334

T11E NATURE AND CAUSES OF

of capitals find it difficult to get labourers to employ. Theircompetition raises the wages of labour, and sinks the profitsof stock. But when the profits which can be made by theuse of a capital are in this manner diminished, as it were, atboth ends, the price which can be paid for the use of it, that is,the rate of interest, must necessarily be diminished with them.

Mr. Locke, Mr. Law, and Mr. Montesquieu , as well asmany other writers, seem to have imagined that the increaseof the quantity of gold and silver, in consequence of the dis-covery of the Spanish West Indies, was the real cause of thelowering of the rate of interest through the greater part ofEurope . Those metals, they say, having become of less valuethemselves, the use of any particular portion of them neces-sarily became of less value too, and consequently the pricewhich could be paid for it. This notion, which at first sightseems so plausible, has been so fully exposed by Mr. Hume,that it is, perhaps, unnecessary to say any thing more.aboutit. The following very short and plain argument, however,may serve to explain more distinctly the fallacy which seemsto have misled those gentlemen.

Before the discovery of the Spanish West Indies, ten percent, seems to have been the common rate of interestthrough the greater part of Europe . It has since that timein different countries sunk to six, five, four, and three percent. Let us suppose that in every particular country thevalue of silver has sunk precisely in the same proportion asthe rate of interest; and that in those countries, lor example,where interest has been reduced from ten to five per cent.,the same quantity of silver can now purchase just half thequantity of goods which it could have purchased before.This supposition will not, I believe, be found any whereagreeable to the truth, but it is the most favourable to theopinion which we are going to examine; and even uponthis supposition it is utterly impossible that the loweringof the value of silver could have the smallest tendencyto lower the rate ol interest. If a hundred pounds are inthose countries now of no more value than fifty pounds werethen, ten pounds must now be ot no more value than fivepounds were then. Whatever were the causes which loweredthe value of the capital, the same must necessarily have low-ered that of the interest, and exactly in the same proportion.The proportion between the value of the capital and that ofthe interest must have remained the same, though the rate