[185-1] Proudhon's idea, that this decline might at last bring about a total abolition of interest, is based on the same error as this other: that since a man may keep diminishing his per diem quantum of food, he might finally dispense with food altogether. Proudhon's Banque du Peuple—People's Bank—which, by gradually diminishing the interest on its loans to the minimum cost of its administration, should compel other capitalists to follow its example.
[185-2] Thus, in England, by virtue of 37 Henry III., c. 9, the legal interest was = 10 per cent.; by 21 James I, c. 17 = 8; about 1651 = 6 per cent. (confirmed in 1660); by 12 Anne, ch. 16 = 5 per cent. In the time of George II., where the security was good, only 3 per cent. was, as a rule, paid. In France, the legal rate of interest, at the beginning of the 16th century, was 1/10 of the capital; after 1657, 1/12; 1601 (Sully), 1/16; 1634 (Richelieu), 1/18; 1665 (Colbert), 1/20. Compare Forbonnais Recherches et Considérations, I, 48, 225, 385 ff. It continued at this rate of 5 per cent. with short interruptions until the revolution. (Warnkönig, Franz. Staats. und Rechtsgeschichte, II, 588 seq.)
The rates of interest in Russia, in the 16th century, had already declined to 20 per cent. (Herberstein, Reise, 41 ff.; Karamsin, Russ. Geschichte, VII, 169.) In Holland, in 1623, it was estimated that land purchases paid 3 per cent.; hypothecations, 4 to 6; deposits, 5 to 6; a flourishing business, 10 per cent. Compare Usselinx in Laspeyres, Geschichte der volkswirthschaftl. Anschauungen der Niederländer, 76. About 1660, the rate of interest usual in Italy and Holland was at most 3 per cent. (in war times, 4); in France, 7; in Scotland, 10; in Ireland, 12; in Spain, 10 to 12; in Turkey, 20 per cent. (Sir J. Child, Discourse on Trade, French translation, 75 ff.) Side by side with 6 per cent. as the rate of interest in England, it was (a little later) 10 in Ireland. Petty, Political Anatomy of Ireland, 74.
The same course of things is to be observed in ancient times. In Solon's time, and again in that of Lysias, it was 18 per cent. (Böckh, Staatshaushalt der Athener, I, 143 ff.) I am of opinion that the rate of interest declined during this long interval, but rose again in consequence of the Peloponnesian[TN 21] war. Among friends, in the time of Demosthenes, 10 per cent. (adv. Onetor., I, 386.) Aristotle, Rhet., III, 10, mentions 12 per cent., which Aeschines, adv. Ctes., 104, and Demosthenes, adv. Aph., I, 820, 824, call low. The rate of commercial interest in Egypt (146 before Christ) seems to have been 12 per cent. per annum. (Letronne, Recompense promise à celui, etc., 1833, 7.) Contemporaneously in Rome, a similar rate of interest must have been considered usurious. (Cicero, ad. Att., I, 12.) Under the emperor Claudius, 6 per cent. (Columella, De Re rust., III, 3.) Justinian allowed to personae illustres 4 per cent. per annum. (L. 26 Cod., IV, 32.)
[185-3] A Huron with his bow and arrow kills 12 pieces of game; the European, with a much better capital, his rifle, only 5. Compare v. Schözer, Anfangsgründe, I, 28. Mallthus, Principles, ch. 5. According to Ricardo, ch. 6, the decline of the rate of interest because of the necessity of carrying on agriculture under harder conditions, must make all capital of which raw material forms a part more valuable; while the possessors of money-capital particularly find no indemnification. Wakefield, England and America, 1853, accounts for it by saying that production, besides the coöperation of capital and labor, needs "a field of employment;" and Bastiat, Harmonies, ch. 5, 13, by saying that with the advance of civilization, the results of former services lose in value as compared with later ones, because performed under less favorable circumstances.
[185-4] D. Hume, Discourses No. 4 On Interest. Per contra, see Locke, Considerations of the Consequences of the Lowering of Interest; Law, sur l'Usage des Monaies, 1697 (Daire); and Montesquieu, Esprit des Lois XXII, 6. Cantillon draws a very nice distinction: If the increased amount of money in a state comes into the hands of loaners, it will decrease the current rate by increasing the number of loaners; but if it comes into the hands of consumers, the rate rises, because now the demand for commodities is so much greater. (Nature du Commerce, 284.)
[185-5] The reviews in the Göttingen G. Anz., 1777, and of von Iselin, in the Ephemeriden der Menschheit, II, 170 ff., 177, question Adam Smith's (Wealth of Nat., II, ch. 4) entirely too positive denial of the influence of the American production of gold and silver on the diminution of the rate of interest, a view which was shared also by Turgot, Form. et Distr., § 78. See a beautiful comparison between a declining of the prices of the currency which, promotes production, with the phenomena attending the growth of a tree, in Schäffle, N. Oek., II, Aufl., 249.
[185-6] Thus the rate of interest in Rome fell from 12 to 4 per cent. when Octavian suddenly threw the treasures of conquered Egypt upon the market, and the price of commodities only doubled. When later commerce had divided this amount of money among the provinces, it rose again. (Sueton., Oct., 41; Dio C., LI, 17, 21; Oros, IV, 19.) Law's emissions of paper, in colossal amounts, depressed the rate of interest to 1¼ per cent. (Dutot, Réflexions, 990—Daire.) But as soon as the paper money had lost its value, the former condition returned. Similar observations in Rio de Janeiro: Spix und Martius, Reise, I, 131.
[185-7] While in Paris the capital safely invested paid 2½ to 3 per cent., 57 out of 61 conseils généraux declared, in 1845, that the rate of interest on hypothecations, in their departments, was always over 5 per cent.; 17 estimated it at an average of from 6 to 7 per cent.; 12 at from 7 to 10; some said 12 and 15, and even 22 per cent. in the case of small sums loaned for a short time. (Chegarny, Rapport au Nom de la Commission de la Réforme hypoth., 29 Avril, 1851.) In Russia, at the beginning of this century, the rate of interest in the Baltic provinces was 6 per cent.; in Moscow, 10; in Taurien, 25; in Astracan, 30 per cent. (v. Schlözer, Anfangsgründe I, 102.) In 1750, in Naples, the rate of interest was from 3 to 5 per cent., in the provinces from 7 to 9 per cent. (Guliani, della Moneta, IV, 1.) In Trajan's time in Rome, 6; in Bithynia, 12 per cent. (Plin., Epist. VII, 18; X, 62.)
[185-8] Delacourt Aanwysing, 1669, I, 7. Temple, Observations on the U. Provinces, ch. 6, Works L. 1854. Even Descartes says of Holland's ubi nemo non exercet mercaturam. Compare per contra, H. Grotius, Jus Belli et Pacis, II, 12, 22. Very large capitalists, in Smith's time, certainly lived generally on the interest of their money: Richesse de Hollande, II, 172. In England, at the present day, likewise, a vast number of persons who live on the interest of their money, occasionally take part in the speculation in commodities; which explains why so-called commercial crises are incomparably more extensive there, and reach incomparably deeper, than in Germany. Similarly, according to Conring, De Commercii, 1666, c. 36, in Venice and Genoa.