[186-2] Thus the rate of interest in Russia rose, after Catherine II. had conquered the provinces situated on the Black Sea. (Storch, Handbuch, II, 34.) The same is still more strikingly apparent in the judicious planting of agricultural colonies.
[186-3] Abolition of the English corn laws! Foreign commerce when very advantageous, always adds to the well-being of the people; to the rate of interest, however, only to the extent that articles which are calculated to satisfy the wants of the working class become cheaper in consequence; and this in turn lowers the rate of wages. Let us suppose that a country had hitherto purchased yearly 10,000 barrels of wine for $1,000,000. It might now happen that, in consequence of an advantageous commercial treaty, for instance, the 10,000 barrels might be obtained for $500,000. If, after this, wine-drinkers want to spend $1,000,000 for wine as they did before, they of course double their consumption of wine, but the rate of interest remains unchanged. If, on the other hand, they leave their consumption of wine where it was before and apply the saved half million to effect an increased demand for home products, the capital required for this production is set free at the same time. Hence, the relation between the supply and demand for capital has not changed, abstraction made of certain difficulties in the transaction. Compare Ricardo, Principles, ch. 7, rectifying Adam Smith, Wealth of Nat., I, ch. 9.
[186-4] An increase in the rate of interest caused by a diminution in the rate of wages does not last long. Capital now increases more rapidly, and the increase is accompanied by an increased demand for labor. If, in the mean time, workmen have become accustomed to a lower standard of life, the increasing wages are followed by an increase of population: then the necessity of having recourse to the cultivation of land of a worse quality is an additional cause of a decreasing rate of interest. (Edinb. Rev., March, 1824, 26.)
[186-5] According to this, it is easy to tell what influence the increasing skill or activity of the working class (for instance by a decrease in the number of holidays, coöperation of wife and child) must have. Where there has been no accompanying and corresponding elevation of the standard of life, and of the want of the class, the gain soon falls to the lot of the capitalists or landowners.
[186-6] See the very clear but not entirely complete discussion in John Stuart Mill, Principles, IV, ch. 3 ff. When new railways, machines, etc., before they are complete, simultaneously increase the rate of interest and the rate of wages, and even sometimes rent, although they do not immediately increase the national income in any way, the phenomena are to be explained, not by a distribution of income, but as the result of an advance of capital made.
[186-7] Compare supra, § 184. The rise of the rate of interest in Basil, between 1370 and 1393, Arnold (loc. cit.) accounts for by the wars and defeats of the upper German cities. Similarly in Zürich, 1457. (Joh. Müller, Schweizer Geschichte, IV, 211.) During the time immediately following the Spanish war of succession, the usuriers les flus modérés in France got 12-15 per cent. a year. (Dutot, Réflexions, 1866.) In Russia the rate of interest, after the war of 1805-15, rose by 4-5 per cent. (Storch, Handbuch, 35 seq.) Per contra, Nebenius, Oeff. Credit., 70 seq.
[186-8] Thus the Hamburg conflagration, combined with the bad harvests of 1841, raised the rate of interest in Mecklenburg for a long series of years. Similarly in Würtemburg, the many bad harvests from 1845 to 1853, which are said to have caused a deficiency of 50,000,000 florins. (Tübinger Zeitschr., 1856, 568.)
[186-9] In bad times, state loans are usually effected at a disproportionally high rate of interest. This also operates momentarily on the general rate of interest, to the injury of persons engaged in business enterprises; who, by the very fact of the withdrawal of so much capital, become involved in an unfavorable competition. In the long run, indeed, the high or low rates of interest paid by national debts, in so far as the creditor cannot demand reimbursement, has no influence on the rate of interest usual in the country. Such debts as cannot be declared due assume the character of stationary capital, the value in exchange of which is determined by their yearly return, capitalized at the rate of interest usual in the country. (Hermann, Staatswirthschaftliche[TN 22] Untersuch., 223.)
[186-10] The coöperation of most of the causes above mentioned raised the English rate of interest which had sunk to 3 per cent. to an average of 5, from about 1760 to 1816. Thus Gauss, in a manuscript work which I have used, relates that the fund for the support of professors' widows in Göttingen was, in 1794, expected to pay only 3 per cent. In 1799, the trustees observed that their capital could often be safely invested at 4 per cent.; somewhat later the rate of interest rose to 5 per cent., at which point it remained for years. About 1843 ff. the rate of interest in old Bavaria was only 4 per cent.; in more highly cultured Rhenish Bavaria, 5 per cent.