CHAPTER 3 Remarks on the Notes to the Translation of Josiah Child

(Effects of High Interest.) I am not sure whether it is correct to say that a high rate of interest impedes the circulation of money and that by making it liable to a charge, it compels us as it were to bury it by converting it into hoards or into plate. On the contrary, it appears at first glance that the higher is the rate of interest on money, the less of an encumbrance it should be for people, because it is a good’s low price that renders it troublesome to the owner. Thus if the opulent rentier invests his money in plate and jewels, it is not because opportunities for lending are wanting, but rather because they are on too easy terms, because people grow rich in too little time, because they soon prefer the pleasure of spending what they have acquired to that of increasing their wealth. Thrift lasting for some years is sufficient to restore a family’s fortune; this is followed by dissipation and by the enormous extension of luxury. Luxury is the fruit of the excessive inequality of wealth and idleness. Now, the high rate of interest of money causes the inequality of wealth because money attracts money and absorbs all the profits of industry. It produces idleness because it offers an easy means of growing rich without working.

The high rate of interest of money therefore increases the opportunities for lending, but it produces luxury and luxury causes these opportunities to be scorned.

2. The Grain Trade.

The examples of Holland, Genoa, and Venice, where the State is without power and poor, even though the private citizens are rich, are not at all applicable to the question of the interest of money, since it is lower in these republics than in any other state of Europe.

Genoa and Venice are weak states relative to the more powerful states which surround them. I do not know whether the proportion between public revenue and military power and the extent of their territory and the state of their commerce is the same as in the majority of other states in Europe. If this proportion is smaller, I believe that it is proper to praise their governments for it; for apart from the fact that it has not been decided that it is too considerable in many of the more powerful states, no matter how much these republics would burden their subjects with taxes, they would be no more capable of resisting their neighbors because of it, and the people would be unhappy to no purpose.

With regard to Holland, it is far from true that the State is poor or weak relative to its size; it is true that the resilience of the government is weakened at present by the enormity of the public debt and by the changes which have occurred in the constitution of the State, but the Dutch have only their own imprudence to blame, and the wars in which they have involved themselves when blinded by their prosperity. The weakening of Holland is, moreover, a necessary consequence of the increase in the commerce of other states.

I should be sorry if the difference in the rate of interest between France and England is the cause of the difference in thinking on the subject of the grain trade; for it would be certain to be made into an argument against the freedom of this trade, on the pretext that the foreigners would profit from this difference by taking all our grain in times of abundance in order to sell it back to us in times of famine, with a profit of which the nation would be deprived.

3. The Rate of Interest.

I. In truth, I believe that our prejudices in this matter have a different origin. In the setting up of all the legislation dealing with corn, the cries of the consumers have been heeded to the exclusion of the needs of the cultivators. This manner of thinking has arisen in the republics where the sovereignty resides with the people of the cities, because the city dwellers are consumers only. The fear of sedition and the influence of the people’s clamoring on timid magistrates who always observe the towns more intimately than the country side, has perpetuated it in nearly all the cities of Italy: corporations have the exclusive charter in corn and oil, which they supply to the people at a price fixed by the government and invariable. Our legislators have adopted the dispositions of Roman Law in this matter, and conform in this to popular demands. The same prejudices have held sway in all of Europe and even in England. The latter country had abandoned these ways sooner than we, not so much because the rate of interest is lower there than it is among us, but rather because they have been enlightened by the principles of commerce before us.

II. When the English changed their manner of thinking about the regulation of corn, they were as much at a disadvantage relative to the Dutch through the difference in interest rates as they are at present at an advantage relative to us. The Dutch did not find sufficient profit in removing their grain in order to discourage the English from establishing warehouses for themselves, and the latter have found a sufficiently strong interest to destroy all their prejudices.

III. I believe that it would be the same with us. It is true that in England the dispositions of the Act of Navigation were able to avert the competition of the Dutch and to counterbalance the effects of the different prices of money. But are we not capable of making up for this in part? Government inspection of the importation and exportation of corn, attention to lowering or raising duties at the right moment, would these not be adequate to avert the competition of foreigners and to assure our storehouse keepers a fair profit? But I doubt whether even these would be necessary.

IV. To prohibit interest as Moses did, is to prohibit lending, for people will not lend for nothing, above all when it is possible to borrow from foreigners. It is giving a monopoly of usury to the latter and to the evaders of the law, and consequently raising interest. The agrarian laws among the Jews compensated for what might be hurtful to the cultivation of the soil in the laws dealing with lending.

The Frenchman who is willing to lend to me on my bill, does not compel me to make my property over to him, but he makes his over to me; he gives up his right to demand reimbursement, but I do not renounce my duty to repay him. Besides, neither the French nor the Dutch practice usury; the price of money, like that of any other thing, must be settled by the relation between the supply and the demand and not by laws.

V. I do not know if 5 per cent at present is so very disadvantageous for us with respect to the English and the Dutch. The difference in the interest of money has some absolute and some relative aspects.

VI. I shall not dwell on the exceedingly vast subject of public credit, but I should wish to examine the usefulness of the transfer of debts in itself, and the advantages which result therefrom, and the means of making it more favorable.

VII. If all the sums paid by apprentices and at receptions¹ were used to repay the debts of the corporations and not for feasts, edifices, and law suits, the evil, if it were left to exist for a while, would perhaps bring with it its own remedy. Would there be no means of setting up a bureau of administration to deal with this?

VIII. This regulation which Child proposes to be imposed on the manufacturer is not unjust, but what purpose does it serve? It would give facilities for selling by the piece, but is not the declaration of the manufacturer enough? If he is dishonest, would he not be equally punished by the loss of his reputation, whether he had marked his piece or not.

IX. I doubt strongly that the regulations would be useful even for the original establishment of manufactures. Some examples and some prices would be more useful.

X. On the gain of the State when the merchant loses.

XI. It is not the lack of opportunities, but the too large quantity on the one hand, and the kind of discredit attached to commerce on the other, which draw the money away from it, and raise interest.

XII. If the Kings had truly desired it, the nobility would enter commerce; it was necessary to set examples and worthy examples at that.

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Written 1753–1754. This translation is the one that was published with the title: Traité sur le commerce et les avantages qui résultent de la réduction de l’intérêt de l’argent, by Josiah Child, bart., Avec un petit traité contre l’usure by Sir Thomas Culpeper (the Elder), translated from the English, Amsterdam and Berlin, 1754. This translation was the work of Vincent de Gournay and Butel-Dumont, and was to be accompanied by extensive notes of which Gournay, in the autumn of 1752, had already edited the greater part, but the Contrôleur-général did not permit their publication. These notes have unfortunately been lost.

¹ I.e., into the guilds.

Fairs and Markets

Great fairs were common in Europe in Turgot’s time and earlier, and he here considers the economic principles that underlie these institutions. In order for a fair to be able to maintain itself, the sellers must be able to recover the transportation costs of getting their goods to the fair. Likewise, buyers must think the trip worth enough to them to justify their expenses of traveling to the fair. Once a fair is established, the fact that a large number of deals can be made there becomes self-reinforcing. More people will travel to the fair, and this will permit more deals to be made. Many fairs have risen to prominence because they offer freedom from burdensome economic regulations by the state. The gains from this freedom do not offset the losses caused by unneeded regulation.