84
The Wealth of Nations
parties. The courts of justice of their kings seldom intermeddled
in it. The high rate of interest which took place in those ancient
times, may, perhaps, be partly accounted for from this cause.
When the law prohibits interest altogether, it does not prevent
it. Many people must borrow, and nobody will lend without such
a consideration for the use of their money as is suitable, not only
to what can be made by the use of it, but to the difficulty and
danger of evading the law. The high rate of interest among all
Mahometan nations is accounted for by M. Montesquieu, not
from their poverty, but partly from this, and partly from the diffi-
culty of recovering the money.
The lowest ordinary rate of profit must always be something
more than what is sufficient to compensate the occasional losses
to which every employment of stock is exposed. It is this surplus
only which is neat or clear profit. What is called gross profit, com-
prehends frequently not only this surplus, but what is retained for
compensating such extraordinary losses. The interest which the
borrower can afford to pay is in proportion to the clear profit
only. The lowest ordinary rate of interest must, in the same man-
ner, be something more than sufficient to compensate the occa-
sional losses to which lending, even with tolerable prudence, is
exposed. Were it not, mere charity or friendship could be the only
motives for lending.
In a country which had acquired its full complement of riches,
where, in every particular branch of business, there was the great-
est quantity of stock that could be employed in it, as the ordinary
rate of clear profit would be very small, so the usual market rate of
interest which could be afforded out of it would be so low as to
render it impossible for any but the very wealthiest people to live
upon the interest of their money. All people of small or middling
fortunes would be obliged to superintend themselves the employ-
ment of their own stocks. It would be necessary that almost every
man should be a man of business, or engage in some sort of trade.
The province of Holland seems to be approaching near to this
state. It is there unfashionable not to be a man of business. Neces-
sity makes it usual for almost every man to be so, and custom
everywhere regulates fashion. As it is ridiculous not to dress, so is
it, in some measure, not to be employed like other people. As a
man of a civil profession seems awkward in a camp or a garrison,
and is even in some danger of being despised there, so does an idle
man among men of business.
The highest ordinary rate of profit may be such as, in the price
of the greater part of commodities, eats up the whole of what
should go to the rent of the land, and leaves only what is sufficient
to pay the labour of preparing and bringing them to market, ac-
cording to the lowest rate at which labour can anywhere be paid,
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Adam Smith
the bare subsistence of the labourer. The workman must always
have been fed in some way or other while he was about the work,
but the landlord may not always have been paid. The profits of
the trade which the servants of the East India Company carry on
in Bengal may not, perhaps, be very far from this rate.
The proportion which the usual market rate of interest ought to
bear to the ordinary rate of clear profit, necessarily varies as profit
rises or falls. Double interest is in Great Britain reckoned what the
merchants call a good, moderate, reasonable profit; terms which,
I apprehend, mean no more than a common and usual profit. In
a country where the ordinary rate of clear profit is eight or ten per
cent. it may be reasonable that one half of it should go to interest,
wherever business is carried on with borrowed money. The stock
is at the risk of the borrower, who, as it were, insures it to the
lender; and four or five per cent. may, in the greater part of trades,
be both a sufficient profit upon the risk of this insurance, and a
sufficient recompence for the trouble of employing the stock. But
the proportion between interest and clear profit might not be the
same in countries where the ordinary rate of profit was either a
good deal lower, or a good deal higher. If it were a good deal
lower, one half of it, perhaps, could not be afforded for interest;
and more might be afforded if it were a good deal higher.
In countries which are fast advancing to riches, the low rate of
profit may, in the price of many commodities, compensate the
high wages of labour, and enable those countries to sell as cheap as
their less thriving neighbours, among whom the wages of labour
may be lower.
In reality, high profits tend much more to raise the price of
work than high wages. If, in the linen manufacture, for example,
the wages of the different working people, the flax-dressers, the
spinners, the weavers, etc. should all of them be advanced twopence
a-day, it would be necessary to heighten the price of a piece of
linen only by a number of twopences equal to the number of people
that had been employed about it, multiplied by the number of
days during which they had been so employed. That part of the
price of the commodity which resolved itself into the wages, would,
through all the different stages of the manufacture, rise only in
arithmetical proportion to this rise of wages. But if the profits of
all the different employers of those working people should be raised
five per cent. that part of the price of the commodity which re-
solved itself into profit would, through all the different stages of
the manufacture, rise in geometrical proportion to this rise of profit.
The employer of the flax dressers would, in selling his flax, require
an additional five per cent. upon the whole value of the materials
and wages which he advanced to his workmen. The employer of
the spinners would require an additional five per cent. both upon