THE WEALTH OE NATIONS,

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or the price which is commonly paid for the use of money bythose who can give the most undoubted security. If thislegal rate should be fixed below the lowest market rate, theeffects of this fixation must be nearly the same as those of atotal prohibition of interest. The creditor will not lend hismoney for less than the use of it is worth, and the debtor mustpay him for the risk which he runs by accepting the full valueof that use. If it is fixed precisely at the lowest market price,it ruins, with honest people, who respect the laws of thecountry, the credit of all those who cannot give the very bestsecurity, and obliges them to have recourse to exorbitantusurers. In a country, such as Great Britain, where moneyis lent to government at three per cent, and to private peopleupon good security at four and four and a half, the presentlegal rate, five per cent., is, perhaps, as proper as any.

The legal rate, it is to be observed, though it ought to besomewhat above, ought not to be much above the lowestmarket rate. If the legal rate of interest in Great Britain, forexample, was fixed so high as eight or ten per cent., the greaterpart of the money which was to he lent would be lent to pro-digals and projectors, who alone would be willing to givethis high interest. Sober people, who will give for the useof money no more than a part of what they are likely to makeby the use of it, would not venture into the competition. Agreat part of the capital of the country would thus be keptout of the hands which were most likely to make a profitableand advantageous use of it, and thrown into those which weremost likely to waste and destroy it. Where the legal rate ofinterest, on the contrary, is fixed but a very little above thelowest market rate, sober people are universally preferred, asborrowers, to prodigals and projectors. The person wholends money gets nearly as much interest from the former ashe dares to take from the latter, and his money is much saferin the hands of the one set of people than in those of the other.A great part of the capital of the country is thus thrown intothe hands in which it is most likely to be employed with ad-vantage.

No law can reduce the common rate of interest below thelowest ordinary market rate at the time when that law ismade. Notwithstanding the edict, of 17GG, by which theFrench king attempted to reduce the rate of interest from fiveto four per cent., money continued to be lent in Frauce atfive per cent., the law being evaded in several different ways.