The spirit of democracy. [volume] (Woodsfield, Ohio) 1844-1994, 1856-03-12
Communications.

Mn. EDITOR In my former numbers
have called the attention of the public
to the efforts of Mr.. Chase to favor the
banks, by giving them amonopoly Of the
business of lending, by driving all indi-
vidual competition out of the market.
In the following article simply intend
to State Ehat are the elements which de-
tsrmine the rate of interest," in other
words the terms upon which capital can
be borrowed or rather hired.
Now in this respect the rate of interest
is precisely like the price of all other
commodities. It depends upon supply
and demand. In q. new country whore
frugality and industry have had but q
short time to accumulate, and where cap
ital is comparatively scarce, where roads
are to be made, lands to be bought, fields
to be cleared, cities and towns to be laid
off, cellars to he dug, houses to be built,
! HOlSoo, Cdttlc, Stdlh dHu othCi SoiHhioeti-
ties to be purchased where the uses of
capital are numerous and profits large, the
rate of interest is high. In old countries
where capitals are numerous and large,
in proportion to the amount of business
to be done, the rate Of interest falls low
In England money is often borrowed on
good private security, at four or five per
cent; in Holland at three or four and some
times at two. Why how is this sir I?
There must be a great deal of buying and
selling in England and Holland. The
uses Of capital must be very various and
very numerous, as they are highly COM
mercial countries. Yes, true; it is just so.
But they are very rich, and though the
uses of capital are very numerous and
very great, yet as capital is very abundant,
the supply out-runs the demand and the
rate of interest falls very low. win add
that in countries new or old, where indus
Try lauguishes, where there is little trade
where profits are small, where improve
ments are slow, the rate of interest is very
i low.
I shall spare the reader, any further
observations of my own, and give him an
extract from the treatise of Jean Baptist
Say, york that ought to be found in
i every house in the State:
i "After having thus detached from the
rate of bare interest all that is paid as
premium of insurance to the lender, against
the risk of total or partial loss of his
capital, it remains to consider that part
which is purely and simply interest; that
is to say rent paid for the utility and use
of capital.
"Now this portion of the gross sum
called interest is larger in proportion as
the supply of capital available for loans
is less; and as the demand of capital fol
that specific object is greater; and again
that demand is greater in proportion te
the more Numerous and more lucrative
|employments of capital. Consequently, Q
rise in the rate of interest does not infal
IDLY universally denote that capital il
growing scarccr; for possibly it may be o
sign that it's uses are multiplied. Smith
has remarked this consequence upon the
close of the very successful war on the
f part of England, which terminated with
!, the peace of 1863. The rate of Interest
then advanced instead of declining; the
important acquisitions of England had
opened new field for her commercia
f enterprise and speculation; capital wa,
y not diminished in quantity, but the de
mand for it was increased; and the rise 0
interest, which ensued, though in mos
cases sign of impovcrishmcnt was il
l this, a consequence of the acquisition o
: new sources of wealth.
/ "France in 1912, experienced the ,op-
= posite effect Of cause directly the reverse
i A long and destructive war which hay
annihilated almost all external communi
cation; cxorbitant taxation; the ruinou
/, system of licenses; the commercial enter
$ prizes of the government itself; frequen
and arbitrary alterations in the duties OIL
t import; coniscation, destruction, vexa
c ton; in fine a system of administration
{ uniformly avaricious and hostile to privat
interest, had rendered all enterprises o
: industry difficult, hazardous and ruinou
|. in the extreme. The aggregate capita
: of the nation was probably on the decline
? but the beneficial employment of it be
came still more rare as well as dangerous
so much so that interest never fell so 10,
!. in France as at that period; and what
:, in general the sigu of extreme prosperity
: was then the effect of extreme distress.
! "These exceptions serve but to conHrr
- the general and eternal law, that the NOR
% abundant is the disposable capital in pre-
portion to the multiplicity of its employ
ments, the lower will the interest of boz
IS rowed capital fall. With regard to tn
supply Of disposable capital, that mu.
depend on the quantum of previous saving
r On this head, must refer to what / ha,
h before said upon the subject Of the 70