CHAPTER IV.. Interest on Capital.

INTEREST ON CAPITAL.

SECTION CLXXIX.

THE RATE OF INTEREST IN GENERAL.

Interest on capital,[179-1] or the price paid for the use of capital, should not be confounded with the price of money (§ 42); although in common life people so frequently complain of want of money where there is only a want of capital, and sometimes even when there is a superabundance of money.[179-2] This error is connected with the fact, that for the sake of convenience, loans of capital are so often effected in the form of money and that they are always at least estimated in money; but neither of these things is essential.

In reality, however, we as seldom meet with interest[179-3] pure and simple, as we do with rent pure and simple. A person who works with his own capital can, at best, by a comparison with others, determine where, in the returns of his business, wages stop and interest begins.[179-4] And even in the loaning of capital, it depends largely on supply and demand, whether the creditor shall suffer a deduction in consequence of the absence of care and labor attending his gain, and whether the debtor, in order to get some capital at all, shall sacrifice a part of the wages of his labor.[179-5] When Adam Smith assumes it to be the rule that the "profit of stock" is about twice as great as the "interest of money,"[179-6] it is evident that a considerable amount of what is properly wages or profit of the employer (Uhternekmer = undertaker) is included in the former.

Many businesses have the reputation of paying a very large interest on the capital employed in them, when in reality they only pay the undertaker of them wages unusually high as compared with the amount of capital employed in them. Apothecaries, for instance, are called in some places "ninety-niners," because it is said that they earn 99 per cent. To discover the error, it would be sufficient to inquire the rate of interest on the capital borrowed by the apothecary on hypothecation, for instance, to enlarge his industry. But on the other hand, such a man who has more than any other manufacturer to do with the most delicate materials and with them in greater variety, requires proportionately greater caution and knowledge. Besides, as the guardian of the health and life of so many, and even as the comptroller of physicians, he should be a man who inspired universal and unqualified confidence.[179-7] By the rate of interest customary in a country, we mean the average rate of the interest on money-capital employed safely and without trouble.