Chapter 17 Chapter 4 Loaning Assets for Interest

From the perspective of the lender, the assets lent for interest are his capital. He not only hopes that the assets will return to him after the loan period expires, but also hopes that the borrower will pay him a certain number of years' rent for using the assets. ; and in the eyes of the borrower, this wealth can be used as both his capital and his consumption.If employed by the borrower in maintaining productive labourers, the capital not only reproduces value, but also furnishes a profit, thereby enabling the borrower to repay the capital without ceding or eroding any other revenue. The principal and interest; and if the money is consumed by the borrower, the borrower becomes a waster, and he makes the funds that could have been used to maintain the working class diverted to the lazy class. At this time, Borrowers cannot repay principal and interest on loans without resorting to resources such as erosion of landed property or ground rent.

Assets lent at interest are sometimes used for both purposes, and in most cases are used for the former.Because a person who borrows money to squander will not be able to live on it for a long time, and will make the person who lent him regret his stupidity.This type of loan does not benefit the lender or the borrower at all, and only those borrowers who exploit usury can get some benefits.Such lending incidents will inevitably happen, but because most people are more self-interested, the frequency of such lending incidents is not as high as we think.If you had asked a prudent rich man whether he would lend the greater part of his means to profiteers or wasteants, he would have laughed at you.In his view, the question you raised is simply not a question.Among those who are not known to be frugal, there must be more thrifty than extravagant, more industrious than idle.

Only country gentry borrowed for the sole purpose of squandering, and they often secured their property for some unfavorable use.However, the squires did not borrow money in a wasteful way. They often borrowed money in order to repay credit loans.For example, most of their daily necessities are bought on credit from the store. Once the credit is too large to be repaid, they have to borrow additional money to pay off the debt.Therefore, when the rents received by the squires were not sufficient to satisfy their credits, they had to borrow additionally from others to repay the shopkeepers' capital.Then he borrows money not to spend, but to repay capital previously spent.

Interest-bearing loans are mostly lent in the form of paper currency or gold and silver, but what the borrower wants from the lender is not the currency, but the value of the currency, that is, the goods that the currency can buy. .If the borrower needs goods for immediate enjoyment, then what he borrows is goods that can be enjoyed immediately; if what the borrower needs is capital for the revitalization of industries, then what he borrows is tools, materials, food, etc. necessary items.In fact, lending means that the lender transfers to the borrower the right to use part of its land and annual labor products, allowing the borrower to use it at will under the premise of paying the principal and interest.

Both banknotes and coins are domestic means of borrowing and lending.How much of the wealth of a country, or money as it is commonly called, can be lent at interest, does not depend on the value of the money, but on the value of the produce of a particular year.Such annual produce, either of the land, or of the workmen, are lent to others when they become the capital of those who have no intention of using them themselves.Since the lending and repayment of this capital is done by money, the relationship between the borrower and the lender is one of pecuniary interest. The interest of the borrower and the lender is not the same as that of agriculture, industry, or commerce.The capital employed by the industrial and commercial capital owners is their own.However, even under this pecuniary interest, money is nothing more than a transfer of capital that A has no intention of using personally to B for use. Same as contract.We should also know this.The amount of capital transferred in this way is many times greater than the amount of money used as the means of transfer!Whether it is mint or paper money, it can be purchased multiple times, and can be used as loan capital multiple times in succession.For example, there is now a thousand pounds. This thousand pounds can be lent from A to B, or it can be immediately circulated by B to C through shopping.When C does not need to use this money, C can lend it to D, so that D can immediately buy goods worth a thousand pounds from E.If E also does not need to use the money, E can lend it to Ji, so that Ji can immediately buy another thousand pounds worth of goods from Gen.Therefore, although the same coins or paper money are used, it is possible to make loans and purchases three times in a few days, and the value of each exchange is equal to the total amount of this money.In this process, people who have money to lend are A, C, and E, and people who need to borrow money are B, D, and Ji.What they are borrowing is really only the ability to buy goods in a thousand pounds of money, which is the value and utility of the loan.The value of the goods that this money can buy is the assets lent by the three borrowers, and the total assets they have lent are actually three times the money required to purchase the goods.If the debtor can properly use the goods he has purchased with the loan, and can repay the principal and interest of the loan within the stipulated time, then this kind of loan is more reliable.As this money can be used as a means of borrowing at three times its original value, it can also be used for the same reason as a means of borrowing at thirty times its original value, and it can also be continuously used to pay debts.

It can be seen from this that the act of collecting interest from the loaned capital is actually the transfer of part of the annual product of the lender to the borrower, provided that the borrower transfers a small part of the annual product of the borrower within a specified time limit, that is, to the lender. Pay interest; and after the maturity of the loan, repay the equivalent annual product, that is, repay the principal to the lender.Although money acts as a medium for transferring products in this process, it is still completely different from the products it transfers. The increase of the annual product designated as replacement capital, as soon as it is produced by the peasant or laborer, naturally leads to an increase in what is called the pecuniary interest.If the capital is increased, the owner will of course lend out capital which he has no intention of using himself, and thereby gain income, i.e., the loaned capital will increase.In other words, an increase in assets will inevitably lead to an increase in assets lent with interest.The increase of stock lent at interest necessarily entails a fall in the price which must be paid for the employment of it, namely, the interest.The causes of the fall of interest include those general causes which would make prices fall as the quantity of goods increases, and two other special causes.One is that the increase of a country's capital reduces investment profits.At this time, it will become more and more difficult for the new capital to find a favorable investment method in the country, so capital competition will occur, making the owners of the new capital try to crowd out the original investors through mutual competition.However, if they want to squeeze out the original investors, they have to relax their own conditions, that is, sell at low prices those goods that must be bought expensively.The second is to maintain the increase of productive labor funds, which gradually increases the market demand for productive labor.At this time, workers will not worry about no one to hire them, but instead become capitalists, because at this time they will feel that no one can hire them.In order to hire the required labor force, capitalists will increase labor wages, which will eventually lead to a reduction in capital profits. Therefore, the interest rate paid for the use of capital will naturally decrease accordingly.

Many writers, including Locke, Lloyd's, and Montesquieu, believed that the discovery of the Spanish West Indies led to an increase in the quantity of gold and silver that lowered the rate of interest in much of Europe.They held that, as gold and silver were of lesser value in themselves, they were of lesser value when they were used in particular cases, and that they sold for less.At first glance, this view may seem very reasonable, but it is actually wrong.The error of this point of view has been fully exposed by Hume, so there is no need for us to elaborate further.Next, I will use some very concise arguments to further explain the fallacies that have confused many of the above-mentioned writers.

Before the discovery of the Spanish West Indies the common rate of interest seems to have been ten per cent. in the greater part of Europe.Since the discovery of the Spanish West Indies, the common interest rates in various countries have successively dropped from 10 percent to 6 percent, 5 percent, 4 percent, and even 3 percent.Now let us assume that the reduction in the price of silver in a country is just equal to the reduction in the interest rate. For example, if the interest rate is reduced from 10% to 5%, then compared with before, the same amount of silver can only be bought half of the goods.But is this assumption true?I believe that is absolutely not the case.Nevertheless, this assumption is very helpful in supporting the theory I am about to illustrate.Nor can it be affirmed, on the basis of this supposition alone, that the rate of interest on gold and silver will be consequently lowered.For if the present hundred pounds were worth as much as the former fifty, then the present ten would only be worth the former five.Whatever the reason for reducing the value of the principal, it reduces the interest in the same proportion, so that the ratio of the value of the principal to the interest does not change, and so of course the rate of interest does not change.If the rate of interest changes, the ratio of principal to interest must also change.If the present one hundred pounds is only equal to the former fifty pounds, then the present five pounds must also be equal to the former two and a half pounds.If, therefore, the rate of interest is halved as the value of the principal is halved, the present interest on capital will be only one-fourth of the previous interest on capital.

As long as the commodities of a country are circulated by silver, and the quantity of commodities is not increased, the increase of silver will only lower the price of silver.At this time, although the nominal value of various goods will increase, their real value will not change.Although these goods can be exchanged for more silver, the amount of labor they can command and the number of laborers they maintain have not changed.Although a greater quantity of silver may be required to transfer an equal amount of capital from A to B, the amount of capital remains unchanged.Though money, the medium of transfer of goods, multiplies as cumbersomely as lengthy powers of attorney, the things it transfers remain unchanged, and the effect of the transfer is the same.Since there is no change in the funds for maintaining productive labor, the market demand for productive labor will naturally not change either.Therefore, although the price of productive labor has increased, the real value of the labor has remained the same, that is, wages have increased in proportion to the amount of silver paid, but the quantity of goods they can buy has not increased.As for the profits of capital, there is no change, either in name or in reality.As the wages of labor are often calculated by the quantity of silver paid, they appear to increase when the quantity of silver paid increases without actually increasing wages; It is not calculated by the amount of silver, but by the ratio of the amount of silver received to the invested capital.For example, when we speak of the wages of labor in a country, we often measure it by five shillings a week; when we speak of the profit of a country, we often speak of it as ten per cent.However, since the total capital of the country remains unchanged, the competition for capital among the various owners of capital in the country must not be changed, and the conveniences and difficulties encountered in their transactions must be the same as before.The ordinary proportion of capital to profit, and the ordinary interest on money, therefore remain unchanged.Moreover, the general interest in the use of money must be subject to the general profit which can be obtained in the use of money.

If, while the quantity of money in circulation in the country remains the same, if the quantity of commodities which are annually circulated in the country increases, the value of the money will increase, with other important consequences.At this time, although the capital of a country does not change in name, its real value has increased. Although it may still represent the same amount of money, the amount of labor it can control has increased. Therefore, the market demand for labor naturally increases. It also increased accordingly.Therefore, wages will naturally increase, but they may sometimes appear to have fallen instead.At this time, although the wages of laborers may be lower than before, they may be able to buy more goods than previously required more money to buy goods.Still, capital profits remain unchanged, both nominally and in real terms.Now that the total capital of the country has increased, the competition for capital must increase accordingly.The individual capitalists are now forced to consider themselves unlucky, even if their income from investments constitutes a smaller proportion than before of the produce of the labor employed by their respective capitals.Since money interest and capital profit change at the same time, even if the value of money increases greatly, that is, the quantity of goods that can be purchased by a certain amount of money increases, money interest may still decrease greatly.

Some countries originally prohibited the charging of monetary interest, but since the charging of capital profits occurs everywhere, they later also stipulated that when capital is used, interest must be paid wherever it is used.Experience has shown that those laws against lending money for interest, instead of preventing usury, actually increased the crime of merchants.Because, in addition to paying a certain remuneration for the use of currency, the debtor has to pay another fee to protect the lender from losses due to accepting this remuneration, that is, to protect the lender from being subjected to legal penalties for usury. penalty imposed. Some countries do not prohibit lending money for interest, and the law often stipulates the legal maximum interest rate to prevent usury.This legal maximum interest rate is generally slightly higher than the market minimum interest rate, and it is usually the price paid by those borrowers who can provide reliable collateral.If the legal maximum interest rate is lower than the market minimum interest rate, then its essence is tantamount to a total prohibition of money lending for interest.Because, when the remuneration for lending is lower than the value of the currency used, the creditor will no longer be willing to lend money to others, so the debtor has to pay an additional fee to prevent the creditor from suffering losses due to risky lending of currency .If the statutory rate of interest were just equal to the lowest rate of interest in the market, honest men who obeyed the laws of the land would not lend money to those who could not afford to give reliable collateral.In this way, those borrowers have no choice but to let usurpers exploit in order to borrow the funds they need.The banks of Great Britain now charge three per cent. per annum on loans to the capital of the Government, and four per cent. or four and a half per cent. per year on loans to private persons who have sound collateral.Therefore, the legal rate of interest in a country like England is best set at five per cent. Although the legal interest rate should be higher than the lowest interest rate in the market, it should not be too much higher, which must be paid attention to.If, for example, the legal rate of interest in England were eight or ten per cent, then a great part of the money would be borrowed by squanderers and speculators.Because only people like them are willing to pay such a high interest rate; and honest people can only pay a part of the profit from borrowing money when they use money, so naturally they dare not compete with them.Thus a great part of the capital of a country is diverted from the honest to the prodigal, and it is not employed in a profitable use, but in waste and destruction.On the contrary, when the statutory interest rate is only slightly higher than the lowest interest rate in the market, rich people are only willing to lend money to honest people, not wasteful and speculators.Because at this time, whether you lend money to an honest person or a wasteful person, the interest you get is almost the same, but it is much safer to lend money to an honest person.In this way, the greater part of the capital of a country will be in the hands of honest men, and will be used to advantage. The laws of a country cannot lower the rate of interest in the country for a certain period below the general market rate of interest.For example, France lowered its interest rate from the original 5% to 4% in 1766, but forced people to try various methods to avoid it, and finally kept the interest rate of private loans at 100%. five out of five levels. It is to be pointed out that the ordinary market price of land is determined by the ordinary rate of interest in the market.Owners of capital, who do not need to use it, but prefer to use it to obtain an income, generally think twice about how to use it, and often end up deciding whether to use it to buy land or to lend it at interest. Indecisive.Landed property has several other advantages besides its extremely secure character.Therefore, the borrower generally prefers to buy land for safety considerations, although the income thus obtained is smaller than the interest that can be charged on the loan.However, these benefits can only cover part of the difference in income.If the rent of ground were much less than the interest of money, the ordinary price of land would fall from the excess of supply.If, on the other hand, the profit from land was not only greater than the interest of money, but also had a great surplus, people would naturally be willing to buy land, and the ordinary price of land would thereby rise. The selling price of land, when the interest rate is 10 percent, is usually ten to twelve times the annual rent; when the interest rate is six percent, it rises to twenty times the annual rent; When it is reduced to 5% and 4%, it is as high as 25 times and 30 times the annual rent respectively.The market rate of interest is higher, and the common price of land lower, in France than in England.Typically, land sells for thirty times the annual rent in England and twenty times the annual rent in France.