle would not prevent them. England has long since partly shown them the example. They have at home and in their colonies all that is needed for the construction of ships, or at least it would not be difficult to get them produced there, and there is an infinity of methods that might be used to make such a policy successful if the legislature or the ministry would concur in it. My subject does not allow me in this essay to examine these methods in detail. I will limit myself to saying that in countries where trade does not regularly support a considerable number of ships and sailors it is almost impossible for the prince to maintain a flourishing navy without such expense as would be capable by itself of ruining the treasure of his state. I will conclude than by observing that the trade most essential to a state for the increase or decrease of its power is foreign trade, that the home trade is not of equally great importance politically, that foreign trade is only half supported when no care is taken to increase and maintain large merchants who are natives of the country, ships, sailors, workmen and manufacturers, and above all that care must always be taken to maintain the balance against the foreigner.

Of the Exchanges and their Nature

Inside the city of Paris the carriage of money from one house to another usually costs 5 sols per bag of 1000 livres. If it were necessary to carry it from the Fauxbourg St. Antoine to the Invalides it would cost more than twice as much, and if there were not generally trustworthy porters of money it would cost still more. If there were often robbers on the road the money would be sent in large amounts, with an escort, at greater cost, and if some one charged himself with the transport at his own cost and risks he would require payment for it in proportion to these costs and risks. So it is that the expense of transport from Rouen to Paris and from Paris to Rouen amounts generally to 50 sols per bag of 1000 livres which in the language of the bankers is 1/4 percent. The bankers generally send the money in strong kegs which robbers can hardly carry off because of the iron and the weight, and as there are always mail coaches on this route the costs are not considerable on the large sums sent between these two places. If the city of Chalons sur Marne every year pays the receiver of the King's taxes, 10,000 ounces of silver on the one hand, and on the other the wine merchants of Chalons and its neighbourhood sell to Paris, through their agents, Champagne wine of the value of 10,000 ounces of silver, if the ounce of silver in France passes in trade for 5 livres, the total of the 10,000 ounces in question will be 50,000 livres both in Paris and in Chalons. The Receiver of Taxes in this example has 50,000 livres to send to Paris, and the agents of the Chalons wine merchants have 50,000 livres to send to Chalons. This double transaction or transport may be avoided by a set off or as they are called bills of exchange, if the parties get together and arrange it. Let the agents of the Chalons wine-merchants take (each his own part) the 50,000 livres to the cashier of the Tax Office at Paris. Let him give them one or more cheques or bills of exchange on the Receiver of Taxes at Chalons, payable to their order. Let them endorse or transfer their order to the Chalons wine merchants and these will obtain from the Receiver at Chalons the 50,000 livres. In this way the 50,000 livres at Paris will be paid to the Cashier of the Tax department at Paris and the 50,000 livres at Chalons will be paid to the wine merchants of that City, and by exchange or set off there will be saved the trouble of sending this money from one city to the other. Or else let the wine merchants at Cahlons,who have 50,000 livres at Paris, go and offer their bills of exchange to the Receiver of Taxes, who will endorse them to the cashier of the tax office at Paris who will collect the amount there, and let the Receiver at Chalons pay the merchants for their bills of exchange the 50,000 livres which he has at Chalons. Whichever way this set off is effected, whether the bills of exchange be drawn from Paris, as in this example ounce for ounce is paid, and 50,000 livres for 50,000 livres, the exchange is said to be at par. The same method might be adopted between these wine merchants at Chalons and the agents of the nobility in Paris who have land in the Chalons district, and the wine merchants or other merchants at Chalons who have sent goods or merchandise to Paris and have money there and other merchants who have drawn merchandise from Paris and sold it at Chalons. If there is a large trade between these two cities bankers will set up at Paris and Chalons who will enter into relations with the interested parties on both sides and will be the agents or intermediaries for the payments which would have to be sent from one of these cities to the other. Now if all the wine and other goods and merchandise which have been sent from Chalons to Paris and have actually been sold there for ready money exceed in value the total receipts of the taxes at Chalons, and the rents which the nobility of Paris have in the Chalons district as well as the value of the goods and merchandise sent from Paris to Chalons and sold there for ready money, by 5000 ounces of silver or 25,000 livres it will be necessary for the banker in Paris to send there for ready money, by 5000 ounces of silver or 25,000 livres it will be necessary for the banker in Paris to send this amount to Chalons in money. This will be the excess or balance of trade between these two cities. It will, I say, be of necessity sent to Chalons in specie, and this operation will be carried out in the following way or in some similar fashion. The agents or correspondents of the wine merchants of Chalons and of others who have sent goods or merchandise from Chalons to Paris have the money for these sales in hand at Paris. They are ordered to remit it to Chalons. They are not accustomed to risk it by carriage, they will apply to the cashier to the Tax Office who will give them cheques or bills of exchange on the Receiver of Taxes at Chalons up to the amount which he has at Chalons, and generally at par. But as they need to send further sums to Chalons they will apply to the banker who will have at his disposal the rents of the Paris nobility who have lands in that district. This banker will furnish them, like the Cashier of the Tax Office, with bills of exchange on his correspondent at Chalons up to the amount of the funds which he has at his disposal at Chalons and had been ordered to bring to Paris. This set off will also be made at par, unless the banker tries to make some little profit out of it for his trouble, as well from the agents who apply to him to send their money to Chalons as from the nobility who have charged him with the transmission of their money from Chalons to Paris. If the banker has also at his disposal at Chalons the value of the merchandise sent thither from Paris and sold there for ready money he will also furnish letters of exchange for this value. But in our case supposed the agents of the Chalons merchants have still in hand at Paris 25,000 livres which they are ordered to remit to Chalons above all the sums mentioned above. If they offer this money to the Cashier of the Tax Office he will reply that he has no more funds at Chalons, and cannot supply them with bills of exchange or cheques on that city. If they offer the money to the banker he will tell them that he has no more funds at Chalons and has no need to draw, but if they will pay him 3 per cent for exchange he will provide cheques. They will offer one or two per cent and at last 2? not being able to do better. At this price the Banker will decide to give them bills of exchange, that is if they pay to him at Paris 2 livres 10 sols he will supply a bill of exchange for 100 livres on his Chalons correspondent, payable at 10 or 15 days, so as to put his correspondent in a position to make the payment of the 25,000 livres for which he draws upon him. At this rate of exchange he will send him the money by mail or carriage in specie, gold or, in default of gold, silver. He will pay 10 livres for each bag of 1000 livres, or in bank parlance 1 per cent. He will pay his Chalons correspondent as commission 5 livres per bag of 1000 livres or ?per cent, and will keep one per cent for his own profit. On this footing the exchange at Paris for Chalons is at 2?per cent above par, because one pays 2 livres 10 sols for each 100 livres as the commission on exchange. It is somewhat in this way that the balance of trade is transported from one city to the other through bankers, and generally on a large scale. All those who bear the name of bankers are not accustomed to these transactions and many of them deal only in commissions and bank speculations. I will include among bankers only those who remit money. It is they who always fix the exchange, the charge for which follows the cost and risks of the carriage of specie in the different cases. The charge of exchange between Paris and Chalons is rarely fixed at more than 2?or 3 per cent over or under par. But from Paris to Amsterdam the charge will amount to 5 or 6 per cent when specie has to be sent. The journey is longer, the risk is greater, more correspondents and commission agents are involved. From India to England the charge for carriage will be 10 to 12 per cent. From London to Amsterdam it will hardly exceed 2 per cent in peace time.