Another reason of this popular mistake with regard to the cause of low interest seems to be the instance of some nations, where, after a sudden acquisition of money or the precious metals by means of foreign conquest, the interest has fallen not only among them but in all the neighbouring states as soon as that money was dispersed and had insinuated itself into every corner. Thus, interest in Spain fell nearly a half immediately after the discovery of the West Indies, as we are informed by Garcilasso de la Vega; and it has been ever since sinking in every kingdom of Europe. Interest in Rome, after the conquest of Egypt, fell from 6 to 4 per cent., as we learn from Dion.
The causes of the sinking of interest upon such an event seem different in the conquering country and in the neighbouring states, but in neither of them can we justly ascribe that effect merely to the increase of gold and silver.
In the conquering country it is natural to imagine that this new acquisition of money will fall into a few hands, and be gathered into large sums which seek a secure revenue, either by the purchase of land or by interest; and consequently the same effect follows, for a little time, as if there had been a great accession of industry and commerce. The increase of lenders above the borrowers sinks the interest, and so much the faster if those who have acquired those large sums find no industry or commerce in the state, and no method of employing their money but by lending it at interest. But after this new mass of gold and silver has been digested, and has circulated through the whole state, affairs will soon return to their former situation, while the landlords and new money-holders, living idly, squander above their income, and the former daily contract debt, and the latter encroach on their stock till its final extinction. The whole money may still be in the state, and make itself be felt by the increase of prices, but not being now collected into any large masses or stocks, the disproportion between the borrowers and lenders is the same as formerly, and consequently the high interest returns.
Accordingly, we find in Rome that so early as Tiberius’s time interest had again mounted to 6 per cent., though no accident had happened to drain the empire of money. In Trajan’s time money lent on mortgages in Italy bore 6 per cent.; on common securities in Bithynia, 12. And if interest in Spain has not risen to its old pitch, this can be ascribed to nothing but the continuance of the same cause that sunk it—viz., the large fortunes continually made in the Indies, which come over to Spain from time to time and supply the demand of the borrowers. By this accidental and extraneous cause more money is to be lent in Spain—that is, more money is collected into large sums than would otherwise be found in a state where there are so little commerce and industry.