The Rate of Interest

It is commonly supposed that the premium of interest depends on the value of gold and silver. The value of these are regulated by their quantity. As the quantity increases, the value diminishes. As the quantity decreases, the value rises.

However, the premium of interest is regulated by the quantity of stock.

Around the time of the discovery of the West Indies, the common interest was at 10% or 12%. Since that time, it has gradually diminished.

Under the feudal constitution, stock could not be accumulated:

• The peasants had leases which depended on their masters’ caprice. They could never increase in wealth because the landlord was ready to squeeze it all from them. Therefore, they had no motive to acquire it.
• The landlords’ wealth could only be increased a little as they were indolent and involved in perpetual wars.
• The merchants were again oppressed by all ranks. They were not able to secure the produce of their industry from rapine and violence.

But after the fall of the feudal government, these obstacles to industry were removed. The stock of commodities began to increase gradually.

A loan is usually done in money. But this is immediately turned into stock, and thus it is the quantity of stock that enables you to make more loans.

The rate of interest is entirely regulated by this circumstance.

If there were so many borrowers but only a few lenders then interest would be high. But if the amount of stock on hand were so great as to enable many to lend, then it would fall proportionably.