Reflections on the Formation
and Distribution of Wealth

Anne Robert Jacques Turgot

[1776 / Part 4 of 5]

  • 61. Subdivisions of the industrious stipendiary class, in undertaking capitalists and simple workmen.

    Thus the whole class-employed in supplying the different wants of society, with an immense variety of works of industry, is, if I may speak thus, subdivided into two classes. The one, of the undertakers, manufacturers and masters, all proprietors of large capitals, which they avail themselves of, by furnishing work to the other class, composed of artificers, destitute of any property but their hands, who advance only their daily labour, and receive no profits but their salaries.

  • 62. Another employment of capitals, in advances towards undertakings of agriculture. Observations on the use, and indispensable profits of capitals in undertakings of agriculture.

    In speaking first of the placing of capitals in manufacturing enterprizes, I had in view to adduce a more striking example, of the necessity and effect of large advances, and of the course of their circulation. But I have reversed the natural order, which seemed to require that I should rather begin to speak of enterprizes of agriculture, which also can neither be performed, nor extended, nor afford any profit, but by means of considerable advances. It is the proprietors of great capitals, who, in order to make them productive in undertakings of agriculture, take leases of lands, and pay to the owners large rents, taking on themselves the whole burthen of advances. Their case must necessarily be the same as that of the undertakers of manufactures. Like them, they are obliged to make the first advances towards the undertaking, to provide themselves with cattle, horses, utensils of husbandry, to purchase the first seeds; like them they must maintain and nourish their carters, reapers, threshers, servants, and labourers, of every denomination, who subsist only by their hands, who advance only their labour, and reap only their salaries. Like them, they ought to have not only their capital, I mean, all their prior and annual advances returned, but, 1st, a profit equal to the revenue they could have acquired with their capital, exclusive of any fatigue; 2ndly. The salary, and the price of their own trouble, of their risk, and their industry; 3rdly. An emolument to enable them to replace the effects employed in their enterprise, and the loss by waste, cattle dying, and utensils wearing out, &c., all which ought to be first charged on the products of the earth. The over-plus will serve the cultivator to pay to the proprietor, for the permission he has given him to make use of his field in the accomplishing of his enterprize; that is, the price of the leasehold, the rent of the proprietor and the clear product: for all that the land produces, until reimbursement of the advances, and profits of every kind to him that has made these advances, cannot be looked upon as a revenue, but only as a reimbursement of the expences of the cultivation, since if the cultivator could not obtain them, he would be loath to risk his wealth and trouble in cultivating the field of another.

  • 63. The competition between the capitalists, undertakers of cultivation, fixes the current price of leases of lands.

    The competition between rich undertakers of cultivation fixes the current price of leases, in proportion to the fertility of the soil, and of the rate at which its productions are sold, always according to the calculation which farmers make both of their expenditures, and of the profits they ought to draw from their advances. They cannot give to the owners more than the overplus. But when the competition among them happens to be more animated, they sometimes render him the whole overplus, the proprietor leasing his land to him that offers the greatest rent.

  • 64. The default of capitalists, undertakers, limits the cultivation of lands to a small extent.

    When, on the contrary, there are no rich men that possess capitals large enough to embark in enterprizes of agriculture; when, through the low rate of the productions of the earth, or any other cause, the crops are not sufficient to ensure to the undertakers, besides the reimbursement of their capital, emoluments adequate at least to those they would derive from their money, by employing it in some other channel; there are no farmers that offer to lease lands, the proprietors are constrained to hire mercenaries or metayers, which are equally unable to make any advances, or duly to cultivate it. The proprietor himself makes moderate advances, which only produce him an indifferent revenue: If the land happens to belong to an owner, poor, negligent, and in debt, to a widow, or a minor, it remains unmanured; such is the principle of the difference I have observed between provinces, where the lands are cultivated by opulent farmers, as in Normandy and the Isle de France, and those where they are cultivated only by indigent mercenaries, as in Limousin, Angoumois, Bourbonnois, and several others.

  • 65. Subdivisions of the class of cultivators into undertakers, or farmers, and hired persons, servants, and day-labourers.

    Hence it follows, that the class of cultivators may be divided, like that of manufacturers, into two branches, the one of undertakers or capitalists, who make the advances, the other of simple stipendiary workmen. It results also, that capitals alone can form and support great enterprizes of agriculture, that give to the lands an unvariable value, if I may use the expression, and that secure to the proprietors a revenue always equal, and the largest possible.

  • 66. Fourth employment of capitals, in advances for enterprises of commerce. Necessity of the interposition of merchants, properly so called, between the producers of the commodities and the consumers.

    The undertakers either in cultivation or manufacture, draw their advances and profits only from the sale of the fruits of the earth, or the commodities fabricated. It is always the wants and the ability of the consumer that sets the price on the sale; but the consumer does not want the produce prepared or fitted up at the moment of the crop, or the perfection of the work. However, the undertakers want their stocks immediately and regularly reimbursed, to embark in fresh enterprises: the manuring and the seed ought to succeed the crops without interruption. The workmen of a manufacture are unceasingly to be employed in beginning other works, in proportion as the first are distributed, and to replace the materials in proportion as they are consumed. It would not be advisable to stop short in an enterprize once put in execution, nor is it to be presumed that it can be begun again at any time. It is then the strictest interest of the undertaker, to have his capital quickly reimbursed by the sale of his crop or commodities. On the other hand, it is the consumers interest to find, when and where he wishes it, the things he stands in need of it would be extremely inconvenient for him to be necessitated to make, at the time of the crop, his provision for the whole course of a year. Among the objects of usual consumption, there are many that require long and expensive labours, labours that cannot be undertaken with profit, except on a large quantity of materials, and on such as the consumption of a small number of inhabitants of a limited district, may not be sufficient for even the sale of the work of a single manufactory. Undertakings of this kind must then necessarily be in a reduced number, at a considerable distance from each other, and consequently very distant from the habitations of the greater number of consumers. There is no man, not oppressed under the extremest misery, that is not in a situation to consume several things, which are neither gathered nor fabricated, except in places considerably distant from him, and not less distant from each other. A person that could not procure himself the objects of his consumption but in buying it directly from, the hand of him that gathers or works it, would be either unprovided with many commodities, or pass his life in wandering after them.

    This double interest which the person producing and the consumer have, the former to find a purchaser, the other to find where to purchase, and yet not to waste useful time in expecting a purchaser, or in finding a seller, has given the idea to a third person to stand between the one and the other. And it is the object of the mercantile profession, who purchase goods from the hands of the person who produces them, to store them in warehouses, whither the consumer comes to make his purchase. By these means the undertaker, assured of the sale and the re-acquisition of his funds, looks undisturbed and indefatigably out for new productions, and the consumer finds within his reach and at once, the objects of which he is in want.

  • 67. Different orders of merchants. They all have this in common, that they purchase to sell again; and that their traffic is supported by advances which are to revert with a profit, to be engaged in new enterprizes.

    From the green-woman who exposes her ware in a market, to the merchants of Nantz or Cadiz, who traffic even to India and America, the profession of a trader, or what is properly called commerce, divides into an infinity of branches, and it may be said of degrees. One trader confines himself to provide one or several species of commodities which he sells in his shop to those who chuse; another goes with certain commodities to a place where they are in demand, to bring from thence in exchange, such things as are produced there, and are wanted in the place from whence he departed: one makes his exchanges in his own neighbourhood, and by himself, another by means of correspondents, and by the interposition of carriers, whom he pays, employs, and sends from one province to another, from one kingdom to another, from Europe to Asia, and from Asia back to Europe. One sells his merchandize by retail to those who use them, another only sells in large parcels at a time, to other traders who retail them out to the consumers: but all have this in common that they buy to sell again, and that their first purchases are advances which are returned to them only in course of time. They ought to be returned to them, like those of the cultivators and manufacturers, not only within a certain time, to be employed again in new purchases, but also, 1. with an equal revenue to what they could acquire with their capital without any labour; 2. with the value of their labour, of their risk, and of their industry. Without being assured of this return, and of these indispensable profits, no trader would enter into business, nor could any one possibly continue therein: tis in this view he governs himself in his purchases, on a calculation he makes of the quantity and the price of the things, which he can hope to dispose of in a certain time: the retailer learns from experience, by the success of limited trials made with precaution, what is nearly the wants of those consumers who deal with him. The merchant learns from his correspondents, of the plenty or scarcity, and of the price of merchandize in those different countries to which his commerce extends; he directs his speculations accordingly, he sends his goods from the country where they bear a low price to those where they are sold dearer, including the expence of transportation in the calculation of the advances he ought to be reimbursed. Since trade is necessary, and it is impossible to undertake any commerce without advances proportionable to its extent; we here see another method of employing personal property, a new use that the possessor of a parcel of commodities reserved and accumulated, of a sum of money, in a word, of a capital, may make of it to procure himself subsistence, and to augment, his riches.

  • 68. The true idea of the circulation of money.

    We see by what has been just now said, how the cultivation of lands, manufactures of all kinds, and all the branches of trade, depend on a mass of capital, or the accumulation of personal property, which, having been at first advanced by the undertakers, in each of these different branches, ought to return to them again every year with a regular profit; that is, the capital to be again invested, and advanced in the continuation of the same enterprizes, and the profits employed for the greater or less subsistence of the undertakers. It is this continued advance and return which constitutes what ought to be called the circulation of money: this useful and fruitful circulation, which animates all the labour of society, which supports all the motion, and is the life of the body politic, and which is with great reason compared to the circulation of the blood in the human body. For, if by any disorder in the course of the expenses of the different orders of society, the undertakers cease to draw back their advances with such profit as they have a right to expect; it is evident they will be obliged to reduce their undertakings; that the total of the labour, of the consumption of the fruits of the earth, of the productions and of the revenue would be equally diminished; that poverty will succeed to riches, and that the common workman, ceasing to find employ, will fall into the deepest misery.

  • 69. All extensive undertakings, particularly those of manufactures and of commerce, must indispensibly have been very confined, before the introduction of gold and silver in trade.

    It is almost unnecessary to remark, that undertakings of all kinds, but especially those of manufactures, and above all those of commerce, must, unavoidably be very confined, before the introduction of gold and silver in trade; since it was almost impossible to accumulate considerable capitals, and yet more difficult, to multiply and divide payments so much as is necessary, to facilitate and increase the exchanges to that extent, which a spirited commerce and circulation require. The cultivation of the land only may support itself to a certain degree, because the cattle are the principal cause of the advances required therein, and it is very probable, there is then no other adventurer in cultivation but the proprietor. As to arts of all kinds, they must necessarily have been in the greatest languor before the introduction of money; they were confined to the coarsest works, for which the proprietors supported the advances, by nourishing the workmen, and furnishing them with materials, or they caused them to be made in their own houses by their servants.

  • 70. Capitals being as necessary to all undertakings as labour and industry, the industrious man shares voluntarily the profit of his enterprize with the owner of the capital who furnishes him the funds he is in need of.

    Since capitals are the indispensable foundation of all lucrative enterprizes; since with money we can furnish means for culture, establish manufactures, and raise a commerce, the profits of which being accumulated and frugally laid up, will become a new capital: since, in a word, money is the principal means to beget money; those who with industry and the love of labour are destitute of capital, and have not sufficient for the undertaking they wish to embark in, have no difficulty in resolving to give up to the proprietors of such capital or money, who are willing to trust them, a portion of the profits which they are in expectation of gaining, over and above their advances.

  • 71. Fifth employment of capitals, lending on interest; nature of a loan.

    The possessors of money balance the risk their capital may run, if the enterprise does not succeed, with the advantage of enjoying a constant profit without toil; and regulate themselves thereby, to require more or less profit or interest for their money, or to consent to lend it for such an interest as the borrower offers. Here another opportunity opens to the possessor of money, viz, lending on interest, or the commerce of money. Let no one mistake me here, lending on interest is only a trade, in which the lender is a man who sells the use of his money, and the borrower one who buys; precisely the same as the proprietor of an estate, or the person who farms it, buys and sells respectively the use of the hired land. The Latin term for a loan of money or interest, expresses it exactly, usura pecuniae, a word which adopted into the French language is become odious, by a consequence of false ideas being adopted on the interest of money.

  • 72. False ideas on lending upon interest.
    The rate of interest is by no means founded, as may be imagined, on the profit the borrower hopes to make, with the capital of which he purchases the use. This rate like the price of all other merchandize, is fixed by the circumstances of buyer and seller; by the proportion of the sum offered with the demand. People borrow with every kind of view, and with every sort of motive. One borrows to undertake an enterprize that is to make his fortune, another to buy an estate, another to pay his losses at play, another to supply the loss of his revenue, of which some accident has deprived him, another to exist on, in expectation of what he is able to gain by his labour. but all these motives which determine the borrower, are very indifferent to the lender. He attends to two things only, the interest he is to receive, and the safety of his capital. He never attends to the use the borrower puts it to, as a merchant does not care to what use the buyer applies the commodities he sells him.

  • 73. Errors of the schoolmen refuted.

    It is for want of having examined the lending of money on interest in its true point of view that moralists, more rigid than enlightened, would endeavour to make us look on it as a crime. Scholastic theologists have concluded, that as money itself was not prolific, it was unjust to require a premium for the loan of it. Full of these prejudices they have fancied their doctrine was sanctioned by this passage in the Gospel, mutuum date nihil inde sperantes: Those theologians who have adopted more reasonable principles on the subject of interest of money, have been branded with the harshest reproaches from those who adopt the other side of the question.

    Nevertheless, there are but few reflections necessary to expose the trifling reasons that are adduced to condemn the taking of interest. A loan of money is a reciprocal contract, free between both parties, and entered into only by reason of its being mutually advantageous. It is evident, if the lender finds an advantage in receiving an interest for his money, the borrower is not less interested in finding that money he stands in need of, since otherwise he would not borrow and submit himself to the payment of interest. Now on this principle, can any one look on such an advantageous contract as a crime, in which both parties are content, and which certainly does no injury to any other person? Let them say the lender takes advantage of the wants of the borrower, to force the payment of interest, this is talking as absurd as if we were to say, that a baker who demands money for the bread he sells, takes advantage of his customer's wants. If in this latter case, the money is an equivalent for the bread the buyer receives, the money which the borrower receives to day, is equally an equivalent for the capital and interest he agrees to pay at the expiration of a certain time; for in fact, it is an advantage to the borrower, to have, during that interval, the use of the money he stands in need of, and it is a disadvantage to the lender to be deprived of it. This disadvantage may be estimated, and it is estimated, the interest is the rate. This rate ought to be larger, if the lender runs a risk of losing his capital by the borrower becoming insolvent. The bargain therefore is perfectly equal on both sides and consequently, fair and honest. Money considered as a physical substance, as a mass of metal, does not produce any thing; but money made use of in advances in cultivation, in manufacture, in commerce, produces a certain profit; with money we can acquire land, and thereby procure a revenue: the person therefore who lends his money, does not only give up the unfruitful possession of such money, but deprives himself of the profit which it was in his power to procure by it, and the interest which indemnifies him from this loss cannot be looked upon as unjust. The schoolmen, compelled to acknowledge the justice of these considerations, have allowed that interest for money may be taken, provided the capital is alienated, that is, provided the lender gave up his right to be reimbursed his money in a certain time, and permitted the borrower to retain it as long as he was inclined to pay the interest thereof only. The reason of this toleration was, that then it is no longer a loan of money for which an interest is paid, but a purchase, which is bought with a sum of money, as we purchase lands. This was a mode to which they had recourse, to comply with the absolute necessity which exists of borrowing money, in the course of the transactions of society, without fairly avowing the fallacy of those principles, upon which they had condemned the practice: but this clause for the alienation of the capital, is not an advantage to the borrower, who remains equally indebted to the lender, until he shall have repaid the capital, and whose property always remains as a security for the safety of such capital; -- it is even a disadvantage, as he finds it more difficult to borrow money when he is in want of it; for persons who would willingly consent to lend for a year or two, a sum of money which they had destined for the purchase of an estate, would not lend it for an uncertain time. Besides, if they are permitted to sell their money for a perpetual rent, why may they not lend it for a certain number of years, for a rent which is only to continue for that term? If an interest of 1000 livres per annum is equivalent to the sum of 20000 livres from him to keep such a sum in perpetuity, 1000 livres will be an equivalent for the possession of that sum for one year.

  • 74. True foundation of interest of money.

    A man then may lend his money as lawfully as he may sell it; and the possessor of money may either do one or the other, not only because money is equivalent to a revenue, and a means to procure a revenue: not only because the lender loses, during the continuance of the loan, the revenue he might have procured by it; not only because he risks his capital; not only because the borrower can employ it in advantageous acquisitions, or in undertakings from whence he will draw a large profit; the proprietor of money may lawfully receive the interest of it, by a more general and decisive principle. Even if none of these circumstances should take place, he will not have the less right to require an interest for his loan, for this reason only, that his money is his own. Since it is his own, he has a right to keep it, nothing can imply a duty in him to lend it; if then he does lend, he may annex such a condition to the loan as he chuses, in this he does no injury to the borrower, since the latter agrees to the conditions, and has no sort of right over the sum lent. The profit which money can procure the borrower, is doubtless one of the most prevailing motives to determine him to borrow on interest; it is one of the means which facilitates his payment of the interest, but this is by no means that which gives a right to the lender to require it; it is sufficient for him that his money is his own, and this is a right inseparable from property. He who buys bread, does it for his support, but the right the baker has to exact a price is totally independent of the use of bread; the same right he would possess in the sale of a parcel of stones, a right founded on this principle only, that the bread is his own, and no one has any right to oblige him to give it up for nothing.

  • 75. Answer to an objection.

    This reflection brings us to the consideration of the application made by an author, of the text, mutuum date nihil inde sperantes, and shews how false that application is, and how distant from the meaning of the Gospel. The passage is clear, as interpreted by modern and reasonable divines as a precept of charity. All mankind are bound to assist each other; a rich man who should see, his fellow creature in distress, and who, instead of gratuitously assisting, should sell him what he needed, would be equally deficient in the duties of christianity and of humanity. In such circumstances, charity does not only require us to lend without interest, she orders us to lend, and even to give if necessary. To convert the precept of charity into a precept of strict justice, is equally repugnant to reason, and the sense of the text. Those whom I here attack do not pretend that it is a duty of justice to lend their money; they must be obliged then to confess, that the first words of the passage, mutuum date, contain only a precept of charity. Now I demand why they extend the latter part of this passage to a principle of justice. What, is the duty of lending not a strict precept, and shall its accessory only, the condition of the loan, be made one; it would have been said to man, "It is free for you to lend or not to lend, but if you do lend, take care you do not require any interest for your money, and even when a merchant shall require a loan of you for an undertaking, in which he hopes to make a large profit, it will be a crime in you to accept the interest he offers you; you must absolutely either lend to him gratuitously, or not lend to him all? You have indeed one method to make the receipt of interest lawful, it is to lend your capital for an indefinite term, and to give up all right to be repaid it, which is to be optional to your debtor, when he pleases, or when he can. If you find any inconvenience on the score of security, or if you foresee you shall want your money in a certain number of years, you have no other course to take but not to lend: It is better for you to deprive this merchant of this most fortunate opportunity, than to commit a sin by assisting him." This is what they must have seen in these five words, mutuum date nihil inde sperantes, when they have read them under these false prejudices.

  • 76. The rate of interest ought to be fixed, as the price of every other merchandize, by the course of trade alone.

    I have already said, that the price of money borrowed, is regulated like the price of all other merchandize, by the proportion of the money at market with the demand for it: thus, when there are many borrowers who are in want of money, the interest of money rises; when there are many possessors who are ready to lend, it falls. It is therefore an error to believe that the interest of money in trade ought to be fixed by the laws of princes. It has a current price fixed like that of all other merchandize. This price varies a little, according to the greater or less security which the lender has; but on equal security, he ought to raise and fall his price in proportion to the abundance of the demand, and the law no more ought to fix the interest of money than it ought to regulate the price of any other merchandizes which have a currency in trade.

  • 77. Money has in commerce two different valuations. One expresses the quantity of money or silver we give to procure different sorts of commodities; the other expresses the relation a sum of money has, in the interest it will procure in the course of trade.

    It seems by this explanation of the manner in which money is either sold or lent for an annual interest, that there are two ways of valuing money in commerce. In. buying and selling a certain weight of silver represents a certain quantity of labour, or of merchandize of every species; for example, one ounce of silver is equal to a certain quantity of corn, or to the labour of a man for a certain number of days. In lending, and in the commerce of money, a capital is the equivalent of an equal rent, to a determinate portion of that capital; and reciprocally an annual rent represents a capital equal to the amount of that rent repeated a certain number of times, according as interest is at a higher or lower rate.

  • 78. These two valuations are independent of each other, and are governed by quite different principles.

    These two different methods of fixing a value, have much less connection, and depend much less on each other than we should be tempted to believe at first sight. Money may be very common in ordinary commerce, may hold a very low value, answer to a very small quantity of commodities, and the interest of money may at the same time be very high.

    In effect, I will suppose for a moment, that all the rich people in a country, instead of saving from their revenue, or from their annual profits, shall expend the whole; that, not satisfied with expending their whole revenue, they dissipate a part of their capital; that a man who has 100,000 livres in money, instead of employing them in a profitable manner, or lending them, consumes them by degrees in foolish expences; it is apparent that on one side there will be more silver employed in common circulation, to satisfy the wants and humours of each individual, and that consequently its value will be lowered; on the other hand there will certainly be less money to be lent; and as many people will in this situation of things ruin themselves, there will clearly be more borrowers. The interest of money will consequently augment, while the money itself will become more plenty in circulation, and the value of it will fall, precisely by the same cause.

    We shall no longer be surprised at this apparent inconsistency, if we consider that the money brought into the market for the purchase of corn, is that which is daily circulated to procure the necessaries of life; but that which is offered to be lent on interest, is what is actually drawn out of that circulation to be laid by and accumulated into a capital.

  • 79. In comparing the value of money with that of commodities, we consider silver as a metal, which is an object of commerce. In estimating the interest of money we attend to the use of it during a determinate time.

    In the market a measure of corn is purchased with a certain weight of silver, or a quantity of silver is bought with a certain commodity, it is this quantity which is valued and compared with the value of other commodities. In a loan upon interest, the object of the valuation is the use of a certain quantity of property during a certain time. It is in this case no longer a mass of silver, compared with a quantity of corn, but it is a portion of effects compared with a certain portion of the same, which is become the customary price of that mass for a certain time. Let twenty thousand ounces of silver be an equivalent in the market for twenty thousand measures of corn, or only for ten thousand, the use of those twenty thousand ounces of silver for a year is not worth less on a loan than the twentieth part of the principal sum, or one thousand ounces of silver, if interest is at five per cent.

  • 80. The price of interest depends immediately on the proportion of the demand of the borrowers, with the offer of the lenders, and this proportion depends principally on the quantity of personal property, accumulated by an excess of revenue and of the annual produce to form capitals, whether these capitals exist in money or in any other kind of effects having a value in commerce.

    The price of silver in circulation has no influence but with respect to the quantity of this metal employed in common circulation; hut the rate of interest is governed by the quantity of property accumulated and laid by to form a capital. It is indifferent whether this property is in metal or other effects, provided these effects, are easily convertible into money. It is far from being the case, that the mass of metal existing in a state, is as large as the amount of the property lent on interest in the course of a year; but all the capitals in furniture, merchandize, tools, and cattle, supply the place of silver and represent it. A paper signed by a man, who is known to be worth 100,000 livres, and who promises to pay 100 marks in a certain time is worth that sum; the whole property of the man who has signed this note is answerable for the payment of it, in whatever the nature of these effects consists, provided they are in value 100,000 livres. It is not therefore the quantity of silver existing as merchandize which causes the rate of interest to rise or fall, or which brings more money in the market to be lent; it is only the capitals existing in commerce, that is to say, the actual value of personal property of every kind accumulated, successively saved out of the revenues and profits to be employed by the possessors to procure them new revenues and new profits. It is these accumulated savings which are offered to the borrowers, and the more there are of them, the lower the interest of money will be, at least if the number of borrowers is not augmented in proportion.