Within the limits of the same national-economic territory, the different employments of capital tend uniformly to pay the same rate of interest.[180-1] If one branch of business were much more profitable than another, it would be to the interest of the owners of capital to allow it to flow into the former and out of the latter, until a level was reached.[180-2]
The most noticeable exception to this rule is only an apparent one. The revenue (Nutzung) derived from the use of capital must not be confounded with its partial restoration.[180-3] Thus, for instance, the rent of a house, if the entire capital is not to be sooner or later consumed entirely, must embrace, besides a payment for the use of the house, a sum sufficient to defray the expenses of repairing it, and even to effect a gradual accumulation of capital for the purpose of rebuilding. The risk attending the investment of capital plays a very large part and must be taken into special consideration. If the risk in a business be so great that ten who engage in it succeed and ten fail, the returns of the former, which are more than double those usual in the country, in reality pay, when the ten who failed are taken into the account, only the rate of interest customary in the country. The risk may depend on the uncertainty of the person to whom the capital is confided;[180-4] on the uncertainty of the branch of business in which it is intended to employ it,[180-5] or on the uncertainty of the commercial situation in general; but especially may it depend on the uncertainty of the laws.[180-6] The temporary lying idle of capital, for instance, in dwelling houses at bathing places during the winter season, increases the rate of interest much more than it does the rate of wages in the corresponding case of the lying idle of labor; for the reason that there is something pleasurable in the repose of the latter. (Senior.) On the whole, the vanity of mankind has an effect upon the rate of interest similar to that which it has on the rate of wages. (See § 168.) It causes the small chances of loss to be estimated below their real value, and the extraordinary chances of gain above it.[180-7]
[180-1] Compare Harris, Essay on Money and Coins, 13. Per contra, Ganilh, Dictionnaire analyt., 107. According to Hermann, Staatsw. Untersuchungen, 147, a product which withdraws an amount of capital = a from the immediate use of its owner for n months must bring in in its price a surplus, over and above the outlay of capital, which would bear the same ratio to the profit from another product which employed an amount of capital = b, m months, that an bears to bm.
[180-2] The class of bankers, etc. which precisely in the higher stages of civilization is one so highly developed, is called upon to adjust these differences.
[180-3] Life annuities and annual revenues, à fonds perdu.
[180-4] Hence, for instance, good men engaged in industrial pursuits who employ borrowed capital productively pay lower interest than idlers who are suspected of desiring only to spend it in dissipation. High house-rent usually paid by proletarians.
[180-5] Thus even in Anderson's time, it was necessary that the profit of one good year in the whale fishery should compensate for the damage caused by six bad ones. (Origin of Commerce, III, 184.) Slave-traders made their calculations to lose from three to four out of five expeditions. (Athenæum, May 6, 1848) Similarly in smuggling and contraband. High rate of interest in gross adventure trade and bottomry contracts, frequently 30 and even 50 per cent.; in ancient Athens, for a simple voyage to the Black Sea, 36 per cent., while the rate of interest customary in the country was only from 12 to 18 per cent.; the interest paid by rented houses only 8-1/7, and by land leases only 8 per cent. (Bockh, Staatshaushalt der Athener, I, 175 ff.; Isaeus de Hagn., Hered., 293) In Rome, before Justinian's time, maritime interest was unlimited. (Hudtwalker, De Foenore nautico Romano, 1810.) And so in the manufacture of powder, the frequent explosion of the mills has to be taken into account: in France and Austria, 16 per cent. per annum. (Hermann, Principien, 119.) Here belong those new enterprises which, when they succeed, pay a high profit. Thaer, in reference to this insurance premium, says: if the capital employed to purchase a landed estate yields 4 per cent., the inventory (Inventar) should bring in at least 6, and the working capital 12 per cent. (Ration. Landwirthschaft.)
[180-6] Compare supra, § 91; infra, §§ 184, 188.
[180-7] Thus Friedr. Perthes, in Politz, Jarhbüchern, Jan., 1829, 42, thinks that the publication of scientific books in Germany, since 1800, caused, on the whole, a loss of capital. In the Canadian lumber trade, also, speculators, in the aggregate, lost more than was gained. Yet the business goes on because of its lottery character. (John Stuart Mill, II, ch. 15, 4.) In lotteries, it is certain that the aggregate of players lose. So too in speculation in English stocks, on account of the costs to be paid the state. In the case of frightful losses, which may afford food for the imagination, the reverse is found. Thus, for instance, in England, fire insurance, stamp duties included, was paid for at a rate five times as high as mathematical calculation showed it to be worth. (Senior, Outlines, 212 ff.) Much here depends naturally on national character, which, in England for instance, or in the United States, is much more adventurous than in many quiet regions of continental Europe.