versally remarked injurious operation upon those who are employing borrowed capital.

The rate of interest is not, therefore, as has sometimes been supposed, always a correct test of the rate of profit. When, however, allowance is made for the disturbing effects of government loans, and other accidental causes of variation, the rate of interest or nett profit varies, generally speaking, directly as the rate of gross profit. Whenever interest is low during a period of peace, it is found that profits are also low, and conversely.

There are but few species of security in which there is no risk, either of the repayment of the loans themselves, or of the interest at the stipulated periods. And as the trustees of many public bodies, as well as those of many private individuals, are obliged to invest in such securities only, the rate of interest which they bring is frequently very much depressed below what may be considered as the common and average rate of interest at the time. Government securities are liable to be deeply affected by political considerations, by the greater or less latitude for a rise or fall in the capital sum invested, and by a variety of circumstances which it is always very difficult, or rather perhaps impossible, even for those most experienced in such matters, to distinguish and appreciate. Mercantile bills of unquestionable credit, and having two or three months to run, are generally discounted at a lower rate of interest than may be obtained for sums lent upon mortgage, on account of the facility they afford of repossessing the principal, and applying it in some more profitable manner. Other things being equal, the rate of interest must of course vary according to the supposed risk incurred by the lender of either not receiving payment at all, or not receiving it at the stipulated term. No person of sound mind would lend on the personal security of an individual of doubtful character and solvency, and on mortgage over a valuable estate, at the same rate of interest. Wherever there is risk, it must be compensated by a higher premium or interest.

And yet, obvious as this principle may appear, all governments have interfered with the terms of loans-some to prohibit interest altogether, and others to fix a certain rate which it should be deemed legal to exact and illegal to exceed. It is needless, however, to waste the reader's time by entering into lengthened arguments to show the mischievous effect of such interferences. This has been done over and over again. It is plainly in no respect more desirable to limit or reduce the rate of interest than it would be to limit or reduce the rate of insurance, or the prices of commodities; and though it were desirable, it cannot be accomplished. Legislative enactments for such an object invariably increase the rate of interest. When the rate fixed by law is less than the market or customary rate, lenders and borrowers are obliged to resort to circuitous devices to evade the law; and as these devices are always attended with more or less trouble and risk, the rate of interest is proportionally enhanced. During the late war it was not uncommon for persons to pay ten or twelve per cent for loans, which, had there been no usury laws, they might have got for six or seven per cent. It is singular that an enactment which contradicted the most obvious principles, and had been repeatedly condemned by committees of the legislature, should have been allowed to preserve a place in the statute-book for so long a period; but at length it was substantially repealed by the act 2 & 3 Victoria, cap. 37, which exempts bills of exchange, having not more than twelve months to run, and contracts for loans of money above £10, from its operation.'

1 The prejudice against taking interest seems to have principally originated in a mistaken view of some enactments in the Mosaical law, (see Michaelis on the "Laws of Moses," vol. ii. pp. 327-353, Eng. edit.) and in a statement of Aristotle, to the effect, that as money does not produce money, no return could equitably be claimed by the lender! The famous reformer Calvin has the merit of being one of the first who saw and exposed the futility of such notions. "Pecunia non parit pecuniam. Quid mare, quid domus, ex cujus locatione pensionem percipio ? An ex tectis et parietibus argentum propriè nascitur? Sed et terra producit, et mari advehitur quod pecuniam deindè producat, et habitationis commoditas cum certâ pecunià

parari commutarive solet. Quod si igitur plus ex negotiatione lucri percipi possit, quàm ex fundi cujusvis proventu. An feretur qui fundum sterilem fortassè colono locaverit ex quo mercedem vel proventum recipiat sibi, qui ex pecuniâ fructum aliquem perceperit, non feretur? et qui pecuniâ fundum acquirit, annon pecunia illa generat alteram annuam pecuniam ? Undè vero mercatoris lucrum ? Ex ipsius, inquies, diligentiâ atque industria. Quis dubitet pecuniam vacuam inutilem omnino esse ? neque à me mutuam rogat, vacuam apud se habere à me acceptam cogitat. Non ergo ex pecuniâ illâ lucrum accedit, sed ex proventu. Illæ igitur rationes subtiles quidem sunt et speciem quandam habent, sed ubi propiùs expendentur, seipsa concidunt. Nunc igitur concludo, judicandum de usuris esse, non ex particulari aliquo Scripturæ loco, sed tantùm ex æquitatis regulâ.”—Calvini Epistolæ, quoted by Stewart in the notes to his " Preliminary Dissertation to the "Encyclopædia Britannica."

PRINCIPLES

OF

POLITICAL ECONOMY.

PART IV.

CONSUMPTION OF WEALTH.

HAVING, in the preceding parts of this work, endeavoured to explain the means by which labour is facilitated and wealth produced, and to investigate the laws regulating its distribution among the various classes of society, we come now to the fourth and last division of the subject, or to that which treats of the Consumption of Wealth.

Definition of Consumption-Consumption the End of Production-Test of advantageous and disadvantageous Consumption — Sumptuary Laws-Advantage of a Taste for Luxuries-Error of Dr Smith's Opinion with respect to unproductive Consumption-Error of those who contend, that to facilitate Production it is necessary to encourage wasteful Consumption—Statement of Montesquieu-Consumption of

Government-Conclusion.

It was formerly shown, that by the production of a commodity is not meant the production of matter, that being the exclusive prerogative of Omnipotence, but the giving to matter already in existence such a shape as may fit it for ministering to our wants or enjoyments. In like manner, by consumption is not meant the consumption or annihila