Some Considerations of the Consequences
of the Lowering of Interest
and the Raising the Value of Money
John Locke
[Letter to Members of Parliament, 1691]
To return to the Price of Land, 'Tis evident by what has been
above-said, That the Years Purchase of Land do not increase with the
fall of Interest, and the abating that good quality in Money of
yielding Yearly Six per Cent. to Four, does not presently so sink its
Value, in respect of Land, that One Third more is required in
exchange: Falling of Interest from Six to Four, will not raise Land
from Twenty to Thirty years Purchase. The rising and falling of the
Price of Land, as of other things, depends much on the quantity of
Land, set to Sale, compar'd with the quantity of Money design'd for
that Traffick, or which amounts to the same thing, upon the number of
Buyers and Sellers. For where there are many Sellers and few
Purchasers, though Interest be lessened, Land will be cheap, as I have
already shew'd. At least, this is certain, That making a Law to reduce
Interest, will not raise the Price of Lands: It will only, by driving
it more into the Bankers Hands, leave the Country barer of Money,
whereby, if the price of Land about London, should be accidentally
raised, that of remoter Counties would thereby have fewer Purchasers,
and at lower Rates.
This being so, that the low rate of Land depends much on the great
number of Sellers in proportion to Purchasers, the next thing to be
inquir'd into, is, What makes plenty of Sellers? and to that the
Answer is obvious, general ill Husbandry, and the consequence of it,
Debts. If a neglect of Government and Religion, ill Examples, and
depraved Education, have introduc'd Debauc'hery. and Art or Chance has
made it fashionable for Men to live beyond their Estates, Debts will
increase and multiply, and draw with them a necessity on Men, first of
Incumbring, and then Selling their Estates. This is generally the
cause why Men part with their Land: And I think there is scarce one of
an hundred, that thinks of Selling his Patrimony, till Mortgages have
pretty well Eat into the Freehold; and the weight of growing Debts
force a Man, whether he will or no, out of his Possessions. When
almost is there ever a clear and unincumbred Estate set to Sale? 'Tis
seldom a thriving Man turns his Land into Money to make the greater
advantage: The Examples of it are so rare, that they are scarce of any
Consideration in the number of Sellers.
This I think may be the Reason, why in Queen Elizabeth's days (when
Sobriety, Frugality, and Industry, brought in daily Increase, to the
growing Wealth of the Kingdom) Land kept up its Price, and Sold for
more Years Purchase, than corresponded to the Interest of Money, then
busily imploy'd in a thriving Trade, which made the natural Interest
much higher than it is now, as well as the Parliament then set it
higher by Law.
On the contrary side, what makes scarcity of Purchasers?
1
The same Reason, Ill Husbandry. When the Tradesman lives up to the
height of his Income, and the vanity of Expences either drains the
Merchants Coffers, or keeps them from over-flowing, he seldom thinks
of Purchasing. Buying of Land is the result of a full and satiated
Gain: And Men in Trade seldom think of laying out their Money upon
Land, till their Profit has brought them in more, than their Trade can
well employ; and their idle Bags cumbring their Counting Houses, put
them upon emptying them on a Purchase.
2
Another thing that makes a scarcity of Buyers of Land, are doubtful
and ill Titles: Where these are frequent and fatal, one can no more
expect, that Men, who have Money, should be forward to Purchase, than
Ships richly laden to venture themselves amongst Rocks and Quicksands.
'Tis no wonder such Seas should not be much frequented, where the
Examples, and remains of daily Wrecks, shew the folly, and hazard of
the Venture, in the number of those who have Miscarried.
3
A general decay of Trade discourages Men from Purchasing: For this
threatens an Universal Poverty, which is sure to fall first and
heaviest upon Land. The Merchant who furnishes the improvident
Landholder, will not fail to have Money for his Wares with Gain,
whether the Kingdom get by his Trade or no; and he will keep his Money
rather employed in Trade, which brings him in profit, (for the
Merchant may get by a Trade that makes the kingdom Poor) than lay it
out in Land, whose Rents he sees sinking, and foresees by the course
of Trade, is likely to continue on to do so: When a Nation is running
to decay and ruin, the Merchant, and Monied Man, do what you can, will
be sure to starve last: Observe it where you will, the decays that
come upon, and bring to Ruin any Country, do constantly first fall
upon the Land: And though the Country Gentleman, (who usually securely
relies upon so much a Year as was given in at his Marriage Settlement,
and thinks his Land an unmoveable Fund for such an Income) be not very
forward to think so: Yet this nevertheless is an undoubted truth, that
he is more concern'd in Trade, and ought to take a greater care, that
it be well manag'd, and preserv'd, than even the Merchant himself. For
he will certainly find, when a decay of Trade has carried away one
part of our Money out of the kingdom, and the other is kept in the
Merchant and Tradesman's Hands, that no Laws he can make, nor any
little Arts of Shifting Property amongst our selves, will bring it
back to him again; but his Rents will fall, and his Income every day
lessen, till general Industry, and Frugality join'd to a well order'd
Trade, shall restore to the kingdom the Riches and Wealth it had
formerly.
This by the way, if well consider'd might let us see, that Taxes,
however contriv'd, and out of whose Hand soever immediately taken, do
in a Country, where their great Fund is in Land, for the most part
terminate upon Land. Whatsoever the People is chiefly maintained by,
that the Government supports it self on: Nay, perhaps it will be
found, that those Taxes which seem least to affect Land, will most
surely of all other, fall the Rents. This would deserve to be well
considered in the raising of Taxes, lest the neglect of it bring upon
the Country Gentleman an Evil which he will be sure quickly to feel,
but not be able very quickly to remedy. For Rents once fallen are not
easily raised again. A Tax laid upon Land seems hard to the
Landholder, because it is so much Money going visibly out of his
Pocket: And therefore as an ease to himself, the Landholder is always
forward to lay it upon Commodities. But if he will throughly consider
it, and examine the Effects, he will find he Buys this seeming Ease at
a very dear rate: And though he pays not this Tax immediately out
ofhis own Purse, yet his Purse will find it by a greater want of Money
there at the end of the year, than that comes to, with the lessening
of his Rents to boot; which is a settled and lasting evil, that will
stick upon him beyond the present Payment.
To make this clear, let us suppose in the present State of Affairs in
England, that the Rents of England are Twelve Millions, and that the
Charge and Necessities of the Government requires a supply of Three
Millions from the Parliament, which is laid on Land. Here is one
fourth part of his Yearly Income goes immediately out of the Landlords
and Landholders Pocket. This is a Burthen very apt to be felt. The
Country Gentleman, who actually pays the Money out of his Pocket, or
finds it deducted out of his Rent at Quarter-day for Taxes, sees and
very sensibly observes what goes thus out of his Estate. But though
this be a Quarter of his yearly Income, and out of an Estate of Four
hundred pounds a Year, the publick Tax now openly takes away One
hundred: Yet this influences not at all the yearly Rent of the Land,
which the Rack-renter, or under Tenant pays: It being the same thing
to him, whether he pays all his Rent to the King, or his Landlord, or
half, or a quarter, or none at all to the King; the Case is all one to
him, what Hand receives his Rent, when due: So Trade Nourishes, and
his Commodities go off well, he will be able to pay his Rent on. This
lessens not any more the Value of his Farm, than an high or a low
chief Rent does paid out of it to the Lord of the Fee: The Tenant's
Bargain and Profit is the same, whether the Land be charg'd, or not
charg'd with an Annuity payable to another Man. We see this in College
Leases, where though the College Tenant pays for it to the College
some years five times as much as he does others, upon the varying Rate
of Corn: Yet the Under Tenant feels not this Alteration in the least,
nor finds a Reason to have his Rent abated, because a greater part of
it is diverted from his Landlord. All this is but changing the Hand,
that receives the Rent, without any influence at all upon the yearly
Value of the Estate; which will not be let for one Penny more or less
to the Renter, however, or amongst whomsoever, the Rent he pays, be
divided. From hence it is evident, That Taxes laid on Land do not in
the least make Rents fall.
But suppose, to shift off the Burthen from the Land, some Country
Gentlemen should think fit to raise these three Millions upon
Commodities, to let the Land go free. First, it is to be consider'd,
That since the publick Wants require three Millions, (for that we
supos'd for Argument sake; let it be three Millions, or one Million,
that's all one;) and so much must go into the King's Coffers; or else
the Necessities of the Government will not be supplied; That for
raising these three Millions on Commodities, and bringing so much into
the Exchequer, there must go a great deal more than three Millions out
of the Subjects Pockets. For a Tax of that nature cannot be levied by
Officers, to watch every little Rivulet of Trade, without a great
Charge, especially at first trial. But supposing no more Charge in
raising it, than of a Land Tax, and that there are only three Millions
to be paid, 'tis evident that to do this out of Commodities, they
must to the Consumer be raised a quarter in their Price; so that every
thing, to him that uses it, must be a quarter dearer. Let us see now
who at long run must pay this quarter, and where it will light. 'Tis
plain, the Merchant and Broker, neither will nor can; for if he pays a
quarter more for Commodities than he did, he will sell them at a Price
proportionably raised. The poor Labourer and Handicraftsman cannot:
For he just lives from hand to mouth already, and all his Food,
Clothing and Utensils, costing a quarter more than they did before,
either his Wages must rise with the Price of things, to make him live;
or else, not being able to maintain himself and Family by his Labour,
he comes to the Parish; and then the Land bears the Burthen a heavier
way. If the Labourer's Wages be rais'd in proportion to the encreas'd
Rates of things, the Farmer, who pays a quarter more for Wages, as
well as all other things, whilst he sells his Corn and Wool, either at
the same rate, or lower, at the Market, (since the Tax laid upon it
makes People less forward to buy) must either have his Rent abated, or
else break and run away in his Landlord's Debt: And so the yearly
Value of the Land is brought down. And who then pays the Tax at the
Years end, but the Landlord: When the Tenant, not able to raise his
Rent by his Commodities, either runs away in his Landlord's Debt, or
cannot be continued in the Farm without abatement of Rent? For when
the yearly charge in his Farm is greater by the increase of the
Labourers Wages, and yet his product Sells cheaper by reason of the
Tax laid on his Commodities; how will the Farmer be able to make up
his Rent at Quarter-Day? For this may be worth our Notice, that any
Tax laid on Foreign Commodities in England, raises its price, and
makes the Importer get more for his Commodity. But on the contrary a
Tax laid on your Native Product, and home-made Commodities, lessens
their price, and makes them yield less to the first Seller.
The Reason whereof is plain. For the Merchant Importing no Commodity
but what the necessity, or fashionable Wantonness of your People gives
him Vent for, will not only proportion his Gain, to the Cost and
Risque which he has been at before Landing; but will expect profit of
his Money paid here, for any Tax laid on it; and take advantage from
thence to raise his price above what his Tax comes to; and if he
cannot do that, he will Trade no more in that Commodity. For it being
not the Product of his Farm, he is not tied to bring it to Market, if
he finds its price not answer his Expectation there, but turns himself
to other Wares, which he finds your Markets take off better. A
Merchant will never continue to Trade in Wares, which the change of
Fashion, or Humour, amongst your People, has made less vendible,
though he may be sometimes caught by a sudden alteration. But that
seldom happens in the course of Trade, so as to influence the great
bulk of it. For things of Necessity must still be had, and things of
Fashion will be had as long as Men have Money or Credit, whatever
Rates they cost, and the rather because they are dear. For it being
Vanity not Use that makes the Expensive Fashion of your People, the
Emulation is, who shall have the finest, that is, the dearest things,
not the most convenient or useful. How many things do we value or buy,
because they come at dear rates from Japan and China, which if they
were our own Manufacture or Product, common to be had, and for a
little Money, would be contemned and neglected? Have not several of
our own Commodities offered to Sale at reasonable Rates been despised,
and the very same eagerly bought and brag'd of, when sold for Fiench
at a double Price? You must not think therefore that the raising their
Price will lessen the Vent of Fashionable Foreign Commodities amongst
you, as long as Men have any way to purchase them, but rather increase
it. French Wine is become a Modish Drink amongst us, and a Man is
asham'd to Entertain his Friend, or almost to Dine himself Without it.
The Price is in the Memory of Man rais'd from 6 d. to 2 s. and does
this hinder the Drinking of it? No, the quite contrary, a Man's way of
Living is commended, because he will give any Rate for it: And a Man
will give any Rate rather than pass for a poor Wretch, or Penurious
Curmudgeon, that is not able or knows not how to live well, nor use
his Friends civilly. Fashion is for the most part nothing but the
Ostentation of Riches, and therefore the high price of what serves to
that, rather increases than lessens its Vent. The contest and glory is
in the Expence, not the Usefulness of it; and People are then thought,
and said to live well, when they can make a shew of rare and foreign
things, and such as their Neighbours cannot go to the Price of.
Thus we see how Foreign Commodities fall not in their Price by Taxes
laid on them, because the Merchant is not necessitated to bring to
your Market any but Fashionable Commodities, and those go off the
better for their high rate. But on the contrary your Landholder being
forced to bring his Commodities to Market, such as his Land and
Industry affords them, common and known things, must sell them there
at such price as he can get. This the buyer knows; and these home-bred
Commodities being seldom, the Favourites of your People, or any
farther acceptable, than as great conveniency recommends them to the
Vulgar, or downright necessity to all, as soon as a Tax is laid on
them, every one makes as sparing a use of them as he can, that he may
save his Money for other necessary, or creditable Expences, whereby
the price they yield the first Seller is mightily abated, and so the
yearly value of the Land, which produces them, lessen'd too.
If therefore the laying of Taxes upon Commodities does, as it is
evident, affect the Land, that is out at Rack-rent, it is plain it
does equally affect all the other Land in England too, and the Gent.
will, but the worst way, increase their own Charges, that is by
lessening the Yearly Value of their Estates, if they hope to ease
their Land, by charging Commodities. It is in vain in a Country whose
great Fund is Land, to hope to lay the publick charge of the
Government on any thing else; there at last it will terminate. The
Merchant (do what you can) will not bear it, the Labourer cannot, and
therefore the Landholder must: And whether he were best do it, by
laying it directly, where it will at last settle, or by letting it
come to him by the sinking of his Rents, which when they are once
fallen every one knows are not easily raised again, let him consider.
Holland is brought as an instance of laying the Charge of the
publique upon Trade, and 'tis possibly (excepting some few small Free
Towns) the only place in the World that could be brought to favour
this way. But yet when examin'd will be found to shew the quite
contrary, and be a clear Proof, that lay the Taxes how you will, Land
every where, in proportion, bears the greater share of the burthen.
The publick Charge of the Government, 'tis said, is, in the United
Provinces, laid on Trade. I grant it is, the greatest part of it; But
is the Land Excus'd or Eas'd by it? By no means, but on the contrary
so loaded, that in many places half, in others a quarter, in others
one eighth of the Yearly value does not come into the owners Pocket:
And if I have not been misinformed, the Land in some places will not
pay the Taxes: So that we may say, that the Charge of the Government
came not upon Commodities till the Land could not bear it. The burthen
unavoidably settles upon the Land first, and when it has pressed it
so, that it can yield no more, Trade must be brought in in aid to help
to support the Government rather than let all sink: But the first
stress is always upon Land, and as far as that will reach, it is
unavoidably carried, lay your Taxes how you will. 'Tis known what a
share of the publick charges of the Government is supported by the
Trade of Amsterdam alone, as I remember that one Town pays Thirty-six
in the Hundred of all the publick Taxes raised in the United
Provinces. But are the Lands of Guelderland eas'd by it? Let any one
see in that Country of Land more than Trade, what they make clear of
their Revenues, and whether the Country Gentlemen there grow rich on
their Land, whilst the Merchant having the Taxes laid on his Commerce
is impoverish'd? On the contrary Guelderland is so low and out of
Cash, that Amsterdam has been fain for many Years to lay down the
Taxes for them, which is, in effect, to pay the Taxes of Guelderland
too.
Struggle and contrive as you will, lay your Taxes as you please, the
Traders will shift it off from their own Gain; the Merchants will bear
the least part of it, and grow poor last. In Holland it self, where
Trade is so loaded, who, I pray, grows richest, the Land-holder or the
Trader? Which of them is pinch'd, and wants Money most? A Country may
thrive, the Country Gentleman grow rich, and his Rents encrease (for
so it has been here) whilst the Land is Taxed: But I challenge any one
to shew me a Country, wherein there is any considerable publick Charge
raised, where the Land does not most sensibly feel it, and in
proportion bear much the greater part of it.
We must not therefore impute the falling of the Rents, or of the
price of Land, to high Interest; Nor, if ill Husbandry has wasted our
Riches, hope by such kind of Laws to raise them to their former value.
I humbly conceive we shall in vain endeavour it by the fall of
Interest: The number of Buyers must be increased, and Sellers
lessen'd, which must be done by other ways, than regulating of
Interest, or else the Landed-man will neither find Chapmen for his
Land, nor for the Corn that grows on it, at the rate he desires.
But could an Act of Parliament, bring down Interest to Four per Cent.
and the lowering of that immediately raise the Purchasers Fine from 20
to 25 Years Purchase; yet it may be doubted, whether this be fit to be
made into a Law, because it would be of no advantage to the Kingdom.
For what profit would it be to the Nation to make a Law, that he who
sells Land should instead of Four have Five hundred pounds of the
Purchaser? This indeed a little alters the distribution of the Money,
we have amongst us Englishmen here at home, but neither helps to
continue what we have, nor brings in more from abroad: Which being the
only concernment of the Kingdom, in reference to its Wealth, is apt to
be supposed by us without doors to be the only care of a Parliament.
For it matters not, so it be here amongst us, whether the Money be in
Thomas or Richards Hands, provided it be so order'd, that, whoever has
it, may be encouraged to let it go into the current of Trade, for the
improvement of the general stock, and wealth of the Nation.
As this increase of the Fine in the purchase of Land is not an
advantage to the kingdom, so neither is it to the Landholder, who is
the person, that bearing the greatest part of the burthens of the
Kingdom, ought, I think, to have the greatest care taken of him, and
enjoy as many Privileges, and as much Wealth, as the favour of the Law
can (with regard to the Publick-weal) confer upon him. But pray
consider: The raising the Price of Land in Sale by increasing the
number of Years Purchase to be paid for it, gives the advantage not to
the Landholder, but to him that ceases to be so. He that has no longer
the Land has the more Money, and he who has the Land is the poorer.
The true advantage of the Landholder is, that his Corn, Flesh, and
Wool, sell better, and yield a greater price; this indeed is a profit,
that benefits the owner of the Land, and goes along with it: It is
this alone raises the Rent, and makes the Possessor richer: and this
can only be done by increasing our Wealth, and drawing more Money into
England, which the falling of Interest, and thereby (if it could
effect it) raising the Purchase of Land is so far from doing, that it
does visibly and directly one way hinder our increase of Wealth, that
is, by hindring Foreigners to come here, and buy Land, and settle
amongst us. Whereby we have this double loss; First we lose their
Persons, increase of People being the increase both of Strength and
Riches. Secondly we lose so much Money. For tho' whatever an
Englishman gives to another for Land, though raised to Forty Years
Purchase, be not one Farthing advantage to the kingdom; yet whatever a
Foreigner, who purchases Land here, gives for it, is so much every
Farthing clear gain to the Nation: For that Money comes clear in,
without carrying out any thing for it, and is every Farthing of it as
perfect Gain to the Nation as if it drop'd down from the Clouds.
But farther, if consideration be to be had only of Sellers of Land,
the lowering of Interest to Four per Cent. will not be in their
favour, unless, by it, you can raise Land to Thirty Years Purchase,
which is not at all likely: And I think no Body by falling of Interest
to Four per Cent. hopes to get Chapmen for their Land at that Rate.
Whatsoever they have less, if Law can regulate Interest, they lose of
their value of Land, Money being thus abased. So that the Landed man
will scarce find his account neither by this Law, when it comes to
trial. And at last, I imagine, this will be the result of all such
Attempts, that Experience will shew, that the price of Things will not
be regulated by Laws, though the endeavours after it will be sure to
prejudice and inconvenience Trade, and put your Affairs out of Order.
If this be so, that Interest cannot be regulated by Law, or that if
it could, yet the reducing of it to Four per Cent. would do more harm
than good: What then should there (will you say) be no Law at all to
regulate Interest? I say not so.
For,
1
It is necessary that there should be a stated Rate of Interest, that
in Debts and Forbearances, where Contract has not setled it between
the Parties, the Law might give a Rule, and Courts of Judicature might
know what Damages to allow. This may, and therefore should, be
Regulated.
2
That in the present current of running Cash, which now takes its
course almost all to London, and is Ingrossed by a very few Hands in
Comparison, young Men, and those in Want, might not too easily be
exposed to Extortion and Oppression; and the dextrous and combining
Money Jobbers not have too great and unbounded a Power, to Prey upon
the Ignorance or Necessity of Borrowers. There would not be much
danger of this, if Money were more equally distributed into the
several quarters of England, and into a greater number of Hands,
according to the Exigences of Trade.
If Money were to be hired, as Land is; or to be had as Corn, or Wool,
from the Owner himself; and known good security be given for it, it
might then probably be had at the Market (which is the true) Rate, and
that rate of Interest would be a constant gauge of your Trade and
Wealth. But when a kind of Monopoly, by consent, has put this general
Commodity into a few Hands, it may need Regulation, though what the
stated Rate of Interest should be in the constant change of Affairs,
and flux of Money, is hard to determine. Possibly it may be allowed as
a reasonable Proposal, that it should be within such Bounds, as should
not on the one side quite Eat up the Merchants, and Tradesman's
Profit, and discourage their Industry; nor on the other hand so low,
as should hinder Men from Risquing their Money in other Mens Hands,
and so rather chuse to keep it out of Trade, than venture it upon so
small profit. When it is too high, it so hinders the Merchants gain,
that he will not Borrow; when too low, it so hinders the Monied Man's
profit, that he will not Lend; and both these ways it is a hinderance
to Trade.
But this being perhaps too general, and loose a Rule, let me add,
that if one would consider Money and Land alone, in relation one to
another, perhaps it is now at Six per Cent. in as good a proportion as
is possible, Six per Cent. being a little higher than Land, at Twenty
Years Purchase, which is the Rate pretty near, that Land has generally
carried in England, it never being much over nor under. For supposing
100 l. in Money, and Land of 5 l. per Annum, be of equal value, which
is Land at Twenty Years Purchase: 'Tis necessary for the making their
value truly equal, that they should produce an equal Income, which the
100 l. at 5 l. per Cent. Interest is not likely to do.
1
Because of the many, and sometimes long intervals of Barrenness,
which happen to Money, more than Land. Money at Use, when return'd
into the Hands of the Owner, usually lies dead there, till he gets a
new Tenant for it, and can put it out again; and all this time it
produces nothing. But this happens not to Land, the growing product
whereof turns to account to the Owner, even when it is in his Hands,
or is allow'd for by the Tenant, antecedently to his entring upon the
Farm. For though a Man that Borrows Money at Midsummer, never begins
to pay his Interest from our Lady-Day, or one moment backwards, yet he
who Rents a Farm at Midsummer, may have as much reason to begin his
Rent from our Lady-Day, as if he had then entred upon it.
2
Besides the dead intervals of ceasing Profit, which happen to Money
more than Land, there is another Reason, why the Profit and Income of
Money let out, should be a little higher than that of Land; and that
is, because Money out at Interest runs a greater Risque, than Land
does. The Borrower may break, and run away with the Money, and then
not only the Interest due, but all the future Profit, with the
Principal, is lost for ever. But in Land a Man can lose but the Rent
due, for which usually too the Stock upon the Land is sufficient
security: And if a Tenant run away in Arrear of some Rent, the Land
remains, that cannot be carried away, or lost. Should a Man Purchase
good Land in Middlesex of 5 l. per Annum, at Twenty Years Purchase,
and other Land in Rumney-Marsh, or elsewhere of the same Yearly value,
but so situated, that it were in danger to be swallowed of the Sea,
and be utterly lost, it would not be unreasonable, that he should
expect to have it under Twenty Years Purchase; suppose Sixteen and an
half. This is to bring it to just the case of Land at Twenty Years
Purchase, and Money at Six per Cent. where the uncertainty of securing
ones Money may well be allowed that advantage of greater Profit; and
therefore perhaps the legal Interest now in England at Six per Cent.
is as reasonable and convenient a Rate as can well be set by a
standing Rule, especially if we consider that the Law requires not a
Man to pay Six per Cent. but ties up the Lender from taking more. So
that if ever it falls of it self, the Monied-man is sure to find it,
and his Interest will be brought down to it.
High Interest is thought by some a Prejudice to Trade: But if we look
back, we shall find, that England never throve so well, nor was there
ever brought into England so great an increase of Wealth since, as in
Queen Elizabeth's and King James I. and King Charles I. time, when
Money was at Ten and Eight per Cent. I will not say high Interest was
the cause of it. For I rather think that our thriving Trade was the
Cause of high Interest, every one craving Money to employ in a
profitable Commerce. But this I think I may reasonably infer from it,
That lowering of Interest is not a sure way to improve either our
Trade or Wealth.
To this I hear some say, That the Dutch, Skilful in all Arts of
promoting Trade, to out-do us in this, as well as all other
Advancements of it, have observed this Rule, viz, That when we fell
Interest in England from Ten to Eight, they presently sunk Interest in
Holland to Four per Cent. and again, when we lower'd it to Six they
fell it to Three per Cent. thereby to keep the Advantage which the
lowness of Interest gives to Trade. From whence these Men readily
conclude, That the falling of Interest will advance Trade in England.
To which I answer,
1
That this looks like an Argument, rather made for the present
Occasion, to mislead those who are credulous enough to swallow it,
than arising from true Reason, and matter of Fact. For if lowering of
Interest were so advantageous to Trade, why did the Dutch so constancy
take their measures only by us, and not as well by some other of their
Neighbours, with whom they have as great or greater Commerce than with
us? This is enough at first sight to make one suspect this, to be Dust
only raised, to throw in Peoples eyes, and a Suggestion made to serve
a Purpose. For,
2
It will not be found true, That when we abated Interest here in
England to Eight, the Dutch sunk it in Holland to Four per Cent. by
Law; or that there was any Law made in Holland to limit the Rate of
Interest to Three per Cent. when we reduced it in England to Six. It
is true, John de Witt, when he managed the Affairs of Holland, setting
himself to lessen the publick Debt, and having actually paid some, and
getting Money in a readiness to Pay others, sent notice to all the
Creditors, That those who would not take Four per Cent. should come
and receive their Money. The Creditors finding him in earnest, and
knowing not how other Wise to employ their Money, accepted his Terms,
and changed their Obligations into Four per Cent. whereas before they
were at Five, and so (the great Loans of the Country being to the
State) it might be said in this sense, That the Rate of Interest was
reduced lower at that time: But that it was done by a Law, forbidding
to take higher Interest than Four per Cent. that I deny, and require
any one to shew. Indeed upon good Security one might lately have
borrowed Money in Holland at Three, and Three and an half per Cent.
but not by vertue of any Law, but the natural Rate of Interest. And I
appeal to the Men learned in the Law of Holland, whether last Year
(and I doubt not but it is so still) a Man might not lawfully lend his
Money for what Interest he could get, and whether in the Courts he
should not recover the Interest he contracted for, if it were Ten per
Cent. So that if Money be to be borrowed by honest and responsible
Men, at Three, or Three and an half per Cent. it is not by the force
of Statutes and Edicts; but by the natural Course of things, which
will always bring Interest upon good Security low, where there is a
great deal of Money to be lent, and little good Security, in
proportion, to be had. Holland is a Country where the Land makes a
very little part of the Stock of the Country. Trade is their great
Fund; and their Estates lie generally in Money: So that all, who are
not Traders, generally speaking, are Lenders: Of which there are so
many whose Income depends upon Interest, that if the States were not
mightily in Debt, but paid every one their Principal, instead of the
Four per Cent. Use, which they give, there would be so much more Money
than could be used, or would be ventured in Trade, that Money there
would be at Two per Cent. or under, unless they found a way to put it
out in Foreign Countries.
Interest, I grant these Men, is low in Holland: But it is so not as
an effect of Law, or the politick Contrivance of the Government, to
promote Trade; but as the Consequence of great Plenty of ready Money,
when their Interest first fell. I say when it first fell: For being
once brought low, and the Publick having borrowed a great part of
private Mens Money, and continuing in Debt, it must continue so though
the Plenty of Money, which first brought Interest low, were very much
decay'd, and a great part of their Wealth were really gone. For the
Debt of the State affording to the Creditors a constant Yearly Income,
that is look'd on as a safe Revenue, and accounted as valuable as if
it were in Land; and accordingly they buy it one of another; and
whether there be any Money in the publick Coffers or no, he, who has
to the value of Ten thousand pounds owing him from the States, may
sell it every day in the Week, and have ready Money for it. This
Credit is so great an advantage to private Men, who know not else what
to do with their Stocks, that were the States now in a condition to
begin to pay their Debts, the Creditors, rather than take their Money
out to lie dead by them, would let it stay in, at lower Interest, as
they did some Years since, when they were call'd on to come and
receive their Money. This is the state of Interest in Holland: Their
plenty of Money, and paying their publique Debts, some time since
lowered their Interest. But it was not done by the command and
limitation of a Law, nor in consequence of our reducing it here by Law
to Six per Cent. For I deny, that there is any Law there yet, to
forbid lending of Money for above Three, or Six, or Ten per Cent.
Whatever some here suggest, every one there may hire out his Money as
freely as he does any thing else, for what rate he can get; and the
Bargain being made, the Law will inforce the Borrower to pay it.
I grant low Interest, where all Men consent to it, is an advantage to
Trade, if Merchants will regulate their Gains accordingly, and Men be
perswaded to lend to them: But can it be expected, when the Publique
gives Seven, or Eight, or Ten per Cent. that private Men, whose
Security is certainly no better, shall have it for Four? And can there
be any thing stranger, than that the same Men who look on, and
therefore allow high Use as an encouragement to lending to the
Chequer, should think low Use should bring Money into Trade? The
States of Holland some few Years since, paid but Four per Cent. for
the Money they owed: If you propose them for an example, and Interest
be to be regulated by a Law, try whether you can do so here, and bring
Men to lend it to the Publique at that Rate. This would be a benefit
to the kingdom, and abate a great part of our publique Charge. If you
cannot do that, confess, that 'tis not the Law in Holland has brought
the Interest there so low, but something else, and that which will
make the States, or any body else pay dearer now, if either their
Credit be less, or Money there scarcer.
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