Increase and Decrease of the Interest
Writers of the author's time espoused the idea that interest rates rose or fell as a result of the amount of money in the market - the less money, the more interest that must be paid. This is not always true or accurate.
It is not the gross amount of money, but the amount that the holders of capital seek to lend in contrast to the amount that borrowers seek to obtain that makes money scarce or plentiful. Men readily do business with notes when there is insufficient coin.
Interest rates become high when money can be put to productive use by many. The borrower can offer more interest because his undertaking will be highly profitable, and the creditor can demand more interest because many borrowers are competing for use of his capital - not to mention that there is ample opportunity for him to make use of his own capital profitably, and any borrower must offer more for it than a creditor could make of it on his own.
Too much is made of the impact of noblemen, landowners, and the rich, whose great sums of money would seem to have significant influence in the market. However, this is also not so: those who have great wealth have little need to borrow, not are they particularly interested in extending credit to risky ventures to earn high interest, but can make more than enough to cover their expenses by investing in low-risk ventures and earning as little as two percent, less if their fortunes be great.
This prince, however, has greater expenses as the welfare of all the people is his concern and enters into projects of massive scale to improve prosperity in his nation. Warfare is only one such undertaking, and receives inordinate attention, but like other enterprises it involves great expenses, a high level of risk, and an unprofitable outcome.
In the normal course of the market, the quantity of money in a state is most affected by the balance of its trade with other states: money is sent abroad to fetch products and brought in when foreign lands purchase domestic product. These two work against each other in terms of interest. To produce goods for export requires more money for materials and wages, which increases the demand for credit, and also increases the availability of money as foreign money is brought into the market. When goods are imported, there is no need to produce them locally, hence less need for credit, and meanwhile less money because it is being sent abroad.
This assumes that money is borrowed for productive purposes: it is quite a different situation when money is borrowed for consumption, such as when nobility and landowners ruin themselves by extravagance beyond their means. The interest a productive borrower will offer must consider the profit he will make of production, but the consumptive borrower has no such concern and is driven by his own appetites and irresponsibility in offering whatever interest is necessary to get him that which he wishes to indulge himself.
Another assumption is that the lenders of money seek personal profit by their investment. The prince and certain members of nobility may also be motivated to lend to improve the public welfare and to establish industry that will increase the prosperity of their nation, even though their money might earn greater return in more risky pursuits.
The regulation of interest by law is both foolish and futile. As previously described, forbidding a high rate of interest is tantamount to preventing economic development and ensuring credit is only extended to established and certain enterprises that present little risk. It is also futile in that people who need money desperately enough will find a way to obtain it by going outside the methods that are customary and easily observed and regulated.