Many businesses have the reputation of paying a very large interest on the capital employed in them, when in reality they only pay the undertaker of them wages unusually high as compared with the amount of capital employed in them. Apothecaries, for instance, are called in some places "ninety-niners," because it is said that they earn 99 per cent. To discover the error, it would be sufficient to inquire the rate of interest on the capital borrowed by the apothecary on hypothecation, for instance, to enlarge his industry. But on the other hand, such a man who has more than any other manufacturer to do with the most delicate materials and with them in greater variety, requires proportionately greater caution and knowledge. Besides, as the guardian of the health and life of so many, and even as the comptroller of physicians, he should be a man who inspired universal and unqualified confidence.[179-7] By the rate of interest customary in a country, we mean the average rate of the interest on money-capital employed safely and without trouble.
[179-1] In the case of fixed capital, we generally speak of rent; in the case of circulating capital, of interest. If interest be conceived as a fractional part of the capital itself, the relation between the two is called "the rate of interest," most generally expressed as a percentage, and for one year.
[179-2] In Russia, great depreciation of the assignats, and yet the people complained of a "want of money." (Storch, Handbuch, II, 15.) According to the San Francisco correspondent of the Times, Jan. 31, 1850, one per cent. a day discount was paid there! Compare North, Discourse on Trade, 11 seq.
[179-3] Gross interest and net interest corresponding to the difference between gross product and net product.
[179-4] This is the natural rent of capital in contradistinction to the stipulated rent. (Rau, Lehrbuch, I, § 223.)
[179-5] Thus, for instance, a so-called beginner who is conscious of possessing great working capacity, but who possesses for the time being little credit. Tooke, Considerations on the State of the Currency, 1826, distinguishes three kinds of capitalists: a, those who are averse to running any risk whatever or incurring any trouble, or are not able to incur any risk or trouble, for whom every great increase of the sinking fund lowers the rate of interest, and every war loan raises it; b, those who will run no risk, but who are not averse to the trouble of looking after their investments and of endeavoring to obtain a higher rate of interest; c, such as, to obtain a higher rate of interest, unhesitatingly risk something. Borrowers he divides thus: a, those who employ the borrowed capital and their own in such a way as to enable them to meet their obligations and besides to earn a reasonable profit; b, those who need others' capital to make up for the momentary failure of the productiveness of their own; lastly c, unproductive consumers.
[179-6] Wealth of Nat., I, ch. 9. The gross product of English cotton industry was, in 1832, estimated at £32,000,000, viz: £8,000,000 worth of material, £20,000,000 wages, £2,000,000 interest, £2,000,000 undertaker's profits. (Schön, Nat. Oek, 104.)
[179-7] Adam Smith, I, ch. 10, 1: where the reasons why a shop-keeper in a small town apparently gets a larger interest than one in a large city, and yet gets rich less frequently, are developed. The high profit made from industrial secrets, Adam Smith very correctly considers wages (I, ch. 7). Why not also that made by inn-keepers? (I, ch. 10, 1.) When the returns of a business differ according to circumstances which depend on the person of the conductor of the business himself, and may by him be transferred into another business, etc.; when the competition in it is determined by personal agreeableness or disagreeableness, it is evident that the larger returns are to be ascribed rather to the highness of wages than of the rate of interest. The profit also which a second-hand hirer makes is wages. (Riedel, Nat. Oek., 376.)
RATE OF INTEREST IN GENERAL.—ITS LEVEL.