It is very plain, from the history he has given us of the successive rates of interest in England, from 10 to 6 per cent. that without the interposition of statutes, such diminutions would not, in that period, have taken place, from the principle of competition: but I am not so clear that, at this time, when trade is so well understood, and credit so generally established in many nations of Europe, that a like administration would work effects equally advantageous.
It is with great diffidence I presume to differ from Child upon this subject; and I find a sensible satisfaction in perceiving that my principles bring me so very near to his sentiments on this matter.
The strong arguments in favour of Child’s opinion, are grounded upon facts. He says, that when interest was brought down by statute, anno 1625, from 10 to 8 per cent. that in place of producing any bad effect, it had that of bringing it still lower immediately afterwards; and the same thing happened, anno 1650, when it was reduced a second time by statute, from 8 to 6 per cent. at which rate it stood at the time he wrote. These facts I give credit to, and shall now account for them, from the consequences of sudden revolutions.
When a law is made for the reduction of interest, all debtors immediately profit by it. Upon this, the creditors must either submit, or call in their capitals. If they submit, land immediately rises in its value. If they call in their capitals, they must have an outlet for lending them out again, beyond the limits of the jurisdiction of the legislature. Now this outlet was not then to be found; because credit was no where well established, except in Holland, where interest was still lower.
They were, therefore, obliged to submit, and thus interest was violently brought down by statute; and a great advantage resulted from it to the commercial interests of England.
The subsequent fall of interest, in the natural way, is thus easily accounted for.
The consequence of lowering the interest, was, that the price of land rose several years in purchase: the landed men, who had long groaned under the heavy interest of 10 per cent. finding their lands rise from 12 years purchase to 15, upon reducing the interest to 8 per cent. sold off part of their lands, and cleared themselves. The natural consequence of this was, to make money regorge in the hands of the monied men; to diminish the number of borrowers; and consequently, to bring the rate of interest still lower.
One sudden revolution produces another. When interest is brought down by statute, the price of land must rise by a jerk; and landed men will suddenly profit of the change in their favour. When it falls gently, by natural revolutions in the state of demand, the effects are more insensible; the sharper sighted only profit of it; others, from expectation of a still greater rise in the price of their lands, neglect to sell in the proper point of time; and may perhaps be disappointed from a new fluctuation in favour of money. This is at present actually the case in Great Britain, since the peace of 1762. I write in 1764.
These facts speak strongly in favour of Child’s opinion, that it is expedient to have recourse directly to the statute, whenever there is a prospect of advancing the interests of trade by a reduction of interest.
It is impossible to reply to matters of fact: all, therefore, I have to allege in favour of my own opinion, is, that it is more consistent with the very principles in which both Child and I agree; it implies no sudden revolution, and will, in a short time, operate the same effect.