XXX Contents. Chapter XII. On the Rate of Interest, Th^ current rate of interest is determined by the price of Funds, because these securities involve no risk— In this chapter, two questions have to be investigated ; in the first place, the causes which determine the normal or average current rate of interest must be explained, and secondly, the daily fluctuations in the current rate of interest must be accounted for — The current rate of interest must be such as will equalise the demand for loans to the supply— The average current rate of interest may be affected by national character, because some nations are more prudent, and therefore satisfied with a smaller rate of interest than others— If the average rate of profit advances, the current rate of interest must also rise— The rate of profit depends on the cost of labour ; the cost of labour increases if food becomes more expensive — If the current rate of interest advances, the price of securities and the price of land will decline — The causes which advance the rate of interest generally exert an influence to diminish the rent of land— Different rates of interest may prevail in different countries, because the people of one country will not invest their capital in another country without receiving some additional remuneration — Temporary fluctuations in the rate of discount or in the rate of interest are caused by variations in the demand for money — An increase in the demand for money is generally produced by contraction of credit pages 467—476 Chapter XIII. On the Tendenxyy of Profits to fail as a Nation advances, Adam Smith erroneously supposed that the rate of profit depended upon general prices — A rise" or fall in general prices need not necessarily affect the rate of profit — Adam Smith was led into the error above alluded to by misinterpreting the phenomena connected with the depression and activity of trade— The average rate of profit is partly the cause and partly the effect of the amount of capital accumulated— When a country advances in population and wealth, two agencies operate to reduce profits : in tne first place, food becomes more expensive, and the cost of labour is increased ; and secondly, a greater capital is accumulated in proportion to the profits which can be realised upon it — The decline in the rate of profit in England retarded by the great amount of capital which we invest in foreign countries— Industrial improvements, and the importation of cheap food, may prevent the cost of labour increasing as a country advances in population — This explains the fact that the rate of profit has only very slishtly declined in England, althou|^h her population and wealth have both greatly increased — A nation is said to be in a stationary state when the rate of profit is so low that the accumula- tion of capital does not further increase — The stationary state was more likely to be attained in the i8th century than at the present time — Surplus capital is absorbed, or rather destroyed, in a com- mercial panic ; thus an influence is exerted to sustain the average rate of profit— A high rate of profit prevails in a colony, because fertile land is abundant — Agriculture must be the staple industry of a young colony — The returns to agriculture must be great when only the most fertile soils need be cultivated — Hence, in a colony, wages and profits are both generally high 477—488 Digitized by
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