obliged to withhold it from a mode of investment which he prefers, and to employ it in one which he does not prefer; he must, therefore, divert it from a more to a less profitable mode of investment. Hence, as he is obliged to employ it in a less profitable, instead of a more profitable investment, he can afford to pay less interest; and the price of interest, by the effect of this interference, must fall. Such must be the effect of all monopolies, and of all means by which the active power of capital is diminished.

IV. The rate of interest is affected by taxation. A tax, abstracts its whole amount realized, besides the cost of collecting it, from the annual profits of capital. If a mechanic realize, from a capital of one thousand dollars, a nett saving of one hundred and fifty dollars, and is obliged to pay fifty dollars of this sum in taxes, he is in the condition of one who, without being obliged to pay taxes, realized a saving of only one hundred dollars. Hence, he would be able, if he conducted his business upon a hired capital, to pay only a diminished rate of interest. And, if it be said that he may raise the price of his labor, and thus repay himself, it may be answered: 1st. By raising the price of his labor, he diminishes the demand, and his profits are thereby reduced, so that he will be no better able to pay the former interest. And, 2dly, as other men being taxed, will raise their prices, he is obliged to pay more for every thing that he consumes; and thus, again, his ability is lessened. Every one must see, that the immense sum which Great Britain annually pays, as the interest of her national debt, is so much abstracted from the profits of her capital; and that the amount of profit to the individuals must be greater, just in proportion as that is diminished; and that the profits of the capitalist and the producer would rise accordingly.

From what has been said above, we come to the following general conclusions:

1. That, other things being equal, interest will be high, when the risk is great; and low, when the risk is small.

2. That interest will be high, when the profit of capital is great; and low, when the profit of capital is small.

3. That both of these affect each other, within certain limits; that is, when profit is great, if the risk be also great, interest will be very high; because, the increase of risk diminishes the supply.

4. But, when profit is low, and risk is great, there will be no loaning whatever; because, what is paid for risk, will be more than can be gained by use, and, hence, men could not profit by borrowing.

5. And, hence, we see that the rate of interest will be always affected by every circumstance, which affects either risk or profit of capital. War, or the rumor of war, by increasing the risk, raises the rate of interest in property affected by it. In property not affected by it, the same cause depresses the rate of interest; because it diminishes the means and opportunity for production, and, of course, diminishes the profit of capital. On the other hand, the discovery of any new mode of profitably employing capital, raises the rate of interest, by creating an nicreased demand for capital.

6. And hence, again, we see that the rate of interest, at any particular time or place, is not of itself any indication of the prosperity, or of the decline of a country. The indication is to be sought for, not in the rate of interest, but in the cause by which that rate is affected.

1. Whenever the rate of interest is raised by increase of risk, this is an indication of adversity. Rise of interest, from such a source, benefits no one. It is of no service to the lender, because he receives no profit from the premium which insures him against loss. It is as profitable for him to loan for five per cent. without risk, as to loan for ten per cent., when five per cent. is for risk, and five per cent. for use. It is an injury to the borrower, because, one hun

dred dollars are worth no more to him when he pays five per cent. for risk, than when he pays nothing for it. Whatever, therefore, is paid for risk, is always a loss to both parties; and the more that is thus paid, the worse it is for both. Hence, the rise of interest caused by bad government, civil commotion, revolutions, wars, and general immorality, is always an indication of national decline; and the fall of interest, produced by the contrary causes, is an indication of national prosperity.

2. On the other hand, the temporary rise of interest caused by increased productiveness, and the development of new national resources, is an indication of national prosperity. It shows that more than ordinarily valuable modes of employing capital have been discovered, and, that men can afford to pay a larger price for the use of capital. I have, however, called this a temporary rise; because, a rise from such a cause, will soon equalize itself. Increased productiveness will soon supply capital, or it will be imported from less favored countries. Thus, in new countries, the rate of interest is high; but this is by no means an indication of adversity, for such countries, while paying so high a rate for capital, yet grow rich faster than those from which they borrow.

3. Again: The gradual fall of the rate of interest caused by the diminution of risk, and the greater abundance of capital, is an evidence of prosperity. It shows that a larger proportion of the means of subsistence is falling to the share of every individual; that every man can more easily procure capital; and that every man, in order to support himself, produces a larger amount than formerly, of whatever will contribute to the comfort and convenience of his neighbor.

4. On the other hand, the fall of the rate of interest, caused by a suspension of the means of production, is an evidence of national adversity. Suppose a war to occur between this country and France. The capital now employed in transportation, must

be almost wholly unproductive. The capital employed in producing our exports to that country, must also be useless. Hence, the rate of interest would fall; for, many men would have no business in which to employ their capital. The case would be the same, were a fall in the price of capital to proceed from civil commotion, or any similar cause. And, the adversity would remain, until the cause were removed. For, if capital were removed out of the country, until, from reduction in the supply, the rate of interest rose, the industry of the country would still be depressed, until, by peace, order, and good government, it regained its natural advantages.

Hence, we see that, in order to form any correct opinion respecting the condition of a country, from the present rate of interest, we must always seek for the causes of that rate, instead of deciding from the mere rate itself.

It is almost unnecessary, after what has been already advanced, to state that, in the view of the Political Economist, laws regulating the rate of interest are injurious to the prosperity of a country. Some of the reasons for this opinion, are the following:

1. Such laws violate the right of property. A man has the same right to the market price of his capital, in money as he has to the market price of his house, his horse, his ship, or any other of his possessions.

2. The real price of capital cannot be fixed by law, any more than the real price of flour, or iron, or any other commodity. There is, therefore, no more reason for assigning to it a fixed value, than there is of assigning a fixed value to any other commodity.

3. The price of capital, or money, is really more variable than that of any other commodity. Most other commodities have but one source of variation, namely, use or profit. But capital, in the form of money, is liable to two sources of variation, risk,

and use. These vary, at different times, in different investments, and with different individuals. There is, therefore, less reason why the price of money should be fixed by law, than why the price of any thing else should be so fixed.

4. These laws, instead of preventing, give rise to great and disastrous fluctuations in the price of money.

Suppose that, to-day, money is worth, in the ordinary operations of business, ten per cent., and it is worth six per cent. in loan. A man will as soon loan, as employ it in business, if he possess more than he wishes to use. There will then be a fair supply of money in the market. But, let the profits of capital rise, so that, in the ordinary operations of business, capital is worth twenty per cent. If, now, the rate of interest rose with this increased rate of profit, the same individuals would be as willing to loan, as before; and thus, the supply following the demand, there would arise no peculiar scarcity. The high rate of interest, would also attract capital from abroad; and thus, in a very short time, it would, in this particular place, be brought to the general level.

But suppose that six per cent. were the highest legal rate of interest, and that he who loaned at a higher rate, was liable to lose both his principal and interest, and also his mercantile character. In this case, as soon as the profit of capital in business rose to fifteen or twenty per cent., no one, who could thus employ it, would loan it at six per cent. Hence, as soon as it thus rose, the supply would be immediately diminished; and this would, of course, cause a greater rise of interest. Those who, from honor or conscience, obeyed the laws, would withdraw from the market, and employ their capital in some other way; and no one would loan, but those who were willing to risk the consequences of detection. These, having the money market in their own hands, will of course, charge for the use, and for the risk of de