Why Interest was lowered one half after the Conquest of the Indies

by Montesquieu

According to Garcilasso, interest fell from 10% to 5% in Spain after the conquest of South America.

• That conquest brought in a lot of money suddenly into Europe.
• Many persons got money and had a need for it.
• The price of all things increased, while the value of money diminished.
• The proportion was then broken, and all the old debts were discharged.

We may recollect the time of the system when everything was at a high price except specie.

Those who had money after the conquest of the Indies, were obliged to lower the price or hire of their merchandize; that is, in other words, their interest.

From this time, they were unable to bring interest to its ancient standard because the amount of money kept on increasing annually.

The public funds of some states were founded on riches procured by commerce. These gave a very small interest. It became necessary for the contracts of individuals to be regulated by these.

In short, the course of exchange rendered the conveying of specie from one country to another remarkably easy. Money cannot be scarce in a place where they may be so readily supplied with it, by those who have it in plenty.