I entirely agree with Sir Josiah Child, that low interest is the soul of trade; the most active principle for promoting industry, and the improvement of land; and a requisite, without which it is hardly possible that foreign commerce can long be supported.
This proposition I take to be at this time universally admitted to be true; and did there remain, concerning it, the vestige of a doubt in the mind of any one, the writings of many, much more capable than I can pretend to be, and among the rest the author just now cited, are sufficiently capable to remove it. I shall not therefore trouble my reader with a chapter upon that head, but only observe, that the terms high and low are constantly relative. Here the relation must be understood to regard other states, because when we speak of a rate of interest, we are supposed to mean something general in the country we are speaking of: accordingly, if we could suppose that, within the same state, the rate of interest should be lower in one city than any where else, that circumstance would give an advantage to that city in all its mercantile operations.
I must farther observe, for the sake of connecting this part of our subject with our general plan, that the low interest for money is most essential to such states as carry on the most extensive foreign commerce.
In the infancy of industry, and before trade comes to be established, it is very natural that the coin of the country should be found in a great measure locked up in treasures: high interest tends to bring it forth, and in that respect works a good effect.
In proportion as alienation augments, money comes to be multiplied, by the melting down of solid property, as has been explained; and then the business of a statesman is to contrive expedients for bringing the rate of it as low as possible, in order to support foreign trade, and to rival all neighbouring nations, where interest is higher. When foreign trade again comes to decline, from the multiplication of abuses introduced by luxury, low interest still continues useful, for supporting public credit, so necessary for defending a nation against her enemies.
If money consisted only in the precious metals, which are not to be found in every country, but must be purchased with the produce of industry, and brought from far; and if no other expedient could be fallen upon to supply their place for the uses of circulation; then the possessors of these metals would in a manner be masters to establish what rate of interest they thought fit for the use of them.
But if that be not the case, and if money can be made of paper, to the value of all the solid property of a nation, (so far as occasion is found for it, by the owners of that property) the use of the metals comes to be in a manner reduced to that of serving as a standard, for ascertaining the value of the denominations of money of accompt; perhaps for facilitating the circulation of small sums, and for paying a balance of trade to other nations.
When this is the case, a statesman has it in his power to increase or diminish the extent of credit and paper money in circulation, by various expedients, which greatly influence the rate of interest.
The progress of credit has been very rapid since the beginning of this century. This has been almost entirely owing to the mechanical combinations of trading men. Lawgivers have hitherto had but imperfect notions concerning the nature of it; and there still remains, in the womb of nature, some mighty genius, born to govern a commercial nation, who alone will be able to set it on its true principles. Let us in the mean time speculate concerning them.
We have said, and every body feels, that interest falls in proportion to the redundancy of money to be lent.