Reflections on the Formation
and Distribution of Wealth

Anne Robert Jacques Turgot

[1776 / Part 5 of 5]

• 81. The spirit of oeconomy continually augments the amount of capitals, luxury continually tends to destroy them.
  
  The spirit of oeconomy in any nation tends incessantly to augment the amount of the capitals, to increase the number of lenders, and to diminish that of the borrowers. The habit of luxury has precisely a contrary effect, and by what has been already remarked on the use of capitals in all undertakings, whether of cultivation, manufacture, or commerce, we may judge if luxury enriches a nation, or impoverishes it.
  
  
• 82. The lowering of interest proves, that in Europe oeconomy has in general prevailed over luxury.
  
  Since the interest of money has been constantly diminishing in Europe for several centuries, we must conclude, that the spirit of oeconomy has been more general than the spirit of luxury. It is only people of fortune who run into luxury, and among the rich, the sensible part of them confine their expences within their incomes, and pay great attention not to touch their capital. Those who wish to become rich are far more numerous in a nation than those which are already so. Now, in the present state of things, as all the land is occupied, there is but one way to become rich it is either to possess, or to procure in some way or other, a revenue or an annual profit above what is absolutely necessary for subsistence, and to lay up every year in reserve to form a capital, by means of which they may obtain an increase of revenue or annual profit, which will again produce another saving, and become capital. There are consequently a great number of men interested and employed in amusing capitals.
  
  
• 83. Recapituation of the five different methods of employing capitals.
  
  I have reckoned five different methods of employing capitals, or of placing them so as to procure a profit.
  
  1st. To buy an estate, which brings in a certain revenue.
  
  2d. To employ money in undertakings of cultivation; in leasing lands whose produce should render back, besides the expences of farming, the interest on the advances, and a recompense for the labour of him who employs his property and attention in the cultivation.
  
  3d. To place a capital in some undertaking of industry or manufactures.
  
  4th. To employ it in commerce.
  
  5th. To lend it to those who want it, for an annual interest.
  
  
• 84. The influence which the different methods of employing money have on each other.
  
  It is evident that the annual returns, which capitals, placed in different employs, will produce, are proportionate to each other, and all have relation to the actual rate of the interest of money.
  
  
• 85. Money invested in land, necessarily produces the least.
  
  The person who invests his money in land let to a solvent tenant, procures himself a revenue which gives him very little trouble in receiving, and which he may dispose of in the most agreeable manner, by indulging all his inclinations. There is a greater advantage in the purchase of this species of property, than of any other, since the possession of it is more guarded against accidents. We must therefore purchase a revenue in land at a higher price, and must content ourselves with a less revenue for an equal capital.
  
  
• 86. Money on interest ought to bring a little more income, than land purchased with an equal capital.
  
  He who lends his money on interest, enjoys it still more peaceably and freely than the possessor of land, but the insolvency of his debtor may endanger the loss of his capital. He will not therefore content himself with an interest equal to the revenue of the land which he could buy with an equal capital. The interest of money lent, must consequently be larger than the revenue of an estate purchased with the same capital; for if the proprietor could find an estate to purchase of an equal income, he would prefer that.
  
  
• 87. Money employed in cultivation, manufactures, or commerce, ought to produce more than the interest of money on loan.
  
  By a like reason, money employed in agriculture, in manufactures, or in commerce, ought to produce a more considerable profit than the revenue of the same capital employed in the purchase of lands, or the interest of money on loan: for these undertakings, besides the capital advanced, requiring much care and labour, and if they were not more lucrative, it would be much better to secure an equal revenue, which might be enjoyed without labour. It is necessary then, that, besides the interest of the capital, the undertaker should draw every year a profit to recompence him for his care, his labour, his talents, the risque he runs, and to replace the wear and tear of that portion of his capital which he is obliged to invest in effects capable of receiving injury, and exposed to all kinds of accidents.
  
  
• 88. Meantime the freedom of these various employments are limited by each other, and maintain, notwithstanding their inequality, a species of equilibrium.
  
  The different uses of the capitals produce very unequal profits; but this inequality does not prevent them from having a reciprocal influence on each other, nor from establishing a species of equilibrium among themselves, like that between two liquors of unequal gravity, and which communicate with each other by means of a reversed syphon, the two branches of which they fill; there can be no height to which the one can rise or fall, but the liquor in the other branch will be affected in the same manner.
  
  I will suppose, that on a sudden, a great number of proprietors of lands are desirous of setting them. It is evident that the price of lands will fall, and that with a less sum we may acquire a larger revenue; this cannot come to pass without the interest of money rising, for the possessors of money would chuse rather to buy lands, than to lend at a lower interest than the revenue of the lands they could purchase. If, then, the borrowers want to have money, they will be constrained to pay a greater rate. If the interest of the money increases, they will prefer lending it, to setting out in a hazardous manner on enterprizes of agriculture, industry, and commerce: and they will be aware of any enterprizes but those that produce, besides the retribution for their trouble, an emolument by far greater than the rate of the lender's produce. In a word, if the profits, springing from an use of money, augment or diminish, the capitals are converted by withdrawing them from other employings, or are withdrawn by converting them to other ends, which necessarily alters, in each of those employments, the proportion of profits on the capital to the annual product. Generally, money converted into property in land, does not bring in so much as money on interest; and money on interest brings less than money used in laborious enterprises: but the produce of money laid out in any way whatever, cannot augment or decree without implying a proportionate augmentation, or decrease in other employments of money.
  
  
• 89. The current interest of money is the standard by which the abundance or scarcity of capitals may be judged; it is the scale on which the extent of a nation's capacity for enterprizes in agriculture, manufactures, and commerce, may be reckoned.
  
  Thus the current interest of money may be considered as a standard of the abundance or scarcity of capitals in a nation, and of the extent of enterprises of every denomination, in which she may embark: it is manifest, that the lower the interest of money is, the more valuable is the land. A man that has an income of fifty thousand livres, if the land is sold but at the rate of twenty years purchase is an owner of only one million; he has two millions, if the land is sold at the rate of forty. If the interest is at five per cent. any land to be brought into cultivation would continue fallow, if, besides the recovery of the advances, and the retribution due to the care of the cultivator, its produce would not afford five per cent. No manufactory, no commerce can exist, that does not bring in five per cent. exclusively of the salary and equivalents for the risque and trouble of the undertaker. If there is a neighbouring nation in which the interest stands only at two per cent. not only it will engross all the branches of commerce, from which the nation where an interest at five per cent. is established, is excluded, but its manufacturers and merchants, enabled to satisfy themselves with a lower interest, will also sell their goods at a more moderate price, and will attract the almost exclusive commerce of all articles, which they are not prevented to sell by particular circumstances of excessive dearth, and expences of carriages, from the nation in which the interest bears five per cent.
  
  
• 90. Influence of the rate of interest of money on all lucrative enterprizes.
  
  The price of the interest may be looked upon as a kind of level, under which all labour, culture, industry, or commerce, acts. It is like a sea expanded over a vast country, the tops of the mountains rise above the surface of the water, and form fertile and cultivated islands. If this sea happens to give way, in proportion as it descends, sloping ground, then plains and vallies appear, which cover themselves with productions of every kind. It wants no more than a foot elevation, or falling, to inundate or to restore culture to unmeasurable tracts of land. It is the abundance of capitals that animates enterprize; and a low interest of money is at the same time the effect and a proof of the abundance of capitals.
  
  
• 91. The total Riches of a nation consists, 1. in the clear revenue of all the real estates, multiplied by the rate of the price of land. 2. in the sum of all the moveable riches existing in a nation.
  
  Real estates are equivalent to any capital equal to their annual revenue, multiplied by the current rate at which lands are sold. Thus if we add the revenue of all lands, viz. the clear revenue they render to the proprietor, and to all those that share in the property, as the lord that levies a rent, the curate that levies the tythe, the sovereign that levies the tax; if say I, we should add all these sums, and multiply them by the rate at which lands are sold, we would have the sum of all the wealth of a nation in real estates. To have the whole of a nation's wealth, the moveable riches ought to be joined, which consist in the sum of capitals converted into enterprises of culture, industry, and commerce, which is never lost; as all advances, in any kind of undertaking, must unceasingly return to the undertaker, to be unceasingly converted into enterprises, which without that could not be continued. It would be a gross mistake to confound the immense mass of moveable riches with the mass of money that exists in a state; the latter is a small object in comparison with the other. To convince one's self of this, we need only remember the immense quantity of beasts, utensils, and seed, which constitute the advances of agriculture; the materials, tools, moveables, and merchandises of every kind, that fill up the work-houses, shops, and warehouses of all manufacturers, of all merchants, and of all traders, and it will be plain, that in the totality of riches either real or moveable of a nation, the specie makes but an inconsiderable part: but all riches and money being continually exchangeable, they all represent money, and money represents them all.
  
  
• 92. The sum of lent capitals cannot be understood without a two-fold reckoning.
  
  We must not include in the calculation of the riches of a nation the sum of lent capitals; for the capitals could only be lent either to proprietors of lands, or to undertakers to enhance their value in their enterprizes, since there are but these two kinds of people that can answer for a capital, and discharge the interest: a sum of money lent to people that have neither estate nor industry, would be a dead capital, and not an active one. If the owner of land of 400,000 livres borrows 100,000, his land is charged with a rent that diminishes his revenue by that sum. If he should sell it; out of the 400,000 livres he would receive, 100,000 are the property of the creditor. By these means the capital of the lender would always form, in the calculation of existing riches, a double estimate. The land is always worth 400,000 l. when the proprietor borrows 100,000 l. that does not make 500,000 l. it only follows, that in the 400,000 l. one hundred thousand belongs to the lender, and that there remains no more than 300,000 l. to the borrower.
  
  The same double estimate would have place in the calculation, if we should comprehend in the total calculation of capitals, the money lent to an undertaker to be employed in advance for his undertaking; it only results, that that sum, and the part of the profits which represents the interest, belongs to the lender. Let a merchant employ 10,000 livres of his property in his trade, and engross the whole profit, or let him have those 10,000 livres borrowed of another, to whom he pays the interest, and is satisfied with the overplus of profit, and the salary of his industry, it still makes only 10,000 livres.
  
  But if we cannot include, without making a double estimate in the calculation of national riches, the capital of the money lent on interest, we ought to call in the other kinds of moveables, which though originally forming an object of expence, and not carrying any profit, become, however, by their durability, a true capital, that constantly increases; and which, as it may occasionally be exchanged for money, is as if it was a stock in store, which may enter into commerce and make good, when necessary, the loss of other capitals. Such are the moveables of every kind; jewels, plates, paintings, statues, ready money shut up in chests by misers: all those matters have a value, and the sum of all those values may make a considerable object among wealthy nations. Yet be it considerable or not, it must always he added to the price of real estates, and to that of circulating advances in enterprises of every denomination, in order to form the total sum of the riches of a nation. As for the rest, it is superfluous to say, though it is easy to be defined, as we have just done, in what consists the totality of the riches of a nation; it is probably impossible to discover to how much they amount, unless some rule be found out to fix the proportion of the total commerce of a nation, with the revenue of its land: a feasible thing, but which has not been executed as yet in such a manner as to dispel all doubts.
  
  
• 93. In which of the three classes of society the lenders of money are to be ranked.
  
  Let us see now, how what we have just discussed about the different ways of employing capitals, agrees with what we have before established about the division of all the members of society into three classes, the one the productive class of husbandmen, the industrious or trading class, and the disposing class, or the class of proprietors.
  
  
• 94. The lender of money belongs, as to his persons, to the disposing class.
  
  We have seen that every rich man is necessarily possessor either of a capital in moveable riches, or funds equivalent to a capital. Any estate in land is of equal value with a capital; consequently every proprietor is a capitalist, but not every capitalist a proprietor of a real estate; and the possessor of a moveable capital may chuse to confer it on acquiring funds, or to improve it in enterprizes of the cultivating class, or of the industrious class. The capitalist, turned an undertaker in culture or industry, is no more of the disposing class, than the simple workmen in those two lines; they are both taken up in the continuation of their enterprises. The capitalist who keeps to the lending money, lends it either to a proprietor or to an undertaker. If he lends it to a proprietor, he seems to belong to the class of proprietors, and he becomes co-partitioner in the property; the income of the land is destined to the payment of the interest of his trust; the value of the funds is equal to the security of his capital.
  
  If the money-lender has lent to an undertaker, it is certain that his person belongs to the disposing class; but his capital continues destined to the advances of the enterpriser, and cannot be withdrawn without hurting the enterprise, or without being replaced by a capital of equal value.
  
  
• 95. The use which the money-lender makes of his interest.
  
  Indeed, the interest he draws from that capital seems to make him of the disposing class, since the undertaker and the enterprise may shift without it. It seems also we may form an inference, that in the profits of the two laborious classes, either in the culture of the earth or industry, there is a disposable portion, namely, that which answers to the interest of the advances, calculated on the current rate of interest of money lent; it appears also that this conclusion seems to agree with what we have said, that the mere class of proprietors had a revenue properly so called, a disposing revenue, and that all the members of the other classes had only salaries or profits. This merits some future inquiry. If we consider the thousand crowns that a man receives annually, who has lent 60,000 livres, to a merchant, in respect to the use he may make of it, there is no doubt of this being perfectly disposable, since the enterprize may subsist without it.
  
  
• 96. The interest of the money is not disposable in one sense, viz. so as the state may be authorized to appropriate, without any inconvenience, a part to supply its wants.
  
  But it does not ensue that they are of the disposing class in such a sense, that the state can appropriate to itself with propriety a portion for the public wants. Those 1000 crowns are not a retribution, which culture or commerce bestows gratuitously on him that makes the advance; it is the price and the condition of this advance, independently of which the enterprize could not subsist. If this retribution is diminished, the capitalist will withdraw his money, and the undertaking will cease. This retribution ought then to be inviolable, and enjoy an entire immunity, because it is the price of an advance made for the enterprize, without which the enterprize could not exist. To encroach upon it, would cause an augmentation in the price of advances in all enterprizes, and consequently diminish the enterprizes themselves, that is to say, cultivation, industry, and commerce.
  
  This answer should lead us to infer, that if we have said, that the capitalist who had lent money to a proprietor, seemed to belong to the class of proprietors, this appearance had somewhat equivocal in it which wanted to be elucidated. In fact, it is strictly true, that the interest of his money is not more disposable, that is, it is not more susceptible of retrenchment, than that of money lent to the undertakers in agriculture and commerce. But the interest is equally the price of the free agreement, and they cannot retrench any part of it without altering or changing the price of the loan.
  
  For it imports little to whom the loan has been made: if the price decreases or augments for the proprietor of lands, it will also decrease and augment for the cultivator, the manufacturer, and the merchant. In a word, the proprietor who lends money ought to be considered, as a dealer in a commodity absolutely necessary for the production of riches, and which cannot be at too low a price. It is also as unreasonable to charge this commerce with duties as it would be to lay a duty on a dunghill which serves to manure the land. Let us conclude from hence, that the person who lends money belongs properly to the disposable class as to his person, because he has nothing to do; but not as to the nature of his property, whether the interest of his money is paid by the proprietor of land out of a portion of his income, or whether it is paid by an undertaker, out of a part of his profits designed to pay the interest of his advances.
  
  
• 97. Objection.
  
  It may doubtless be objected, that the capitalist may indifferently either lend his money, or employ it in the purchase of land; that in either case he only receives an equivalent for his money, and whichever way he has employed it, he ought not the less to contribute to the public charges.
  
  
• 98. Answer to this objection.
  
  I answer first, that in fact, when the capitalist has purchased an estate, the revenue will be equal as to him, to what he would have received for his money by lending it; but there is this essential difference with respect to the state, that the price which he gives for his land, does not contribute in any respect to the income it produces. It would not have produced a less income, if he had not purchased it. This income, as we have already explained, consists in what the land produces, beyond the salary of the cultivators, of their profits, and the interest of their advances. It is not the same with the interest of money; it is the express condition of the loan, the price of the advance, without which the revenue or profits, which serve to pay it, could never exist.
  
  I answer in the second place, that if the lands were charged separately with the contribution to the public expences, as soon as that contribution shall be once regulated, the capitalist who shall purchase these lands will not reckon as interest for his money, that part of the revenue which is affected by this contribution. The same as a man who now buys an estate, does not buy the tythe which the curate or clergy receives, but the revenue which remains after that tythe is deducted.
  
  
• 99. There exists no revenue strictly disposable in a state, but the clear produce of lands.
  
  It is manifest by what I have said, that the interest of money lent is taken on the revenue of lands, or on the profits of enterprizes of culture, industry, and commerce. But we have already shewn that these profits themselves were only a part of the production of lands; that the produce of land is divided in two portions; that the one was designed for the salary of the cultivator, for his profits, for the recovery and interest of his advances; and that the other was the part of the proprietor, or the revenue which the proprietor expended at his option, and from whence he contributes to the general expences of the state.
  
  We have demonstrated, that what the other classes of society received, was merely the salaries and profits paid, either by the proprietor upon his revenue, or by the agents of the productive class, on the part destined to their wants, and which they are obliged to purchase of the industrious class. Whether these profits be now distributed in wages to the workmen, in profits to undertakers, or in interests of advances, they do not change the nature, or augment the sum of the revenue produced by the productive class over and above the price of their labour, in which the industrious class does not participate, but as far as the price of their labour extends.
  
  Hence it follows, that there is no revenue but the clear produce of land, and that all other profit is paid, either by that revenue, or makes part of the expenditure that serves to produce the revenue.
  
  
• 100. the land has also furnished the total of moveable riches, or existing capitals, and which are formed only by a portion of its production reserved every year.
  
  Not only there does not exist, nor can exist, any other revenue than the clear produce of land, but it is the earth also that has furnished all capitals, that form the mass of all the advances of culture and commerce. It has produced, without culture, the first gross and indispensible advances of the first labourers; all the rest are the accumulated fruits of the economy of successive ages, since they have begun to cultivate the earth. This economy has effect not only on the revenues of proprietors, but also on the profits of all the members of laborious classes. It is even generally true, that, though the proprietors have more overplus, they spare less; for, having more treasure, they have more desires, and more passions; they think themselves better ensured of their fortune; and are more desirous of enjoying it contentedly, than to augment it; luxury is their pursuit. The stipendiary class, and he chiefly the undertakers of the other classes, receiving profits proportionate to their advances, talents, and activity, have, though they are not possessed of a revenue properly so called, a superfluity beyond their subsistence; but, absorbed as they generally are, only in their enterprizes, and anxious to increase their fortune; restrained by their labour from amusements and expensive passions; they save their whole superfluity, to re-convert it in other enterprizes, and augment it. The greater part of the undertakers in agriculture borrow but little, and they almost all rest on the capital of their own funds. The undertakers of other businesses, who wish to render their fortune stable, strive likewise to attain to the same state. Those that make their enterprizes on borrowed funds, are greatly in danger of failing. However, although capitals are formed in part by the saving of profits in the laborious classes, yet, as those profits spring always from the earth, they are almost all repaid, either by the revenue, or in the expences that serve to produce the revenue; it is evident, that the capitals are derived from the earth as well as the revenue, or rather that they are but an accumulation of a part of the riches produced by the earth, which the proprietors of the revenue, or those that share it, are able to lay by every year in store, without consuming it on their wants.
  
  
• 101. Although money is the direct object in saving, and it is, if we may call it so, the first foundation of capitals, yet money and specie form but an insensible part is the total sum of capitals.
  
  We have seen what an inconsiderable part money forms in the total sum of existing capitals, but it makes a very large one in the formation of them. In fact, almost all savings are only in money; it is in money that the revenue is paid to the proprietors, that the advances and profits are received by the undertakers of every kind; it is their money which they save, and the annual increase of capitals happens in money; but all the undertakers make no other use of it, than immediately to convert it into the different kinds of effects on which their enterprizes turn; thus, money returns into circulation, and the greater part of capitals exist only, as we have already explained it, in effects of different natures.
  

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