SECTION CLXXXV.. History of the Rate of Interest.--Influence of an Advance in

HISTORY OF THE RATE OF INTEREST.--INFLUENCE OF AN ADVANCE IN CIVILIZATION.

With an advance in civilization, the rate of interest is wont to decline.[185-1] [185-2] One of the chief causes of this phenomenon is the necessity, as population and consumption increase, to employ capital in the fertilization of less productive land, and in less profitable investments.[185-3] An increase in the stock of money does not necessarily depreciate the rate of interest. If this increase comes in connection with a corresponding depreciation of the individual pieces of metal, it cannot be said that the nation has thereby become richer in capital. All that would be required in such case is only a greater number of pounds of gold or silver, or more paper bills to represent the same capital.[185-4] Only during the transition-period, during which the depreciation of money is still incomplete, is the rate of interest wont to be lowered; and all the more, since loaned capital is generally offered and sought after in the form of money.[185-5] [185-6]

The decline of the rate of interest generally shows itself earliest in the large cities, which are everywhere the national organ, in which the good and bad symptoms of later civilization may be soonest observed.[185-7]

Moreover, the condition of capitalists is not necessarily made worse by a decline of the rate of interest. It is possible that, for a long time, the increase of capital should continue more rapid than the decrease of interest for each individual. (If, indeed, the aggregate interest of capital should become absolutely smaller, there is always a pleasant remedy available, viz.: to consume a part of the capital!) But, however, a decline of the rate of interest is nearly always followed by increased activity on the part of capitalists; and they come to the resolve to retire later to enjoy the results of their previous labors. In Holland, after the time of Louis XIV., no branch of business was wont to pay more than from two to three per cent. In the case of the purchase of land, no one calculated on more than two per cent. Hence it was scarcely possible for small capitalists there to live on their interest; and the good sense of the people so well adapted itself to this state of things that to live in leisure on one's rents was considered a not entirely honorable mode of existence.[185-8] The lower the rate of interest, the larger, in highly civilized countries, is the stock on hand of cash apt to become, for the reason that business men then hope to gain more by the advantages of cash payments than by the saving of interest.[185-9] [185-10]

The rates of interest in Russia, in the 16th century, had already declined to 20 per cent. (Herberstein, Reise, 41 ff.; Karamsin, Russ. Geschichte, VII, 169.) In Holland, in 1623, it was estimated that land purchases paid 3 per cent.; hypothecations, 4 to 6; deposits, 5 to 6; a flourishing business, 10 per cent. Compare Usselinx in Laspeyres, Geschichte der volkswirthschaftl. Anschauungen der Niederländer, 76. About 1660, the rate of interest usual in Italy and Holland was at most 3 per cent. (in war times, 4); in France, 7; in Scotland, 10; in Ireland, 12; in Spain, 10 to 12; in Turkey, 20 per cent. (Sir J. Child, Discourse on Trade, French translation, 75 ff.) Side by side with 6 per cent. as the rate of interest in England, it was (a little later) 10 in Ireland. Petty, Political Anatomy of Ireland, 74.

The same course of things is to be observed in ancient times. In Solon's time, and again in that of Lysias, it was 18 per cent. (Böckh, Staatshaushalt der Athener, I, 143 ff.) I am of opinion that the rate of interest declined during this long interval, but rose again in consequence of the Peloponnesian war. Among friends, in the time of Demosthenes, 10 per cent. (adv. Onetor., I, 386.) Aristotle, Rhet., III, 10, mentions 12 per cent., which Aeschines, adv. Ctes., 104, and Demosthenes, adv. Aph., I, 820, 824, call low. The rate of commercial interest in Egypt (146 before Christ) seems to have been 12 per cent. per annum. (Letronne, Recompense promise à celui, etc., 1833, 7.) Contemporaneously in Rome, a similar rate of interest must have been considered usurious. (Cicero, ad. Att., I, 12.) Under the emperor Claudius, 6 per cent. (Columella, De Re rust., III, 3.) Justinian allowed to personae illustres 4 per cent. per annum. (L. 26 Cod., IV, 32.)]