If mines of gold or silver be found in a state and considerable quantities of minerals drawn from them, the proprietors of these mines, the undertaker, and all those who work there, will not fail to increase their expenses in proportion to the wealth and profit they make: they will also lend at interest the sums of money which they have over and above what they need to spend. All this money, whether lent or spent, will enter into circulation and will not fail to raise the price of products and merchandise in all the channels of circulation which it enters. Increased money will bring about increased expenditure and this will cause an increase of market prices in the highest years of exchange and gradually in the lowest. Everybody agrees that the abundance of money or its increase in exchange, raises the price of everything. The quantity of money brought from American to Europe for the last two centuries justifies this truth by experience. Mr Locke lays it down as a fundamental maxim that the quantity of produce and merchandise in proportion to the quantity of money serves as the regulator of market price. I have tried to elucidate his idea in the preceding chapters: he has clearly seen that the abundance of money makes everything dear, but he has not considered how it does so. The great difficulty of this question consists in knowing in what way and in what proportion the increase of money raises prices. I have already remarked that an acceleration or greater rapidity in circulation of money in exchange, is equivalent to an increase of actual money up to a point. I have also observed that the increase or decrease of prices in a distant market, home or foreign, influences the actual market prices. On the other hand money flows in detail through so many channels that it seems impossible not to lose sight of it seeing that having been amassed to make large sums it is distributed in little rills of exchange, and then gradually accumulated again to make large payments. For these operations it is constantly necessary to change coins of gold, silver and copper according to the activity of exchange. It is also usually the case that the increase or decrease of actual money in a state is not perceived because it flow abroad, or is brought into the state, by such imperceptible means and proportions that it is impossible to know exactly the quantity which enters or leaves the state. However all these operations pass under our eyes and everybody takes part in them. I may therefore venture to offer a few observations on the subject, even though I may not be able to give an account which is exact and precise. I consider in general that an increase of actual money causes in a state a corresponding increase of consumption which gradually brings about increased prices. If the increase of actual money comes from mines of gold or silver in the state the owner of these mines, the adventurers, the smelters, refiners, and all the other workers will increase their expenses in proportion to their gains. They will consume in their households more meat, wine, or beer than before, will accustom themselves to wear better cloths, finer linen, to have better furnished houses and other choicer commodities. They will consequently give employment to several mechanics who had not so much to do before and who for the same reason will increase their expenses: all this increase of expense in meat, wine, wool, etc. diminishes of necessity the share of the other inhabitants of the state who do not participate at first in the wealth of the mines in question. The altercations of the market, or the demand for meat, wine, wool, etc. being more intense than usual, will not fail to raise their prices. These high prices will determine the farmers to employ more land to produce them in another year: these same farmers will profit by this rise of prices and will increase the expenditure of their families like the others. Those then who will suffer from this dearness and increased consumption will be first of all the landowners, during the term of their leases, then their domestic servants and all the workmen or fixed wage-earners who support their families on their wages. All these must diminish their expenditure in proportion to the new consumption, which will compel a large number of them to emigrate to seek a living elsewhere. The landowners will dismiss many of them, and the rest will demand an increase of wages to enable them to live as before. It is thus, approximately, that a considerable increase of money from the mines increases consumption, and by diminishing the number of inhabitants entails a greater expense among those who remain. If more money continues to be drawn from the mines all prices will owing to this abundance rise to such a point that not only will the landowners raise their rents considerably when the leases expire and resume their old style of living, increasing proportionably the wages their servants, but the mechanics and workmen will raise the prices of their articles so high that there will be a considerable profit in buying them from the foreigner who makes them much more cheaply. This will naturally induce several people to import many articles made in foreign countries, where found very cheap: this will gradually ruin the mechanics and manufacturers of the state who will not be maintain themselves there by working at such low owing to the dearness of living. When the excessive has diminished the inhabitants of a state, those who remain to a too large expenditure, raised produce of the land and the labour of workmen to excessive prices, ruined the manufactures of the state by use of foreign productions on the part of landlords and mine workers, the money produced by the mines will necessarily go abroad to pay for the imports: this will gradually impoverish the state and render it in some sort dependent on the Foreigner to whom it is obliged to send money every year as it is drawn from the mines. The great circulation of money, which was general at the beginning, ceases: poverty and misery follow and the labour of the mines appears to be only to the advantage of those employed upon them and the Foreigners who profit thereby. This is approximately what has happened to Spain since the discovery of the Indies. As to the Portuguese, since the discovery of the gold mines of Brazil, they have nearly always made use of foreign articles and manufactures; and it seems that they work at the mines only for the account and advantage of foreigners. All the gold and silver which these two states extract from the mines does not supply them in circulation with more precious metal than others. England and France have even more as a rule. Now if the increase of money in the state proceeds from a balance of foreign trade (i.e. from sending abroad articles and manufactures in greater value and quantity than is imported and consequently receiving the surplus in money) this annual increase of money will enrich a great number of merchants and Undertakers in the state, and will give employment to numerous mechanics and workmen who furnish the commodities sent to the foreigner from whom the money is drawn. This will increase gradually the consumption of these industrial inhabitants and will raise the price of land and labour. But the industrious who are eager to acquire property will not at first increase their expense: they will wait till they have accumulated a good sum from which they can draw an assured interest, independently of their trade. When a large number of the inhabitants have acquired considerable fortunes from this money, which enters the state regularly and annually, they will, without fail, increase their consumption and raise the price of everything. Though this dearness involves them in a greater expense than they at first contemplated they will for the most part continue so long as their capital lasts; for nothing is easier or more agreeable than to increase the family expenses, nothing more difficult or disagreeable than to retrench them. If an annual and continuous balance has brought about in a state a considerable increase of money it will not fail to increase consumption, to raise the price of evening and even to diminish the number of inhabitants unless additional produce is drawn from abroad proportionable to the increased consumption. Moreover it is usual in states which have acquired a considerable abundance of money to draw many things from neighbouring countries where money is rare and consequently everything is cheap: but as money must be sent for this the balance of trade will become smaller. The cheapness of land and labour in the foreign countries where money is rare will naturally cause the erection of manufactories and works similar to those of the state, but which will not at first be so perfect nor so highly valued. In this situation the state may subsist in abundance of money, consume all its own produce and also much foreign produce and over and above all this maintain a small balance of trade against the foreigner or at least keep the balance level for many years, that is import in exchange for its work and manufactures as much money from these foreign countries as it has to send them for the commodities or products of the land it takes from them. If the state is a maritime state the facility and cheapness of its shipping for the transport of its work and manufactures into foreign countries may compensate in some sort the high price of labour caused by the too great abundance of money; so that the work and manufactures of this state, dear though they be, will sell in foreign countries cheaper sometimes than the manufactures of another state where labour is less highly paid. The cost of transport increases a good deal the prices of things sent to distant countries; but these costs are very moderate in maritime states, where there is regular shipping to all foreign ports so that Ships are nearly always found there ready to sail which take on board all cargoes confided to them at a very reasonable freight. It is not so in states where navigation does not Nourish. There it is necessary to build ships expressly for the carrying trade and this sometimes absorbs all the profit; and navigation there is always very expensive, which entirely discourages trade. England today consumes not only the greatest part of its own small produce but also much foreign produce, such as Silks, Wines, Fruit, Linen in great quantity, etc. while she sends abroad only the produce of her mines, her work and manufactures for the most part, and dear though labour be owing to the abundance of money, she does not fail to sell her articles in distant countries, owing to the advantage of her shipping, at prices as reasonable as in France where these same articles are much cheaper. The increased quantity of money in circulation in a state may also be caused, without balance of trade, by subsidies paid to this state by foreign powers, by the expenses of several ambassadors, or of travellers whom political reasons or curiosity or pleasure may induce to reside there for some time, by the transfer of the property and fortune of some Families who from motives of religious liberty or other causes quit their own country to settle down in this state. In all these cases the sums which come into the state always cause an increased expense and consumption there and consequently raise the prices of all things in the channels of exchange into which money enters. Suppose a quarter of the inhabitants of the state consume daily meat, wine, beer, etc. and supply themselves frequency with cloths, linen, etc. before the increase in money, but that after the increase a third or half of the inhabitants consume these same things, the prices of them will not fail to rise, and the dearness of meat will induce several of those who formed a quarter of the state to consume less of it than usual. A man who eats three pounds of meat a day will manage with two pounds, but he feels the reduction, while the other half of the inhabitants who ate hardly any meat will not feel the reduction. Bread will in truth go up gradually because of this increased consumption, as I have often suggested, but it will be less dear in proportion than meat. The increased price of meat causes diminished consumption on the part of a small section of the people, and so is felt; but the of a small section of the people, and so is felt; but the increased price of bread diminishes the share of all the inhabitants, and so is less felt. If 100,000 extra people come to live in a state of 10 millions of inhabitants, their extra consumption of bread will amount to only pound in 100 which must be subtracted from the old inhabitants; but when a man instead of 100 pounds of bread consumes 99 for his subsistence he hardly feels this reduction. When the consumption of meat increases the farmers add to their pastures to get more meat, and this diminishes the arable land and consequently the amount of corn. But what generally causes meat to become dearer in proportion than Bread is that ordinarily the free import of foreign corn is permitted while the import of Cattle is absolutely forbidden, as in England, or heavy import duties are imposed as in other states. This is the reason why the rents of meadows and pastures go up in England, in the abundance of money, to three times more than the rents of arable land. There is no doubt that Ambassadors, Travellers, and Families who come to settle in the state, increase consumption there and that prices rise in all the channels of exchange where money is introduced. As to subsidies which the state has received from foreign powers, either they are hoarded for state necessities or are put into circulation. If we suppose them hoarded they do not concern my argument for I am considering only money in circulation. Hoarded money, plate, Church treasures, etc. are wealth which the state turns to service in extremity, but are of no present utility. If the state puts into circulation the subsidies in question it can only be by spending them and this ill very certainly increase consumption and send up all prices. Whoever receives this money will set it in motion in the principal affair of life, which is the food, either of himself or of some other, since to this everything corresponds directly or indirectly.

Chapter Seven Continuation of the same subject

As gold, silver, and copper have an intrinsic value proportionable to the land and labour which enter into their production at the mines added to the cost of their importation or introduction into states which have no mines, the quantity of money, as of all other commodities, determines its value in the bargaining of the market against other things. If England begins for the first time to make use of gold, silver, and copper in exchanges money will be valued according to the quantity of it in circulation proportionably to its power of exchange against all other merchandise and produce, and their value will be arrived at roughly by the altercations of the markets. On the footing of this estimation the landowners and Undertakers will fix the wages of their Domestic Servants and Workmen at so much a day or a year, so that they and their families may be able to live on the wages they receive. Suppose now that the residence of Ambassadors and foreign travellers in England have introduced as much money into the circulation there as there was before; this money will at first pass into the hands of various mechanics, Domestic Servants, Undertakers and others who have had a share in providing the equipages, amusements, etc. of these Foreigners; the manufacturers, farmers, and other Undertakers will feel the effect of this increase of money which will habituate a great number of people to a larger expense than before, and this will in consequence send up market prices. Even the children of these Undertakers and mechanics will embark upon new expense: in this abundance of money their Fathers will give them a little money for their petty pleasures, and with this they will buy cakes and patties, and this new quantity of money will spread itself in such a way that many who lived without handling money will now have some. Many purchases which used to be made on credit will now be made for cash, and there will therefore be greater rapidity in the circulation of money in England than there was before. From all this I conclude that by doubling the quantity of money in a state the prices of products and merchandise are not always doubled. A River which runs and winds about in its bed will not flow with double the speed when the amount of its water is doubled. The proportion of the dearness which the increased quantity of money brings about in the state will depend on the turn which this money will impart to consumption and circulation. Through whatever hands the money which is introduced may pass it will naturally increase the consumption; but this consumption will be more or less great according to circumstances. It will be directed more or less to certain kinds of products or merchandise according to the idea of those who acquire the money. Market prices will rise more for certain things than for others however abundant the money may be. In England the price of meat might be tripled while the price of corn went up only one fourth. In England it is always permitted to bring in corn from foreign countries, but not cattle. For this reason however great the increase of hard money may be in England the price of corn can only be raised above the price in other countries where money is scarce by the cost and risks of importing corn from these foreign countries. It is not the same with the price of Cattle, which will necessarily be proportioned to the quantity of money offered for meat in proportion to the quantity of meat and the number of Cattle bred there. An ox weighing 800 pounds sells in Poland and Hungary for two or three ounces of silver, but commonly sells in the London market for more than 40. Yet the bushel of flour does not sell in London for double the price in Poland and Hungary. Increase of money only increases the price of products and merchandise by the difference of the cost of transport, when this transport is allowed. But in many cases the carriage would cost more than the thing is worth, and so timber is useless in many places. This cost of carriage is the reason why milk, fresh butter, salads, game, etc. are almost given away in the provinces distant from the capital. I conclude that an increase of money circulating in a state always causes there an increase of consumption and a higher standard of expense. But the dearness caused by this money does not affect equally all the kinds of products and merchandise, proportionably to the quantity of money, unless what is added continues in the same circulation as the money before, that is to say unless those who offer in the market one ounce of silver be the same and only ones who now offer two ounces when the amount of money in circulation is doubled in quantity, and that is hardly ever the case. I conceive that when a large surplus of money is brought into a state the new money gives a new turn to consumption and even a new speed to circulation. But it is not possible to say exactly to what extent.

Chapter Eight Further Reflections on the same subject

We have seen that the quantity of money circulating in a state may be increased by working the mines which are found in it, by subsidies from foreign powers, by the immigration of Families of foreigners, by the residence of Ambassadors and Travellers, but above all by a regular and annual balance of trade from supplying merchandise to Foreigners and drawing from them at least part of the price in gold and silver. It is by this last means that a state grows most substantially, especially when its trade is accompanied and supported by ample navigation and by a considerable raw produce at home supplying the material necessary for the goods and manufactures sent abroad. As however the continuation of this Commerce gradually introduces a great abundance of money and little by little increases consumption, and as to meet this much Foreign produce must be brought in, part of the annual balance goes out to pay for it. On the other hand the habit of spending increasing the employment of labourers the prices of manufactured goods always go up. Without fail some foreign countries endeavour to set up for themselves the same kinds of manufactures, and so cease to buy those of the state in question; and though these new establishments of crafts and manufactures be not at first perfect they slacken and even prevent the exportation of those of the neighbouring state into their own country where they can be got cheaper. Thus it is that the state begins to lose some branches of its profitable trade: and many of its workmen and mechanics who see labour Fallen off leave the state to find more work in the countries with the new manufacture. In spite of this diminution in the balance of trade the custom of importing various products will continue. The articles and manufactures of the state having a great reputation, and the facility of navigation affording the means of sending them at little cost into distant countries, the state will for many years keep the upper hand over the new manufactures of which we have spoken and will still maintain a small Balance of trade, or at least will keep it even. If however some other maritime state tries to perfect the same articles and its navigation at the same time it will owing to the cheapness of its manufactures take away several branches of trade from the state in question. In consequence this state will begin to lose its balance of trade and will be forced to send every year a part of its money abroad to pay for its importations. Moreover, even if the state in question could keep a balance of trade in its greater abundance of money it is reasonable to suppose that this abundance will not arrive without many wealthy individuals springing up who will plunge into luxury. They will buy pictures and gems from the foreigner, will procure their silks and rare objects, and set such an example of luxury in the state that in spite of the advantage of its ordinary trade its money will flow abroad annually to pay for this luxury. This will gradually impoverish the state and cause it to pass from great power into great weakness. When a state has arrived at the highest point of wealth (I assume always that the comparative wealth of states consists principally in the respective quantities of money which they possess) it will inevitably fall into poverty by the ordinary course of things. The too great abundance of money, which so long as it lasts forms the power of states, throws them back imperceptibly but naturally into poverty. Thus it would seem that when a state expands by trade and the abundance of money raises the price of land and labour, the Prince or the Legislator ought to withdraw money from circulation, keep it for emergencies, and try to retard its circulation by every means except compulsion and bad faith, so as to forestall the too great dearness of its articles and prevent the drawbacks of luxury. But as it is not easy to discover the time opportune for this, nor to know when money has become more abundant than it ought to be for the good and preservation of the advantages of the state, the Princes and Heads of Republics, who do not concern themselves much with this sort of knowledge, attach themselves only to make use of the facility which they find through the abundance of their state revenues, to extend their power and to insult other countries on the most frivolous pretexts. And all things considered they do not perhaps so badly in working to perpetuate the glory of their reigns and administrations, and to leave monuments of their power and wealth; for since, according to the natural course of humanity, the state must collapse of itself they do but accelerate its fall a little. Nevertheless it seems that they ought to endeavour to make their power last all the time of their own administration. It does not need a great many years to raise abundance to the highest point in a state, still fewer are needed to bring it to poverty for lack of commerce and manufactures. Not to speak of the power and fall of the Republic of Venice, the Hanseatic Towns, Flanders and Brabant, the Dutch Republic, etc. who have succeeded each other in the profitable branches of trade, one may say that the power of France has been on the increase only from 1646 (when manufactures of cloths were set up there, which were until then imported) to 1684 when a number of Protestant Undertakers and artisans were driven out of it, and that kingdom has done nothing but recede since this last date. To judge of the abundance and scarcity of money in circulation. I know no better measure than the leases and rents of landowners. When land is let at high rents it is a sign that there is plenty of money in the state; but when land has to be let much lower it shows, other things being equal, that money is scarce. I have read in an Etat de la France that the acre of vineyard which was let in 1660 near Mantes, and therefore not far from the capital of France, for 200 livres tournois in money of full weight, only let in 1700 for 100 livres tournois in lighter money, though the silver brought from the West Indies in the interval should naturally have sent up the price of land in Europe. The author [of the Etat] attributes this fall in rent to defective consumption. And it seems that he had in fact observed that the consumption of Wine had diminished. But I think he has mistaken the effect for the cause. The cause was a greater rarity of money in France, and the effect of this was naturally a falling off in consumption. In this Essay I have always suggested, on the contrary, that abundant money naturally increases consumption and contributes above everything to the cultivation of land. When abundant money raises produce to respectable prices the inhabitants make haste to work to acquire it; but they are not in the same hurry to acquire produce or merchandise beyond what is needed for their maintenance. It is clear that every state which has more money in circulation than its neighbours has an advantage over them so long as it maintains this abundance of money. In the first place in all branches of trade it gives less land and labour than it receives: the price of land and labour being everywhere reckoned in money is higher in the state where money is most abundant. Thus the state in question receives sometimes the produce of two acres of land in exchange for that of one acre, and the work of two men for that of only one. It is because of this abundance of money in circulation in London that the work of one English embroiderer costs more than that of 10 Chinese embroiderers, though the Chinese embroider much better and turn out more work in a day. In Europe one is astonished how these Indians can live, working so cheap, and how the admirable stuffs which they send us cost so little. In the second place, the revenues of the state where money abounds, are raised more easily and in comparatively much larger amount. This gives the state, in case of war or dispute, the means to gain all sorts of advantages over its adversaries with whom money is scarce. If of two Princes who war upon each other for the sovereignty or conquest of a state one have much money and the other little money but many estates which may be worth twice as much as all the money of his enemy, the first will be better able to attach to himself Generals and Officers by gifts of money than the second will be by giving twice the value in lands and estates. Grants of land are subject to challenge and revocation and cannot be relied upon so well as the money which is received. With money munitions of war and food are bought even from the enemies of the state. Money can be given without witnesses for secret service. Lands, Produce, merchandise would not serve for these purposes, not even jewels or diamonds, because they are easily recognised. After all it seems to me that the comparative power and wealth of states consist, other things being equal, in the greater or less abundance of money circulating in them hic et nunc. It remains to mention two other methods of increasing the amount of money in active circulation in a state The first is when Undertakers and private individual borrow money from their foreign correspondents a interest, or individuals abroad send their money into the state to buy shares or government stocks there. This often amounts to very considerable sums upon which the state must annually pay interest to these foreigners These methods of increasing the money in the state make it more abundant there and diminish the rate of interest. By means of this money the Undertakers in the state find it possible to borrow more cheaply to set people on work and to establish manufactories in the hope of profit. The Artisans and all those through whose hands this money passes, consume more than they would have done if they had not been employed by means of this money, which consequently increases prices just as if it belonged to the state, and through the increased consumption or expense thus caused the public revenues derived from taxes on consumption are augmented. Sums lent to the state in this way bring with them many present advantages, but the end of them is always burdensome and harmful. The state must pay the interest to the foreigners every year, and besides this is at the mercy of the foreigners who can always put it into difficulty when they take it into their heads to withdraw their capital. It will certainly arrive that they will want to withdraw it at the moment when the state has most need of it, as when preparations for war are in hand and a hitch is feared. The interest paid to the foreigner is always much more considerable than the increase of pubic revenue which his money occasions. These loans of money are often seen to pass from one country to another according to the confidence of investors in the states to which they are sent. But to tell the truth it most commonly happens that states loaded with these loans, who have paid heavy interest on them for many years, fall at length by bankruptcy into inability to pay the capital. As soon as distrust is awakened the shares or public stocks fall, the foreign shareholders do not like to realise them at a loss and prefer to content themselves with the interest, hoping that confidence will revive. But sometimes it never revives. In states which decline into decay the principal object of ministers is usually to restore confidence and so attract foreign money by loans of this kind. For unless the ministry fails to keep faith and to observe its engagements the money of the subjects will circulate without interruption. It is the money of the foreigners which has the power of increasing the circulating currency in the state. But the resource of these borrowings which gives a present ease comes to a bad end and is a fire of straw. To revive a state it is needful to have a care to bring about the influx of an annual, a constant and a real balance of trade, to make flourishing by Navigation the articles and manufactures which can always be sent abroad cheaper when the state is in a low condition and has a shortage of money. Merchants are first to begin to make their fortunes, then the lawyers may get part of it, the Prince and the farmers of the revenue get a share at the expense of these, and distribute their graces as they please. When money becomes too plentiful in the state, luxury will instal itself and the state will fall into decay. Such is approximately the circle which may be run by a considerable state which has both capital and industrious inhabitants. An able minister is always able to make it recommence this round. Not many years are needed to see it tried and succeed, at least at the beginning which is its most interesting position. The increased quantity of money in circulation will be perceived in several ways which my argument does not allow me to examine now. As for states which have not much capital and can only increase by accidents and conjuncture it is difficult to find means to make them flourish by trade. No ministers can restore the Republics of Venice and Holland to the brilliant situation from which they have fallen. But as to Italy, Spain, France, and England, however low they may be fallen, they are always capable of being raised by good administration to a high degree of power by trade alone, provided it be undertaken separately, for if all these states were equally well administered they would be great only in proportion to their respective capital and to the greater or less industry of their people. The last method I can think of to increase the quantity of money actually circulating in a state is by violence and arms and this is often blended with the others, since in all Treaties of Peace it is generally provided to retain the trading rights and privileges which it has been possible to derive from them. When a state exacts contributions or makes several other states tributary to it, this is a very sure method of obtaining their money. I will not undertake to examine the methods of putting this device into practice, but will content myself with saying that all the nations who have flourished in this way have not failed to decline, like states who have nourished through their trade. The ancient Romans were more powerful in this wise than all the other peoples we know of. Yet these same Romans before losing an inch of the land of their vast states fell into decline by luxury and brought themselves low by the diminution of the money which had circulated among them, but which luxury caused to pass from their great Empire into oriental countries. So long as the luxury of the Romans (which did not begin till after the defeat of Antiochus, King of Asia about A.U.C. 564) was confined to the produce of the land and labour of all the vast estates of their dominion, the circulation of money increased instead of diminishing. The public was in possession of all the mines of gold, silver, and copper in the Empire. They had the gold mines of Asia, Macedonia, Aquilaea and the rich mines both of gold and silver of Spain and other countries. They had several mints where gold, silver and copper coins were struck. The consumption at Rome of all the articles and merchandise which they drew from their vast Provinces did not diminish the circulation of the currency, any more than pictures, statues and jewels which they drew from them. Though the patricians laid out excessive amounts for their feasts and paid 15,000 ounces of silver for a single fish, all that did not diminish the quantity of money circulating in Rome, seeing that the tribute of the Provinces regularly brought it back, to say nothing of what Praetors and Governors brought thither by their extortions. The amounts annually extracted from the mines merely increased the circulation at Rome during the whole reign of Augustus. Luxury was however already on a very great scale, and there was much eagerness not only for curiosities produced in the Empire but also for jewels from India, pepper and spices, and all the rarities of Arabia, and the silks which were not made with raw materials of the Empire began to be in demand there. The money drawn from the mines still exceeded however the sums sent out of the Empire to buy all these things. Nevertheless under Tiberius a scarcity of money was felt. That Emperor had shut up in his Treasury 2 milliards and 700 millions of sesterces. To restore abundance of circulation he had only to borrow 300 millions on the mortgage of his estates. Caligula in less than one year spent all this treasure of Tibetius after his death, and it was then that the abundance of money in circulation was at its highest in Rome. The fury of luxury kept on increasing. In the time of Pliny, the historian, there was exported from the Empire, as he estimated, at least 100 millions of sesterces annually. This was more than was drawn from the mines. Under Trajan the price of land had fallen by one-third or more, according to the younger Pliny, and money continued to decrease until the time of the Emperor Septimus Severus. It was then so scarce at Rome that the Emperor made enormous granaries, being unable to collect large treasure for his enterprises. Thus the Roman Empire fell into decline through the loss of its money before losing any of its estates. Behold what luxury brought about and what it always will bring about in similar circumstances.

Chapter 9 Of the Interest of Money and its Causes

Just as the prices of things are fixed in the altercations of the market by the quantity of things offered for sale in proportion to the quantity of money offered for them, or, what comes to the same thing, by the proportionate number of sellers and buyers, so in the same way the interest of money in a state is settled by the proportionate number of lenders and borrowers. Though money passes for a pledge in exchange it does not multiply itself or beget an interest in simple circulation. The needs of man seem to have introduced the usage of interest. A man who lends his money on good security or on mortgage runs at least the risk of the ill will of the borrower, or of expenses, lawsuits and losses. But when he lends without security he runs the risk of losing everything. For this reason needy men must in the beginning have tempted lenders by the bait of a profit. And this profit must have been proportionate to the needs of the borrowers and the fear and avarice of the lenders. This seems to me the origin of interest. But its constant usage in states seems based upon the profits which the Undertakers can make out of it. The land naturally produces, aided by human labour, 4, 10, 20, 50, 100, 150 times the amount of corn sown upon it, according to the fertility of the soil and the industry of the inhabitants. It multiplies fruits and cattle. The farmer who conducts the working of it has generally two thirds of the produce, one third pays his expenses and upkeep, the other remains for the profit of his enterprise. If the farmer have enough capital to carry on his enterprise, if he have the needful tools horses for ploughing, cattle to make the land he will take for himself after paying all expense of the produce of his farm. But if a competent labourer who lives from day to day on his wages and has no capital, can find some one willing to lend him land or money buy some, he will be able to give the lender all the third rent, or third part of the produce of a farm of which he will become the farmer or Undertaker. However he will think his position improved since he will find in the second rent and will become master instead man. If by great economy and pinching himself somewhat of his necessities he can gradually accumulate some little capital, he will have every year less to borrow, and will at last arrive at keeping the whole of his third rent. If this new Undertaker finds means to buy corn or cattle on credit, to be paid off at a long date when he can make money by the sale of his farm produce, he will gladly pay more than the market price for ready money. The result will be the same as if he borrowed cash to buy corn for ready money, paying as interest the difference between the cash price and the price payable at a future date. But whether he borrow cash or goods there must be enough left to him for upkeep or he will become bankrupt. The risk of this is the reason why he will be required to pay 20 or 30 per cent profit or interest on the amount of money or value of the produce or merchandise lent to him. Again, a master hatter who has capital to carry on his manufacture of hats, either to rent a house, buy beaver, wool, dye, etc. or to pay for the subsistence of his workmen every week, ought not only to find his upkeep in this enterprise, but also a profit like that of the farmer who has his third part for himself. This upkeep and the profit should come from the sale of the hats whose price ought to cover not only the materials but also the upkeep of the hatter and his workmen and also the profit in question. But a capable journeyman hatter with no capital may undertake the same manufacture by borrowing money and materials and abandoning the profit to anybody who is willing to lend him the money or entrust him with the beaver, wool, etc. for which he will pay only some time later when he has sold his hats. If when his bills are due the lender requires his capital back, or if the wool merchant and other lenders will not grant him further credit he must give up his business, in which case he may prefer to go bankrupt. But if he is prudent and industrious he may be able to prove to his creditors that he has in cash or in hats about the value of what he has borrowed and they will probably choose to continue to give him credit and he satisfied for the present with their interest or profit. In this way he will carry on and will perhaps gradually save some capital by retrenching a little upon his necessities. With the aid of this he will have every year less to borrow, and when he has collected a capital sufficient to conduct his manufacture, which will always be proportionable to his sales, the profit will remain to him entirely and he will grow rich if he does not increase his expenditure. It is well to observe that the upkeep of such a manufacturer is small compared with the sums he borrows in his trade or with the materials entrusted to him, and therefore the lenders run no great risk of losing their capital if he is respectable and hard working: but as it is quite possible that he is not so the lenders always require from him a profit or interest of 20 to 30 per cent of the value of their loan. Even then only those who have a good opinion of him will trust him. The same inductions may be made with regard to all the masters, artisans, manufacturers and other Undertakers in the state who carry on enterprises in which the capital considerably carry on enterprises in which the capital considerably exceeds the value of their annual upkeep. But if a water-carrier in Paris sets up as the Undertaker of his own work, all the capital he needs will be the price of two buckets which he can buy for an ounce of silver and then all his gains are profit. If by his labour he gains 50 ounces of silver a year, the amount of his capital or borrowing will be to that of his profit as 1 to 50. That is he will gain 5000 per cent while the hatter will gain only 50 per cent and will also have to pay 20 or 30 per cent to the lender. Nevertheless a money lender will prefer to lend 1000 ounces of silver to a hatmaker at 20 per cent interest rather than to lend 1000 ounces to 1000 water carriers at 500 per cent interest. The water carriers will quickly spend on their maintenance not only the money they gain by their daily labour but all that which is lent to them. These capitals lent to them are small compared with what they need for their maintenance: whether they be much or little employed they can easily spend all they earn. Therefore it is hardly possible to arrive at the profits of these little undertakers. It might well be that a water carrier gains 5000 per cent of the value of the buckets which serve as his capital, even 10,000 per cent if by hard work he gains 100 ounces of silver a year. But as he may spend on his living 100 ounces just as well as 50, it is only by knowing what he devotes to his upkeep that we can find how much he has of clear profit. The subsistence and upkeep of Undertakers must always be deducted before arriving at their profit. We have done this in the example of the farmer and of the hatmaker, but it can hardly be determined in the case of the petty Undertakers, who are for the most part insolvent when they are in debt. It is customary for the London brewers to lend a few barrels of beer to the keepers of ale-houses, and when these pay for the first barrels to continue to lend them more. If these ale-houses do a brisk business the brewers sometimes make a profit of 500 per cent per annum; and I have heard that the big brewers grow rich when no more than half the ale-houses go bankrupt upon them in the course of the year. All the merchants in a state are in the habit of lending merchandise or produce for a time to retailers, and proportion the rate of their profit or interest to that of their risk. This risk is always great because of the high proportion of the borrower's upkeep to the loan. For if the borrower or retailer have not a quick turnover in small business he will quickly go to ruin and will spend all he has borrowed on his own subsistence and will therefore be forced into bankruptcy. The fishwives, who buy fish at Billingsgate in London to sell again in the other quarters of the City, generally pay under a contract made by an expert scrivener, one shilling per guinea, or twenty-one shillings, interest per week, which amounts to 260 per cent per annum. The market-women at Paris, whose business is smaller, pay 5 sols for the week's interest on an ecu of 3 livres, which exceeds 430 per cent per annum. And yet there are few lenders who make a fortune from such high interest. These high rates of interest are not only permitted but are in a way useful and necessary in a state. Those who buy fish in the streets pay these high interest charges in the increased price. It suits them and they do not feel it. In like manner an artisan who drinks a pot of beer and pays for it a price which enables the brewer to get his 500 per cent profit, is satisfied with this convenience and does not feel the loss in so small a detail. The Casuists, who seem hardly suitable people to judge the nature of interest and of matters of trade, have invented a term, damnum emergens, by whose aid they consent to tolerate these high rates of interest; and rather than upset the custom and convenience of society, they have agreed and allowed to those who lend at great risk to exact in proportion a high rate of interest: and this without limit, for they would be hard put to it to find any certain limit since the business depends in reality on the fears of the lenders and the needs of the borrowers. Maritime merchants are praised when they can make a profit on their Adventures, even though it be 10,000 per cent; and whatever profit wholesale merchants may make or stipulate for in Selling on long credit produce or merchandise to smaller retail merchants, I have not heard that the Casuists make it a crime. They are or seem to be a little more scrupulous about loans in hard cash though it is essentially the same thing. Yet they tolerate even these loans by a distinction, lucrum cessans, which they have invented. I understand this to mean that a man who has been in the habit of making his money bring in 500 per cent in his trade may demand this profit when he lends it to another. Nothing is more amusing than the multitude of laws and canons made in every age on the subject of the interest of money, always by wiseacres who were hardly acquainted with trade and always without effect. From these examples and inductions it seems that there are in a state many classes and channels of interest or profit, that in the lowest classes interest is always highest in proportion to the greater risk, and that it diminishes from class to class up to the highest which is that of merchants who are rich and reputed solvent. The interest demanded in this class is called the current rate of interest in the state and differs little from interest on the mortgage of land. The bill of a solvent and solid merchant is as much esteemed, at least for a short date, as a lien upon land, because the possibility of a lawsuit or a dispute on this last makes up for the possibility of the bankruptcy of the merchant. If there were in a state no Undertakers who could make a profit on the money or goods which they borrow, the use of interest would probably be less frequent than it is. Only extravagant and prodigal people would contract loans. But accustomed as every one is to make use of Undertakers there is a constant source for Loans and therefore for interest. They are the Undertakers who cultivate the land and supply bread, meat, clothes, etc. to all the inhabitants of a city. Those who work on wages for these Undertakers seek also to set themselves up as Undertakers, in emulation of each other. The multitude of Undertakers is much greater among the Chinese, and as they all have lively intelligence, a genius for enterprise, and great perseverance in carrying it out, there are among them many Undertakers who are among us people on fixed wages. They supply labourers with meals, even in the fields. It is perhaps this multitude of small Undertakers and others, from class to class, who finding the means to gain a good deal by ministering to consumption without its being felt by the consumers, keep up the rate of interest in the highest class at 30 per cent while it hardly exceeds 5 per cent in our Europe. At Athens in the time of Solon interest was at 18 per cent. In the Roman Republic it was most commonly 12 per cent, but has been known to be 48, 20, 8, 6, and at the lowest 4 per cent. It was never so low in the free market as towards the end of the Republic and under Augustus after the conquest of Egypt. The Emperor Antoninus and Alexander Severus only reduced interest to 4 per cent by lending public money on the mortgage of land.

Chapter 10 and last Of the Causes of the Increase and Decrease of the Interest of Money in a State

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