[188-4] Think only of the so-called commercial crises, the speculation-rage preceding which is excited by the lowness of the rate of interest, the destruction of capital in which makes the rate of interest to retrograde materially. However, this very decline is, in itself, only a spur to speculation in evidences of national indebtedness, stocks, etc., in commodities, only where, without such speculation, a rise in prices was to be expected. Thus, for instance, the great English periods of speculation: 1796 ff., in colonial products; 1808 ff., in raw materials in general; 1814, in articles of export, were times in which there was not the slightest facility in obtaining credit. (Tooke, History of Prices, III, 159.)
[188-5] Between 1829 and 1849, the highest rate of interest paid by English capital employed in cotton industries was little over 2½ per cent. (Edinb. Rev., April, 1849, 429.)
[188-6] As the symptoms of a condition are very frequently mistaken for its cause, there have been many writers who, blinded especially by the contemplation of Holland, considered the lowness of the rate of interest as the causa causans of all wealth, and who promised really magical results from its legislative regulation by the state. Thus Sir Thomas Culpeper, A Tract against the high Rate of Usury, 1623; continuation 1630; Sir J. Child, Brief Observations concerning Trade and the Interest of Money, 1668; Discourse of Trade, 1690. Anderson (ob. 1765), was of a similar opinion: Origin of Commerce, a. 1601, 1651; and even Ganilh, Dictionnaire analytique, 99 seq. (Infra, § 162.) Per contra, the anonymous essay, Interest of Money mistaken, 1668, and Locke, Considerations of the Consequences of the Lowering of Interest and Raising the Value of Money, 1691. Most moderns have considered the decline of the rate of interest an evil. Thus, for instance, Canard, Principes, ch. 5, who uniformly makes this the starting point of a nation's downfall. See also McCulloch, Principles, III, 8. Malthus draws a comparison between the saving of capital and the generation of children: only a high rate of interest makes the former really useful, and a high rate of wages the latter.
Even great destruction and disturbances of capital by war, by loans to the state, for instance, are soon made good, provided the sources of the saving of capital are not dried up. (Principles, III, 370 ff., 401, ff.) John Stuart Mill expressly counsels rich and highly civilized nations not to neglect beneficent enterprises, although economically unproductive, because capital might be lost in them. The result of such a loss would, under certain circumstances, simply be that less capital would be exported or wasted in speculation. (Principles, II, ch. 5, 1.) Similarly Canard, who, therefore, compares state loans with blood-letting, as a remedy for a plethoric disease. (Ch. 9.) Turgot confounded cause and effect when he compared a high rate of interest to an inundation, below the level of which nothing can be produced; and which, the lower it became, the more dry ground there was for men to work on. (Sur la Formation, etc., § 89.)
[188-7] Rate of interest in Persia from 40 to 50 per cent. a year. (Ausland, 1844, No. 208.) In Tripoli, Christians and Jews alike loan the Arabs at the rate of 5 per cent. a month; at least 1½ or 2. (Rohlfs, von Tripolis nach Alexandrien, 1871, I, 22.) In most of the East Indian kingdoms, the rate of interest is so high for the government itself that when the creditor, even without a return of the capital, gets the interest only for a few years, he is considered passably well indemnified. (J. S. Mill, II, ch. 15, 2.) In China, 12 to 15 per cent.; 36 nothing unheard of. (Barrow, China, 562.)
INTEREST-POLICY.—LEGITIMATENESS OF INTEREST.
The legitimateness of interest is based on two unquestionable grounds: on the real productiveness of capital, and on the real abstinence from enjoyment of it by one's self.[189-1] Let us suppose a nation of fishermen with no private ownership in land and no capital, living naked in caverns, on sea-fish which the ebb of the ocean has left in the puddles along the shore, and which are caught only with the hand.[189-2] All workmen here may be equal, and each catch and consume three fish a day. Let us again suppose that some clever savage reduces his consumption to two fish a day, for one hundred days, and uses the stock of one hundred fish collected in this way to enable him to devote all his strength and labor, during fifty days, to the construction of a boat and a net. With the aid of this capital he, from the first, catches thirty per day. What now will his fellow tribesmen, who are not capable of such intelligent and systematic self control to do as he has done, do? What will they offer him for the use of his capital? In discussing this question both parties will very certainly consider not only the fifty days' labor spent in the construction of the boat, etc., but also the one hundred and fifty days during which its maker had to abstain from his full ration of food. If the borrower, of the thirty fish which may be caught daily with the aid of his capital, gives twenty-seven away, his condition is at least no worse than it was at first. On the other hand, the lender, if compensated only for the wear and tear of his capital, would reap no profit whatever from his loan. The interest to be paid will be fixed somewhere between these two extremes by the relation between demand and supply. A loan which pays no interest is a donated use of capital. (Knies.)[189-3] Interest may be called the reward of abstinence (Senior), in the same way as wages is called the reward of industry.[189-4] With the abolition of interest, exchange would be limited to the mere present, without any mediation between the past and the future. A great number of services would bring no equivalent in return, and, therefore, as a rule, never be performed. Most of the charges commonly made in our day against the "tyranny of capital" are, at bottom, only a complaint that capital is not inexhaustible; and even those workmen who are obliged to pay most to capital would be much worse off without it.
[189-1] The Greeks very appropriately call interest τόκος,[TN 23] i. e., that which is born. In the loaning of capital productively invested, the creditor, in the interest received, consumes the real produce of his property. If the debtor has consumed the property unproductively, the creditor indeed lives on the debtor's other returns or supplies; which, however, without his intervention would probably have been consumed by their owner.
[189-2] We here, for the time being, make abstraction of all entangling surrounding circumstances. However, Diodor., III, 15 ff., and Strabo, XVI, 773, describe a very similar condition of things among the Ichthyographs; also Hildebrand, Reise, um die Erde, III, 2, in China. In the Sudan, whole generations fetch water every day from a distant town, instead of working for a few weeks to dig a deep well nearer home. (Barth, Afr. Reise, III, 297.)