he state has
interfered to prevent a fair and free market rate of interest, by
imposing heavy and ruinous penalties on all those who shall take more
than the rate fixed by law. In all countries probably these laws are
evaded, but records give us little information on this head, and point
out rather the legal and fixed rate, than the market rate of interest.
During the present war, exchequer and navy bills have frequently been at
so high a discount, as to afford the purchasers of them 7, 8 per cent.,
or a greater rate of interest for their money. Loans have been raised by
Government at an interest exceeding 6 per cent., and individuals have
been frequently obliged, by indirect means, to pay more than 10 per
cent., for the interest of money; yet during this same period the legal
rate of interest has been uniformly at 5 per cent. Little dependance for
information then can be placed on that which is the fixed and legal rate
of interest, when we find it may differ so considerably from the market
rate. Adam Smith informs us, that from the 37th of Henry VIII., to 21st
of James I., 10 per cent. continued to be the legal rate of interest.
Soon after the restoration, it was reduced to 6 per cent., and by the
12th of Anne, to 5 per cent. He thinks the legal rate followed, and did
not precede the market rate of interest. Before the American War,
Government borrowed at 3 per cent., and the people of credit in the
capital, and in many other parts of the kingdom at 3-1/2, 4, and 4-1/2
per cent.

The rate of interest, though ultimately and permanently governed by the
rate of profit, is however subject to temporary variations from other
causes. With every fluctuation in the quantity and value of money, the
prices of commodities naturally vary. They vary also, as we have already
shewn, from the alteration in the proportion of supply to demand,
although there should not be either greater facility or difficulty of
production. When the market prices of goods fall from an abundant
supply, from a diminished demand, or from a rise in the value of money,
a manufacturer naturally accumulates an unusual quantity of finished
goods, being unwilling to sell them at very depressed prices. To meet
his ordinary payments, for which he used to depend on the sale of his
goods, he now endeavours to borrow on credit, and is often obliged to
give an increased rate of interest. This however is but of temporary
duration; for either the manufacturer's expectati