An inquiry into the nature and causes of the wealth of

78

The Wealth of Nations

rivals and of his customers, and by a thousand other accidents, to

which goods, when carried either by sea or by land, or even when

stored in a warehouse, are liable. It varies, therefore, not only from

year to year, but from day to day, and almost from hour to hour. To

ascertain what is the average profit of all the different trades carried

on in a great kingdom, must be much more difficult; and to judge

of what it may have been formerly, or in remote periods of time,

with any degree of precision, must be altogether impossible.

But though it may be impossible to determine, with any degree

of precision, what are or were the average profits of stock, either in

the present or in ancient times, some notion may be formed of

them from the interest of money. It may be laid down as a maxim,

that wherever a great deal can be made by the use of money, a

great deal will commonly be given for the use of it; and that, wher-

ever little can be made by it, less will commonly he given for it.

Accordingly, therefore, as the usual market rate of interest varies

in any country, we may be assured that the ordinary profits of

stock must vary with it, must sink as it sinks, and rise as it rises.

The progress of interest, therefore, may lead us to form some no-

tion of the progress of profit.

By the 37th of Henry VIII. all interest above ten per cent. was

declared unlawful. More, it seems, had sometimes been taken be-

fore that. In the reign of Edward VI. religious zeal prohibited all

interest. This prohibition, however, like all others of the same kind,

is said to have produced no effect, and probably rather increased

than diminished the evil of usury. The statute of Henry VIII. was

revived by the 13th of Elizabeth, cap. 8. and ten per cent. contin-

ued to be the legal rate of interest till the 21st of James I. when it

was restricted to eight per cent. It was reduced to six per cent.

soon after the Restoration, and by the 12th of Queen Anne, to

five per cent. All these different statutory regulations seem to have

been made with great propriety. They seem to have followed, and

not to have gone before, the market rate of interest, or the rate at

which people of good credit usually borrowed. Since the time of

Queen Anne, five per cent. seems to have been rather above than

below the market rate. Before the late war, the government bor-

rowed at three per cent.; and people of good credit in the capital,

and in many other parts of the kingdom, at three and a-half, four,

and four and a-half per cent.

Since the time of Henry VIII. the wealth and revenue of the

country have been continually advancing, and in the course of

their progress, their pace seems rather to have been gradually ac-

celerated than retarded. They seem not only to have been going

on, but to have been going on faster and faster. The wages of

labour have been continually increasing during the same period,

and, in the greater part of the different branches of trade and manu-

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79

Adam Smith

factures, the profits of stock have been diminishing.

It generally requires a greater stock to carry on any sort of trade

in a great town than in a country village. The great stocks em-

ployed in every branch of trade, and the number of rich competi-

tors, generally reduce the rate of profit in the former below what it

is in the latter. But the wages of labour are generally higher in a

great town than in a country village. In a thriving town, the people

who have great stocks to employ, frequently cannot get the num-

ber of workmen they want, and therefore bid against one another,

in order to get as many as they can, which raises the wages of

labour, and lowers the profits of stock. In the remote parts of the

country, there is frequently not stock sufficient to employ all the

people, who therefore bid against one another, in order to get

employment, which lowers the wages of labour, and raises the prof-

its of stock.

In Scotland, though the legal rate of interest is the same as in

England, the market rate is rather higher. People of the best credit

there seldom borrow under five per cent. Even private bankers in

Edinburgh give four per cent. upon their promissory-notes, of

which payment, either in whole or in part may be demanded at

pleasure. Private bankers in London give no interest for the money

which is deposited with them. There are few trades which cannot

be carried on with a smaller stock in Scotland than in England.

The common rate of profit, therefore, must be somewhat greater.

The wages of labour, it has already been observed, are lower in

Scotland than in England. The country, too, is not only much

poorer, but the steps by which it advances to a better condition,

for it is evidently advancing, seem to be much slower and more

tardy. The legal rate of interest in France has not during the course

of the present century, been always regulated by the market rate

{See Denisart, Article Taux des Interests, tom. iii, p.13}. In 1720,

interest was reduced from the twentieth to the fiftieth penny, or

from five to two per cent. In 1724, it was raised to the thirtieth

penny, or to three and a third per cent. In 1725, it was again raised

to the twentieth penny, or to five per cent. In 1766, during the

administration of Mr Laverdy, it was reduced to the twenty-fifth

penny, or to four per cent. The Abbé Terray raised it afterwards to

the old rate of five per cent. The supposed purpose of many of

those violent reductions of interest was to prepare the way for

reducing that of the public debts; a purpose which has sometimes

been executed. France is, perhaps, in the present times, not so rich

a country as England; and though the legal rate of interest has in

France frequently been lower than in England, the market rate has

generally been higher; for there, as in other countries, they have

several very safe and easy methods of evading the law. The profits

of trade, I have been assured by British merchants who had traded

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