SECTION CLXXXVIII.

HISTORY OF THE RATE OF INTEREST.--EFFECT OF A LOW RATE ON STATIONARY NATIONS.

Beneficial as the spur of a low rate of interest is for countries capable of development, it is a heavy drag on a stationary people, and more so on those who have lost a portion of the field for the investment of their capital by the competition of too powerful rivals.[188-1] A real superabundance of capital is attended with cares and temptations for the middle classes very similar to those caused by a so-called over-population, especially to dishonesty and extravagance.[188-2] When capital, population and the skillfulness of labor remaining the same, continues to increase, the enlarged capital may very readily have every succeeding year only the same return to divide among its owners, that the smaller had in previous years.[188-3] Hence additional saving here would produce no real enrichment of the people; and it might even happen that the instinct to accumulate capital might in the future become torpid to a greater degree than the capital itself had increased. In any case, however, the decline of the rate of interest can continue only to a certain point. There are numberless persons who would rather consume their capital, or invest it in hazardous speculations than put it out at interest at one per cent. a year.[188-4] At least, the tendency of a decline in the rate of interest is, in the case of the richer, to increase the amount of capital consumed as compared with productive capital. The more moderate, sober and provident a people are, the lower may the rate of interest decline without producing this effect. And so, the more the capital of a nation is concentrated in the hands of a few; because then the owners of capital are all the later forced to break in upon it, for the sake of subsistence.[188-5] [188-6]

Among nations which have totally declined, the rate of interest is wont to reach a high point once more; the natural result of great losses of capital and men, while, at the same time, the freedom of the lower classes and the security of property have been either curtailed or lost. The weakness of age is, in many respects, even in the case of nations, a second childhood.[188-7]

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.)]