CHAPTER SECOND.

THE PRICE OF MONEY, OR INTEREST.

SECTION I.

OF THE BENEFIT OF CAPITAL TO THE LABORER.

HAVING, in the preceding chapter, endeavored to illustrate the principles which regulate the rate of wages, we now proceed to illustrate those which regulate the rate of interest, or the price of capital.

We have already stated, that when two persons were engaged in creating a product, a part of the profit belonged to the labor, and a part to the capital. Let us first consider the benefit of capital to the laborer.

Suppose a laborer to be endowed with health, and also with skill sufficient to perform an operation in any mode of production. His power is made up of two things; first, mere muscular force; and, secondly, skill. By the one, he is enabled to exert mere brute force, as in lifting, carrying, or drawing. By the second he is enabled to avail himself of the use of natural agents; for skill in production is little else than this ability. But it is evident that his labor of the first kind, is vastly less productive than that of the second kind, as the simple labor of a man's hands is less productive than that labor which is employed in directing the agents of nature.

Suppose, now, a man entirely deprived of the use of capital; his labor must be wholly of the first kind; of course, it must be of the least productive quality, and it must earn the lowest rate of wages. Suppose a blacksmith, of ever so great skill, desti

tute of forge, hammer, anvil, and of all his tools, and also of iron upon which to employ them; he can, in no manner, avail himself of his skill, or of the use of the natural agents with which he is acquainted, and he must either perish or else earn his livelihood by simple labor; that is, by the putting forth of mere brute force, without any benefit from his skill, though it be ever so great. But, let some one loan him a shop and tools, with iron and coal sufficient to carry on his business, and he can, at once, avail himself of his skill; that is, of the use of those natural agents, with which he is acquainted. His labor will now become vastly more productive; that is, he can, in a given time, create a vastly greater amount of value than before, and will, of course, receive a much larger recompense. If his simple labor were worth one dollar per day, his labor and skill will now probably be worth at least two dollars; that is, the capital which he uses, has at least doubled his wages. This, at the rate of three hundred working days in a year, would be equal to three hundred dollars, which he receives for the use of the capital which was loaned to him. Suppose that this capital were worth, originally, five hundred dollars; and that he paid for the use and wear and tear of it, ten per cent. per year, he might then pay fifty dollars for the use of it, and have two hundred and fifty dollars net profit, over and above the wages which his simple labor could earn. In two years, he might, besides paying the interest, pay for the whole capital, and thus own it himself. He would then be entitled to all the profit derived from the three several sources: first, his labor; secondly, his skill; and, thirdly, the use of the capital, upon which his labor was employed.

I have, in the above case, supposed the laborer to borrow the shop, tools and materials. This is not the ordinary way in which capital is borrowed. It is much more common, and much more convenient for him, who wishes to borrow the capital with which

to employ his skill, to borrow it in the form of money, which he immediately transforms into that kind of capital, which his occupation requires. Hence, contracts of this kind are always estimated in money. And hence, interest is commonly called the price of money. It is evident, however, that it is not the money, but the capital, which is wanted; because, as soon as the man obtains the money, he at once exchanges it for capital. This, therefore, should always be borne in mind, that when we speak of the price of money, we always mean the price of capital, for which the money is always exchanged.

Hence we see, that the laborer may derive very great benefit from the loan of money; that is, of capital. He is thus enabled to employ, advantageously, all his skill; and thus, a loan for a few years is very frequently the commencement of a fortune. And hence we see, as we have said before, how very absurd is the prejudice so commonly excited against money-lenders, and money-lending institutions. Were there no money-lenders, there could be no money-borrowers; and were there no moneyborrowers, the industrious artisan would surely be the greatest sufferer. It is not denied that the money-lender, loans for his own advantage. But, I do not see why it is any more odious for one man to lend for his own advantage, than for another man to borrow for his own advantage. It is not pleaded, that the one, any more than the other, is benevolent. This is quite another question. All that is pleaded is, that both, in so far as the things themselves are concerned, are equally honest and honorable. In both cases, the man benefits himself while he benefits others; and this is all that can be said in favor of any other exchange. It is not, of course, denied, that the lender may be oppressive, tyrannical, and avaricious; nor that the borrower may be fraudu lent, indolent, and profligate. But this affects not the nature of the transaction per se. We here speak of the thing itself, and not of the manner in which

either party may act, in consequence of, or in connection with it.

I have stated but one form in which the laborer is benefitted by the use of capital. Another form of similar advantage is equally common.

Suppose that a village were destitute of capital, and that its inhabitants were therefore obliged to be employed in simple labor, or in that which required. the least skill, and, therefore, produced the lowest wages. They would, consequently, be poor, and would be able to accumulate very little; since, their whole earnings would be scarcely more than sufficient to provide them with the necessaries of life. Let, now, an opulent man come among them, and establish a manufactory which should employ every inhabitant capable of labor. Every one knows, that, by this means, the wages of labor would be doubled, and all the comforts of living would be incomparably increased. The reason is the same, in principle, as in the other case. The capitalist furnishes the materials and the tools, by which the laborer is now enabled to use his skill, in addition to the simple labor, which he used formerly; that is, by which he is enabled to labor, not with his hands, but also with the agents of nature. The result is, a great increase of the productiveness of industry; and, of course, a much larger amount than before, becomes the portion of the laborer. In the division of the profits the owner receives payment for the use, wear and tear, and risk of his instruments, for the use and risk of his material, and for his own labor and skill in supervision, if he superintend; or for the labor and skill of another, if he does it by a deputy. The workman receives payment for his labor and for his skill, according to the principles illustrated in the preceding chapter. We see, that, in this case, the laborer is as truly benefitted by the use of capital, as in the former. The only difference is, that here, he receives payment only for labor and skill; and there he received payment for the use of capital,

deducting the rate of interest and the risk of loss. It will be easy to apply the principle here illustrated to other cases. When a merchant borrows capital, he is thus enabled to use his skill in exchange. Hence, the use of capital, makes the difference between his wages as a merchant, and what his wages would be, were he a common laborer. And so of any other case.

Hence, we see how incorrect is the notion frequently advanced, that when property is destroyed by fire or flood, or in any other manner, it is of no consequence to the community; since it was nothing but the possessions of the rich. The rich may, or may not, suffer in their comforts and conveniences, by such a loss; but the poor always must suffer. The very means by which their wages are raised from those of simple to those of skillful labor, from the wages of labor with their hands alone, to the wages of labor with the agents of nature, is thus taken away. Remove capital, and they have nothing to offer in exchange, but mere physical force. Hence, it is always to be remembered, that, in the destruction of property, the poor are always the greatest sufferers.

It is evident, then, that capital loaned, should be paid for. Interest is no extortion, and no unreasonable demand. It is for the advantage of the skillful laborer to borrow it, at a reasonable interest, as much as it is for the advantage of the capitalist to loan it ; and it is as much for the advantage of the laborer as the capitalist, to enter into that partnership, by which they share the profits of the operation between them. It is by reason of this partnership, as I have said, that the laborer receives the wages of skill, instead of the wages of mere physical force; and the capitalist is able to employ all his capital in production, instead of employing only that portion of it, which he could employ with simply his own personal industry and skill.