Adam Smith's Wealth of Nations Book 2, Chapter 4: Interest

Chap. 4: Stock Lent At Interest

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

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

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

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

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

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

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

7 The monied interest naturally increases with the increase in the produce destined for replacing the capital in any country.

8 As the quantity of stock to be lent at interest increases, the interest diminishes.

9 Mr. Locke, Mr. Law, and Mr. Montesquieu, and many other writers, imagined that the increase of the quantity of gold and silver was the real cause of the decrease in interest rates in Europe. 10 Before the discovery of the Spanish West Indies, 10% was the common interest rate in most of Europe. 11 Any increase in the quantity of silver, while the commodities circulated by it remained the same, only diminishes the value of silver. 12 On the contrary, any increase in the quantity of commodities circulated in the country, while the quantity of its money remained the same, would raise the value of the money and produce many important effects. 13 In some countries, the interest of money is prohibited by law. 14 In countries where interest is allowed, the law fixes the highest rate to prevent usury. 15 The legal rate should not be much above the lowest market rate.

16 "No law can reduce the common rate of interest below the lowest ordinary market rate at the time when that law is made."

17 "The ordinary market price of land depends everywhere on the ordinary market rate of interest."


Words: 2589
Next: Chapter 5: Employment of capitals