Joseph Massie on the natural rate of interest, 1750.

Introduction

The circumstances of Joseph Massie's life are hidden in the same irritating obscurity 1 that enshrouds other notable English economic writers — Vanderlint, Harris — of the middle eighteenth century. We know only of his literary productivity in the period from 1750 to 1765, and of his death — the latter recorded in a bare note in the Gentleman's Magazine: 2 " November, [1784]. In Holbourn, Mr. Joseph Massie, well known for his political writings." Some of his tracts are inscribed to statesmen of the period in the deferential manner that suggests the favor-seeking pamphleteer rather than the detached philosopher, 3 and this impression is confirmed by the infrequent mention of his writings or opinions in contemporary economic literature.

As a matter of fact, it is as bibliographer rather than as author that Massie figures largest in the history of economic thought. The " Fifteen Hundred, or more, Books and Pamphlets " concerning "the Commerce, Coin, and Colonies of Great Britain" which he had been " above Twelve Years in making " — though he " resided in London, and was not sparing of either Time or Money to enlarge it " * — were sold in 1760, and thereafter dispersed, lost or hidden — how and in what manner we have no knowledge. The only clue is Massie's own brief memorandum: 3 " Nov r . 1760. Sold the whole Collection Excepting those under Five Heads — Viz — Duplicates — Tables — Abstract of Laws — Single Acts — Treaties."

But Massie left a monument to his zeal in an admirably compiled finding-list which he continued to revise and extend even after he had disposed of the actual collection, and this ' Alpha-

1 " It is surprising that the personal history of this celebrated pamphleteer is unknown." (Notes and Queries, February 10, 1866; 3d series, vol. ix, p. 119.)

3 The copy of Massie's " Observations upon Mr. Fauquier's Essay " (London, 1756), in the possession of the present writer is a presentation copy from the author to Lord Townshend.

* Massie, " Representation concerning the Knowledge of Commerce as a National Concern " (London, 1760), pp. 1, 14.

5 Upon a slip attached to the MS. " Index " ; see following note.

4 Introduction

betical and Chronological Index of Commercial Books and Pamphlets,' • which by December, 1764 had grown to 2377 items, still serves as the most helpful guide to English economic literature before Adam Smith.

Massie's interest in economic literature was not, however, merely as bibliophile or collector. If not present from the first, the intention soon developed of utilizing the materials that he had gathered for two works, a " commercial history of Great Britain " and a treatise upon the " elements of commerce illustrated by Applications." In 1760 Massie submitted the desirability of their preparation to the commissioners of the Treasury and of the Exchequer and sought public employment therefor. 7 Nothing seems to have come of the proposal, and the tract in which it was urged is still of interest as defining a present need as well as suggesting an early and vivid conception that economic principles must rest upon economic induction.

The energy which was denied its larger opportunity found vent in a series of pamphlets and tracts written year after year from 1750 to 1764 and dealing with a wide range of contemporary issues of social and economic import. 8 Of these tracts the essay here reprinted is the earliest and one of the most important. More than any other it is concerned with an economic principle, marking a phase in Massie's mental history before the stress of contemporary issues had made him pamphleteer and tract-writer. Whether or not it be properly entitled to the distinction, accorded it by many critics since Roscher's 8 time, of refuting the direct association of the rate of interest with the amount of money, which two years later Hume repeated with greater simplicity but no more force — Massie's tract surely ranks as an important element in the pre-Smithian discussion of profits, and neither the doctrinal historian nor the theoretical economist may properly neglect its content.

7 " Representation concerning the Knowledge of Commerce," p. 25.

8 For an apparently complete list, see Palgrave, " Dictionary of Political Economy," sub Massie.

""Principles of Political Economy" (Eng. trans., New York. 1878), vol. i, p. 150 n.

Introduction 5

The present edition is a reprint of Massie's essay as issued in 1750. 10 The general appearance of the title page has been preserved, the original pagination has been indicated and a few notes have been appended.

Baltimobe, December, 1911.

10 The formal collation of the tract is as follows: Title, 1 1., preface, [iii]-iv. 5-62, 8°. As early as 1758 the tract was out of print (Massie, "Farther Observations concerning the Foundling- Hospital" (London, 1758).

AN

ESSAY

ON THE

Governing Causes

OF THE

Natural Rate

OF

INTEREST;

WHEREIN

The Sentiments of Sir William Petty and Mr. Locke, on that Head, are considered.

LONDON:

Printed for W. Owen, at Homer's Head, near

Temple 'Bar. MDCCL.

(Price One Shilling.)

Preface

N Inquiry into Opinions which have been generally received and long established, is an Undertaking that will always be sure to meet with Opposition and Censure; as it is not only the Author of such Opinions, bid many of those who have concurred in them, that are apt to think themselves affected by it. It is this Consideration, together with Mr. Locke's eminently distinguished Abilities, and truly great Character, that makes me unwilling to call in Question, so long after his Death, any part of what he has wrote; but as it is upon a Subject of general Concern which cannot be too particularly considered; I hope, those who have already approved of what that Gentleman has said concerning Interest, will not disapprove of what I have wrote, unless it be for some weightier Reason, than that of differing from him; which, with the candid Part of the World, will not, I flatter myself, be looked upon as any want of Respect for his Memory; for there are few, if any, who have a greater Veneration for it, || than myself; and though I can- iv Pref. not agree with him in every 'Particular, yet I think, the greatest Part of what he has said upon Coin, and Commerce, is unanswerable.

Every one who is acquainted with Mr. Locke's Works must be satisfied, he was too great a Lover of Truth, to object against an Inquiry into any Thing he wrote; and I hope none

Preface will think me wrong m taking a Liberty which he Iwnself would have allowed, had he been living ; as I have made no other Use of it, than that of endeavouring to find out what the Bate of Interest depends on, which may possibly be in some Degree useful or satisfactory at this Time, to those who are inclined to employ their Thoughts that Way.

AN

ESSAY

ON THE

Governing Causes of the Natural Rate of INTEREST, kc.

FTER Sir William Petty and Mr. Locke have said what governs the Rate of Interest, any further Considerations on the Subject may perhaps be thought unnecessary; whether they really are so or not, I will not say, but shall leave every one to judge for themselves, when they have read the following Observations upon the Sentiments of those gentlemen, which I have here collected, and shall refer to by Figures, as often as I have Occasion to mention them.|| i

Extracts from Sir William Petty's Political Arithmetich, and Mr. Locke's Treatise on Interest, &C 1

From Sir W. Petty's Political Arithmetic^, Third Edition, printed in the Year 1699. 2

" 1. As to Money, the Interest thereof was within this fifty " Years,* at 10Z. per Cent, forty years ago, at 8?. and now at

* Interest was reduced by Law from 10 to 8 per Cent. Anno 1623, and from 8 to 6 per Cent, in 1660.

" 61. no Thanks to any Laws which have been made to that Pur- " pose, for as mnch as those who can give good Security, may " now have it at less : But the natural Fall of Interest, is the " Effect of the Increase of Money." Chap. 6. page 259.

From Mr. Locke's Treatise on Interest, &c. 3

" 2. By natural Use, I mean that Bate of Money, which the "present Scarcity of it makes it naturally at, upon an equal " Distribution of it." Folio Edition of his Works, printed in 1740. Vol. 2. Page 6.

" 3. Now, I think, the natural Interest of Money is raised " in two Ways. First, When the Money of a Country is but " little, in Proportion to the Debts of the Inhabitants, one " amongst other. For, suppose Ten Thousand Pounds were " sufficient to manage the Trade of Bermudas, and that the "ten first Planters carried over Twenty Thousand Pounds, "which they lent to the several Tradesmen and Inhabitants 7 "of the Country, who living above their Gains, || had spent " Ten Thousand Pounds of this Money, and it were gone out " of the Island : 'Tis evident, that, should all the Creditors at " once call in their Money, there would be a great Scarcity of " Money, when that, employ'd in Trade, must be taken out of "the Tradesmen's Hands to pay Debts; or else the Debtors "want Money, and be exposed to their Creditors, and so " Interest will be high. But this seldom happening, that all, " or the greatest Part of the Creditors, do at once call for " their money, unless it be in some great and general Danger, " is less and seldomer felt than the following, unless where the " Debts of the People are grown to a greater Proportion ; for " that, constantly causing more Borrowers, than there can be " Lenders, will make Money scarce, and consequently Interest " high.

"Secondly, That which constantly raises the natural In- " terest of Money, is, when Money is little, in Proportion to " the Trade of a Country. For in Trade, every Body calls for " Money, according as he wants it, and this Disproportion is

" always felt. For, if Englishmen owed in all but one Million, " and there were a Million of Money in England, the Money " would be well enough proportion'd to the Debts ; but, if two " Millions were necessary to carry on the Trade, there would be " a Million wanting, and the Price of Money would be raised, " as it is of any other Commodity in a Market, where the " Merchandize will not serve half the Customers, and there " are two Buyers for one Seller." Page 6.

" 4. The lowering of Interest to 4 per Cent, will be a Gain to " the borrowing Merchant. For, if he borrow at 4 per Cent. 11 and his Re || turns be 12 per Cent, he will have 8 per Cent. \ " and the Lender Four : Whereas now they divide the Profit " equally as 6 per Cent." Pag. 7.

" 5. For no Country borrows of its Neighbours, but where " there is need of Money for Trade ; no Body will borrow more " of a Foreigner, to let it lie still." 'Pag. 9.

" 6. So that, if the Merchant's Return be more than his "Use (which 'tis certain it is, or else he will not trade, &c.)" Pag. 9.

" 7. It cannot well be thought, that less than one fiftieth " Part of the Labourer's Wages, one fourth Part of " the Landholder's yearly Revenue, and one twentieth Part " of the Broker's * yearly Returns in ready Money, will " be enough to drive the Trade of any Country. At least, to " put it beyond Exception low enough, it cannot be imagin'd " that less than one Moiety, of this, i. e. less than one hun- " dredth Part of the Labourer's yearly Wages, one eighth Part " of Landholder's yearly Revenue, and one fortieth Part of the " Broker's yearly Returns, in ready Money, can be enough to " move the several Wheels of Trade, and keep up Commerce, " in that Life and thriving Posture it should be ; and how "much the ready Cash of any Country is short of this Pro- " portion, so much must the Trade be impair'd and hinder'd " for want of Money." Pag. 15.

* Tradesmen.

" 8. It may then so happen at the same Time, that half an " Ounce of Silver, that the Year before would buy one Bushel " of Wheat, will this year buy but one tenth of a Bushel ; half " an Ounce of Silver, that the Year before would have bought "three Bushels of Oats, will this Year still buy one Bushel;

«* " and at the same || Time half an Ounce of Silver, that would "the Year before have bought fifteen Pounds of Lead, will " still buy the same Quantity. So that at the same Time Silver, in respect of Wheat, is nine tenths less worth than it "was, in Bespect of Oats two Thirds less worth, and in Re- " spect of Lead as much worth as before. The Fall, therefore, "or Rise of Interest, making immediately, by its Change, "neither more nor less Land, Money, or any Sort of Com- " modify in England, than there was before, alters not at all " the Value of Money in Reference to Commodities. Because "the Measure of that is only the Quantity and Vent, which " are not immediately changed by the Change of Interest. So " far as the Change of Interest conduces, in Trade, to the "bringing in, or carrying out Money, or Commodities, and " so in Time to the varying their Proportions here in Eng- " land, from what it was before ; so far the Change of Interest, " as all other Things that promote, or hinder Trade, may alter " the Value of Money, in Reference to Commodities." 'Page 17.

9. First, " That the Value of Land consists in this, that, by "its constant Production of saleable Commodities, it brings " in a certain yearly Income. Secondly, The Value of Com- " modifies consists in this, that as portable and useful Things, " they, by their Exchange or Consumption, supply the Neces- " saries, or Conveniences of Life. Thirdly, In Money there is "a double Value, answering to both of these; 1. As it is " capable, by its Interest, to yield us such a yearly Income : " And in this it has the Nature of Land, (the Income of one " being called Rent, of the other Use) Page 17, 18. 2. Money

10 "has a Va II lue, as it is capable, by Exchange, to procure us

The Natural Eate or Interest 15

" the Necessaries;, and Conveniences of Life, and in this it has " the Nature of a Commodity." Page 18.

10. " Money therefore, in buying and elling, being perfectly " in the same Condition with other Commodities, and subject " to all the same Laws of Value ; let us next see how it comes " to be of the same Nature with Land, by yielding a certain " yearly Income, which we call Use or Interest. For Land " produces naturally something new and profitable, and of " value to Mankind ; but Money is a barren Thing, and pro- " duces nothing, but by Compact, transfers that Profit, that " was the Eeward of one Man's Labour, into another Man's " Pocket. That which occasions this, is the unequal Distri- " bution of Money ; which Inequality has the same Effect too " upon Land, that it has upon Money. For my having more " Money in my Hand than I can, or am disposed to use in "buying, or selling, makes me able to lend: And another's " Want of so much Money as he could employ in Trade, makes " him willing to borrow. But why then, and for what Con- " sideration doth he pay Use ? For the same Eeason, and upon " as good Consideration, as the Tenant pays Eent for your " Land. For as the unequal Distribution of Land, (you hav- " ing more than you can, or will manure, and another less) " brings you a Tenant for your Land ; and the same unequal " Distribution of Money (I having more than I can, or will " employ, and another less) brings me a Tenant for my " Money : So my Money is apt in Trade, by the Industry of " the Borrower, to produce more than 6 per Gent, to the Bor-

" rower, as well as your Land, by the Labour of the Tenant, || n " is apt to produce more Fruits, than his Eent comes to ; and " therefore deserves to be paid for, as well as Land, by a yearly " Eent." Pag. 19.

11. "It being only the Change of the Quantity of Wheat to " its Vent, supposing we have still the same Sum of Money in '•'the Kingdom; or else the Change of the Quantity of our " Money in the Kingdom, supposing the Quantity of Wheat, " in Eespect to its Vent be the same too, that makes the

1G Joseph Massie

" Change in the Price of Wheat. For if you alter the Quan- " tity, or Vent, on either Side, you presently alter the Price, " but no other Way in the World." Page 21.

12. "That, which raises the natural Interest of Money, is " the same that raises the Pient of Land, i. e. its Aptness to " bring in yearly to him that manages it, a greater Overplus " of Income, above his Pent, as a Keward to his Labour. That, " which causes this in Land, is the greater Quantity of its " Product, in Proportion to the same Vent of that particular " Fruit, or the same Quantity of Product, in Proportion to a "greater Vent of that single Commodity; but that, which " causes Increase of Profit to the Borrower of Money, is the "less Quantity of Money, in Proportion to Trade, or to the " Vent of all Commodities, taken together, and vice versa.

" The natural Value of Money, as it is apt to yield such an "yearly Income by Interest, depends on the whole Quantity " of the then passing Money of the Kingdom, in Proportion to " the whole Trade of the Kingdom, i. e. the general Vent of all " the Commodities. But the natural Value of Money, in ex- " changing for any one Commodity, is the Quantity of the 12 "trading Money of the Kingdom, designed for that || Com- " modity, in Proportion to that single Commodity and its " Vent. For though any single Man's Necessity and Want, " either of Money, or any Species of Commodity, being known, " may make him pay dearer for Money, or that Commodity ; " yet this is but a particular Case, that does not at the same " Time alter this constant and general Kule." Page 24.

13. " That supposing Wheat a standing Measure, that is, " that there is constantly the same Quantity of it, in Propor- " tion to its Vent, we shall find Money to run the same Variety " of Changes in its Value, as all other Commodities do. Now " that Wheat in England does come nearest to a standing " Measure, is evident by comparing Wheat with other Com- " modifies, Money, and the yearly Income of Land, in Henry " the Seventh's Time, and now. For supposing that Primo "Hen. 7 N. let 100 Acres of Land to A. for 6d per Annum,

" per Acre, Rack-Bent, and to B. another 100 Acres of Land, "of the same Soil and yearly Worth with the former, for a " Bnshel of Wheat per Acre, Back-Rent, (a Bushel of Wheat "about that Time, being probably sold for about 6d.) it was " then an equal Bent. If, therefore, these Leases were for " Years yet to come, it is certain that he, that paid but 6(7. " per Acre, would pay now 50s. per Annum, and he that paid " a Bushel of Wheat per Acre, would pay now about 25/. per " A nnum which would be near about the yearly Value of the " Land, were it to be let now. The Reason whereof is this, " that there being ten Times as much Silver now in the World " (the Discovery of the West-Indies having made the Plenty) " as there was then, it is nine Tenths less Worth now, than it " was at that Time; that is, it || will exchange for nine-Tenths 13 " less of any Commodity now, which bears the same Propor- " tion to its Yent, as it did 200 Years since ; which of all other " Commodities. Wheat is likeliest to do. For in England, and " this Part of the World, Wheat being the constant and most " general Food, not altering with the Fashion, not growing by " Chance ; but as the Farmers sow more or less of it, which " they endeavour to proportion, as near as can be guessed, to " the Consumption, abstracting the Overplus of the precedent "Year, in their Provision for the next; and vice versa; it " must needs fall out, that it " keeps the nearest Proportion " to its Consumption (which is more studied and designed in "this, than other Commodities) of any Thing, if you take it " for 7 or 20 Years together : Though perhaps the Plenty, or " Scarcity of one Year, caused by the Accidents of the Season, " may very much vary it from the immediately precedent, or " following. Wheat, therefore, in this Part of the World, (and " that Grain, which is the constant general Food of any other " Country) is the fittest Measure to judge of the alter'd Value " of Things, in any long Tract of Time." Page 24, 25.

14. " For, supposing the Balance of Trade to be equal be- " tween England and Holland, but that there is in Holland a "greater Plenty of Money than in England (which will ap-

" pear by the Lowness of the natural Use in Holland, and the " Heighth of the natural Use in England; &c." Page 27.

15. " ; Tis seldom a thriving Man turns his Land into " Money, to make the greater Advantage : The Examples of it

14 " are so rare that they || are scarce of any Consideration in the " Number of Sellers.

" This, I think, may be the Reason, why in Queen Eliza- " betlis Days, (when Sobriety, Frugality, and Industry, " brought in daily Increase to the growing Wealth of the King- " dom) Land kept up its Price, and sold for more Years Pur- " chase, than corresponded to the Interest of Money, then " busily employed in a thriving Trade, which made the natural " Interest much higher than it is now, as well as the Parlia- " ment then set it higher by Law." Pag. 28.

" 16. High Interest is thought by some a Prejudice to " Trade : but if we look back, we shall find, that England "never throve so well, nor was there ever brought into Eng- " land so great an increase of Wealth since, as in Queen Eliza- " beth's and King James I. and King Charles I. Time, when " Money was at 10 and 8 per Cent. I will not say high In- " terest was the Cause of it; for I rather think that our thriv- " ing Trade was the Cause of high Interest, every one craving " Money to employ in a profitable Commerce." Pag. 34.

17. " Indeed, I grant it would be well for England, and I "wish it were so, that the Plenty of Money were so great " amongst us, that every Man could borrow, as much as he " could use in Trade, for 4 per Cent, nay, that Men could bor- " row as much as they could employ for 6 per Cent. But even " at that Rate, the Borrowers already are far more than the " Lenders." Pag. 39.

It appears from these several Extracts, that Mr. Locke attributes the Government of the natural Rate of Interest to the Proportion which the Quantity of Money in a Country bears to the Debts of its Inhabitants one amongst another,

15 and || to the Trade of it; and that Sir William Petty makes it depend on the Quantity of Money alone ; so they only differ in

The Natural Kate of Interest 19

regard to Debts; for though they express themselves differently concerning Money, yet it is plain they mean one and the same Thing.

Mr. Lodce also mentions the Profits of Trade as instrumental in raising Interest, for Extract 16, he accounts for the high Eate of Interest in Queen Elizabeth's Eeign, by the Profits of Trade ; but then he subjects them to the Proportion which the Quantity of Money bears to Trade: For (Extract 12.) he says, "That which causes Increase of Profit to the " Borrower of Money, is the less Quantity of Money, in proportion to Trade, or to the Yent of all Commodities taken " together, and vice versa, &c." From whence it is evident he thought the Proportion which Money bore to Trade, not only governed Interest, but the Profits of Trade likewise.

These are the Sentiments of those Gentlemen, and these would have been mine, had Experience even left the Matter doubtful : But when I found Mr. Locke's Position relating to the Proportion of Debts clash' d with Facts it should have agreed with, and the principal Position, concerning the Proportion of Money, contradicted by the very kind of Experience which Mr. Locke himself points out as the best, I could not help differing from them.

ON THE PROPORTION OF DEBTS.

" Now I think the Natural Interest of Money is raised two " ways : First, When the Money of a Country is but little, in " Proportion to the Debts of the Inhabitants one amongst "another." (Extract 3.) \\ 16

If Debts had so considerable an Influence over Natural Interest, as Mr. Locke attributes to them, one might reasonably expect to have found the present Eate of it more than half what is was 150 Years ago: For if the Debts which were then owing by the Inhabitants of this Island, one among another, were a principal Cause of Interest being so high as 10 per Cent, per Annum, the Alterations which have since happened here in that Respect, as well in private as publick Affairs, are Arguments for its being above, and not below, that Eate.

Luxury and Extravagance are much more general among private People now, than they were formerly; and these cannot increase, without producing an Increase of Debts; and the State of the Nation, in respect of publick Debt, is worse than it was 150 Years ago, almost beyond Comparison: For then the publick Revenues commonly defrayed the current Expences; whereas now, by frequent Mortgages, the Publick is, and has been for many Years, at least twice as much Money in debt, as there ever was supposed Specie in the Nation at any one Time to pay ; the greater Part of which is, no doubt, owing to the Inhabitants of this Country: So that if any Inference is to be made concerning the present Rate of Interest, from a Comparison of the publick and private Debts of this Age, with those of our Ancestors, it should, according to Mr. Lode's Rule, be higher than it was 150 Years ago. It does not seem extravagant to suppose such a Load of Debts as this, must have raised Interest to 20 per Cent, but no one could well imagine it to be less than 15 per Cent, which being full three times as much as has for many Years been paid for Interest, sufficiently demonstrates how little the Debts of 17 People, one amongst || another, have to do with the Rate of Interest in the Country wherein they live, for any considerable Tract of Time. jSTor will taking the Position in a more limited Sense, make much Difference; for we see that notwithstanding the national Debt has increased from forty-five to seventy-eight Millions since the Year 1740, (according to a State of it lately published in a Pamphlet, entitled, Considerations upon- a Reduction of the Land-Tax) 1 the Rate of Interest among private People in general, is now much the same as it was at that Time : It is indeed somewhat higher to the Government than it was ten Years ago, the Reason of which I shall endeavour to shew, when I come to speak of publick Credit: At present I shall only say, that suddenly collecting great

The Natural Eate or Interest 21

Sums of Money does undoubtedly at the Time, raise the Eate of Interest with Numbers of private People; just as buying great Quantities of Wheat raises the Prjce of that particular Commodity : And thus far I agree with Mr. Locke : But it is manifest from what lias been said, that when the Demands which occasioned such Eise is satisfied, Interest soon returns to its natural Eate: For the Price which Money bears in Times of general Danger, or publick Necessity, cannot be ealPd so, any more than the Price which a Man agrees to give for Wheat can be called the natural Price for it, when the Seller takes an Advantage of the Buyer's Necessity, or cannot have the Assistance of Law to oblige him to pay for it.