Stock Lent At Interest

¹ The stock lent at interest is always considered as a capital by its lender.

He expects that:

• it will be restored to him in due time
• the borrower will pay him a rent for using it

The borrower may use it as a capital or as a stock for immediate consumption. If he uses it as a capital, he employs it to maintain productive labourers.

In this case, he can restore the capital and pay the interest without encroaching on any other source of revenue. If he uses it as a stock for immediate consumption, he acts as a prodigal. The stock dissipates in maintaining idle people. In this case, he cannot restore the capital nor pay the interest without encroaching on some other source of revenue, such as the property or rent.

² The stock lent at interest is occasionally employed in both these ways.

It is employed more frequently as a capital than as stock for consumption. The man who borrows to spend will soon be ruined. His lender will generally repent his mistake.

In all cases where there is no gross usury, to borrow or to lend for spending is contrary to the interest of both parties. It cannot happen frequently because of the regard that all men have for their own interest. Any rich man who lends will laugh at you if you ask him whether he lends to people who use it profitably, or to those who spend it idly. There are more frugal and industrious borrowers than those who are prodigal and idle.

³ Only country gentlemen, who borrow upon mortgage, borrow without being expected to make profitable use of it.

They rarely borrow merely to spend. What they borrow is commonly spent before they borrow it.

They generally consume so many goods which are advanced to them on credit by shopkeepers and traders. They find it necessary to borrow at interest to pay the debt.

The capital borrowed replaces the capitals of those shopkeepers and traders. Those capitals could not have been replaced with the rents of the estates of the country gentlemen.

It is borrowed not to be spent, but to replace a capital which was spent before.

⁴ Almost all loans at interest are made in paper or metal money.

The borrower really wants and the lender really supplies him, not with money, but with the money’s worth or the goods that it can purchase. Only those goods can be used by the borrower as his stock for immediate consumption or as his capital.

Through the loan, the lender assigns to the borrower the lender’s right to a certain portion of the national annual produce to be employed as the borrower pleases.

How Lending ‘Creates’ Money

⁵ The money which can be lent at interest in any country, is regulated by=

• the value of the annual produce immediately destined for replacing a capital, and
• the capital which the owner does not employ himself

It is not regulated by the value of paper or coin money or any loan instruments.

Such capitals are called the monied interest as they are lent out and paid back in money. It is distinct from the landed, trading, and manufacturing interests. These other interests are earned by owners who employ their own capitals. Even in the monied interest, the money is just the deed of assignment. This deed conveys those capitals which the owners do not care to employ themselves. Those capitals may be greater than the physical money which conveys them. The same pieces of money successively serve many different loans and many different buyers.

• A lends to W 1,000 pounds.
• W immediately uses it to buy 1,000 pounds worth of goods from B.
• B having no use for the money, lends the 1,000 pounds of money to X.
• X immediately uses it to buy 1,000 pounds worth of goods from C.
• C having no use for the money, lends the 1,000 pounds of money to Y.
• Y immediately uses it to buy 1,000 pounds worth of goods from D.

In this way, the same 1,000 pounds of paper or coin money serve as the instrument of three loans and three purchases. Each loan and purchase is equal in value to those 1,000 pounds of physical money. “What the three monied men A, B, and C assign to the three borrowers, W, X, Y, is the power of making those purchases.”

“In this power consist both the value and the use of the loans.”

The stock lent by the three monied men is equal to the value of the goods which can be purchased with it. The stock lent is three times greater than the value of the physical money used in the purchases. Those loans however, may be all perfectly secured.

The goods purchased by those different debtors will bring back money with a profit. The same pieces of money can thus serve as the instrument of different loans to three or to 30 times their value. They may likewise successively serve as the instrument of repayment.

⁶ In this way, the lender assigns a certain portion of the produce to the borrower through the capital which he lends, provided that the borrower shall assign to the lender a smaller portion, called the interest.

At the end of the loan, a considerable portion of that produce is assigned to the lender, called the repayment.

Money serves as the deed of assignment of the bigger repayment and the smaller interest. But money itself is altogether different from these assignments.