V. _Interest_ depends upon various considerations. That the compensation implied is proper is obvious from the fact that though ostensibly money is that which is loaned, in most cases it is really capital in some other form; and no one denies that when a man lends his horse, or his mill, or his farm, he should receive something for the use of it.
The rate of interest depends upon several conditions: 1. The amount of money in circulation. 2. The amount of other capital. 3. The rate of profit, which again depends upon the industrial system and the state of society; as society develops the rate diminishes. 4. The security or insecurity of property. 5. The facilities with which the securities can be reconverted into money. 6. The promptness and regularity of the payment of the interest. On these last two conditions rests in part the low rate of interest on government bonds.
VI. _Rent_ is intimately connected with the value of land, and land is the most important instrument and condition of wealth. In most countries, other than ours, the land is principally in the possession of a few owners who let it to other parties for agricultural and other purposes, and receive compensation therefor. The amount of compensation depends upon the value of the land. For this latter reason we may treat the whole question of the value of land under the head of rent, though on some accounts it should be considered in another place.
The theory respecting rent which has prevailed in England, and largely in this country for the most of the present century, is that of Ricardo; and closely connected with it is his theory of value. He held that rent arises in this way: On the first settling of a new country, where there is an abundance of more or less fertile land, none of the land has any value. Every man takes as much as he wants, selecting, of course, the most productive. As population increases the best land will be all taken up. Then those who want land must have a poorer quality, or a second grade. Now, one who gets this second quality would rather pay something for the first quality than to have the former for nothing. So when all the land of the second grade is all taken up, and the third quality begins to be occupied, it is deemed more profitable to pay something for the second quality, and still more for the first quality than to have the third for nothing. Closely connected with this theory of rent is that of Malthus concerning population, which is, that there is a law of the uniform increase of population, so that unless artificial checks are applied over-population must, at no distant day, become the condition and bane of humanity. Another theory closely related to both these is that of “diminishing returns,” as stated by J. S. Mill. Substantially this is, that after a certain, not very advanced period in the development of agriculture, a given amount of land will produce less and less in proportion to the labor expended upon it. That is, after a certain degree of culture, a given quantity of land which yields a given quantity of product, while it will produce more if the labor upon it is doubled, will not produce double the former quantity. It follows from these theories, taken in combination, that as men multiply and their wants increase, the provision for those wants proportionately diminishes—a most unnatural and dismal theory, and up to the present time quite contrary to human experience.