whether justly appropriated or not, may be made a question. Such cases belong to the class of monopolies. Cases in which the advantage of any useful discoveries is limited by law to the discoverer for a certain period, are evidently legal monopolies.

Say employs a whole chapter in elucidating a valid, and, in truth, valuable, distinction between what he calls real and relative variations in price. The principles which we have laid down respecting natural and market price, enable us to condense his prolix explanation into a very brief and simple statement. What he calls real variation in price is a variation in market price on account of a variation in what we have termed natural price; what he calls relative variation in price is a variation in market price, while the natural price remains the same. As we have said, we consider this distinction a valuable one; but we cannot regard the terms by which it is designated as appropriate. The variation in market price, which Say terms real, is as truly relative as that which he calls relative by way of distinction, and that which he calls relative as truly real as that to which he confines the term real. Both are real, both relative, variations in price; which, as we have defined it, is the estimate of exchangeable value. The distinction would, in our opinion, be better denoted, by applying to these variations the same epithets which we have applied to price itself, i. e., by calling one natural, the other market, variation. By natural decrease of price human welfare is positively augmented, no party suffering loss; by natural increase of price, if this ever occur, human welfare is diminished; the effect of market increase or decrease of price is merely to transfer benefit from one party to another.

In particular cases price is affected by a multitude of influences which it would be of little use to consider at length, had we space for the purpose. These influences may be comprised under the head of undue advantage exercised by one party over the other in any transaction of sale; such as the seller's profiting by the buyer's ignorance of the market price, of the actual quality of the article sold, &c., or, vice versa, the buyer's taking the same advantage over the seller. The price thus occasioned is certainly not natural price, nor is it, properly speaking, market or current price.

There is, of course, a distinction between the price of any thing outright and the price of its use. This price of use is generally denoted by distinct terms, such as wages, rent, interest, &c. Wages are the price paid for the use of a man's ability, mental or physical. Rent is the price paid for the use

of land, or of a house, &c. Horse hire is the price paid for the use of a horse.

We have considered the subject of price somewhat at length, because a comprehension of the general principles which influence all price cannot but be highly serviceable in the investigation of that species of price denominated interest. This we have defined as the price paid for the use of money. The use of money has an exchangeable value, and interest is the estimate put upon that value.

This species of price differs from price generally, in the circumstance that it is ordinarily stated in the form of a percentage on the very article for the use of which the price is paid. It results from this circumstance, that one distinction which we have mentioned as valid in relation to price generally, viz., that between real and nominal price, does not hold in the sense explained, in relation to interest. For though the money, the use of which is the subject of this species of price, should vary in value, the price itself, being a percentage on the money, varies accordingly. Thus, if the sum of one hundred dollars come to possess double the value which it does now, and the value of its use is consequently doubled, any percentage on one hundred dollars will likewise be doubled in value. The price keeps an equal pace, in increase or decrease of value, with the article for which it is paid. The distinction between natural and market price, however, is as valid in this case as in any other. The natural price of the use of money is that rate of interest at which the productive agency employed in acquiring the use purchased is fairly recompensed; its market price is that rate of interest, either above, equal to, or below, the former, which can be readily obtained from borrowers.

As in other cases, so in this, it is the market price alone which is of much practical importance. The natural price of the use of money is perhaps more difficult to determine than the natural price of any other article. The market rate of interest is influenced just in the same way as the market price of any other commodity. We will consider, somewhat particularly, the principal grounds of its fluctuation.

It is to be observed, in the first place, that interest, like other prices, is sometimes a credit price, and sometimes a cash price. Cash price is not so common in purchasing the use of a thing as in purchasing a thing itself; but yet the practice occurs very often. Thus, the price paid for the use of a horse may be a cash price; by which is here meant a price paid when the use of the horse commences. The rent of a house may be paid on taking possession. A man's wages may be stipulated for and received in advance. So, indeed, as to all prices of use, interest as well as others. This may sound strange to many at first. It

is, however, indisputably so. What is called discount involves the principle of cash interest. For instance, a man carries to a bank a note for one thousand dollars, payable at the end of six months, and receives cash for it, the interest for the six months being deducted. If interest be reckoned at six per cent. per annum, he receives nine hundred and seventy dollars. What is this operation but the payment of cash interest for a loan? The applicant borrows one thousand dollars, pays thirty dollars in cash as interest, and furnishes a satisfactory guaranty for the repayment of the principal at a stated future period. All transactions of discount are but the payment of cash price for the use of money. There is one considerable distinction, however, between the loan of money and most other loans, which makes the price of the former, in general, a credit price in a peculiar sense. There is not only risk, as in other cases of the price of use, where it is not cash price, that the price will never be paid, but there is also much more risk than in ordinary cases of other loans, that the thing borrowed will itself never be returned. When a house is hired, the owner knows that, even if the rent be not paid, he cannot lose his right of property in the house. That is his so long as it exists at hire. So, too, in general, when a man lends a horse, he knows that there is little danger of his losing the animal itself, except by dishonest procedure, and, wherever he is carried, if the owner can find him and identify him, his property will be restored. In the case of wages, in which a man lends his physical or mental abilities, there is, of course, no risk at all of what is lent. When money is borrowed, however, it is commonly so disposed of that the principal is as much hazarded as the interest. There is no right of property attaching to the particular pieces of money lent. Such peculiar risk has its influence upon the rate of interest.

Hence it is, that interest is generally highest in countries where the rights of property are least respected. It is generally high, for example, in despotic countries, where no man can rely even on continued possession of what he actually holds, still less on an enforcement of his claims upon what has left his hands. Where popular violence bears great sway, men refuse to lend money except at very high interest. In Europe, in the middle ages, interest was more exorbitant than it would otherwise have been, because of the great risk respecting repayment, which arose from the common practice of both governments and people to disregard the rights of lenders. Any thing which tends to guaranty good faith between debtor and creditor tends to lower credit prices.

There are numerous special circumstances which add to risk in particular cases, and, consequently, in those cases enhance the rates of interest. Among these circumstances are,

the cha

racter of the borrower for probity and punctuality, the manner in which the money is to be invested, &c. &c. Risks at sea are peculiarly dangerous. Accordingly the interest of money to be invested in marine ventures is commonly very high. Money lent on what is called a post-obit bond usually bears high interest. An heir, for example, borrows money on the condition of repaying it with interest when he comes into possession of the expected inheritance. The bond which he gives for the performance of this condition is called a post-obit bond. Clearly there is great risk in a loan upon such a bond. The heir may die sooner than the person from whom the inheritance would fall to him. The property may, for some reason, be otherwise bestowed by the will of the owner. It is customary to speak of the increase on the score of risk, as an increase which the lender makes in order to indemnify himself for that risk. The expression is inaccurate. A risk cannot be indemnified. An indemnity is a recompense for loss. When a man is indemnified, he has no cause of complaint. How then is a high rate of interest an indemnity? If the lender is not repaid with the interest stipulated, is it any satisfaction or solace to him, that, if he had been paid in accordance with the bond he holds, he would have been well paid? True, when a man makes many separate loans, he may speak of high interest as in some sense an indemnity; for what he receives from one quarter may recompense a loss in another. But this is not what is generally intended by the expression; for it is used in relation to all loans at great risk, without reference to the question whether other loans are made by the same party. To speak of high interest as insurance against risk, is equally objection

able.

The increase of interest on account of risk is, in honest truth, referable to the principle of a wager. The interest must be high enough to tempt the lender to encounter a great hazard. For the chance of an unusual profit he consents to an unusual risk of all.

Let us now turn from the consideration of the effect produced on interest by the risk of non-payment, to the more fundamental principles which regulate its market rate. As is the fact in regard to price generally, the main causes of the elevation or depression of the market rate of interest, while the natural rate continues the same, may be comprehended under the one great principle of demand and supply, the operation of which is the same in this case as in others.

In our opinion, the representations of Smith and Say in regard to this subject are extremely defective and incorrect. These writers give very different accounts of the sources of supply in the case of loans; but, though Say's statements are

certainly nearer the truth than those of Smith, we think both have fallen far short of it. Smith says that the quantity of money to be lent is regulated "by the value of that part of the annual produce, which, as soon as it comes either from the ground or from the hands of the productive labourers, is destined not only for replacing a capital, but such a capital as the owner does not care to be at the trouble of employing himself.” This is a very inadequate statement. Can no money be lent but what is derived from the annual produce of labour? The absurdity of such a restriction on the supply of money is manifest. Cannot the very property from which the annual produce accrues be sold, and the sum received for it be then lent? Will not a man's capital command money as well as his revenue?

As has been already suggested, Say's account of the matter is nearer the truth than that we have just considered. Indeed, his language in stating generally the source of supply for the purpose of loans is perfectly correct and adequate, if taken in a larger sense than that to which he unreasonably restricts it. He declares the source of supply to be disposable capital, i. e., as he defines it, "so much of capital as the owners have both the power and the will to dispose of." He proceeds, however, to limit this capital in an unjustifiable manner. He says:-"A capital already vested and engaged in production, or otherwise, is no longer in the market, .. unless the employment be one from which capital may be easily disengaged." The sole specifications of disposable capital which he presents are, "Capital lent to a trader, and liable to be withdrawn at short notice," especially "capital employed in the discount of bills of exchange," "capital employed by the owner on his own account in a trade that may be soon wound up, in that of a grocer, for instance," and of course capital actually held in the form of money. He expressly affirms, that "capital embarked in the construction of a mill or other fabric, or even in a movable of small dimensions, is fixed capital," and cannot be considered as affecting the rate of interest. In regard to money, he makes two precisely opposite assertions. As we have intimated above, he says in one passage:-"Of all values the one most immediately disposable is that of money." Only three or four pages further on, he says in a note, that gold and silver "form an item of capital, but not of disposable or lendable capital; for they are already employed and not in search of employment." No more direct self-contradiction is possible.

In considering these statements of Say, we remark, in the

1 Wealth of Nations, book ii. c. 4.
2 Pol. Econ., book. ii. c. 8, sect. 1.

3 Ibid.