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The circumstances which regulate the rate of interest have usually been
treated, even by professed writers on political economy, in a vague,
loose, and unscientific manner. It has, however, been felt that there is
some connexion between the rate of interest and the rate of profit; that
(to use the words of Adam Smith) much will be given for money, when much
can be made of it. It has been felt, also, that the fluctuations in the
market-rate of interest from day to day, are determined, like other
matters of bargain and sale, by demand and supply. It has, therefore,
been considered as an established principle, that the rate of interest
varies from day to day according to the quantity of capital offered or
called for on loan; but conforms on the average of years to a standard
determined by the rate of profits, and bearing some proportion to that
rate--but a proportion which few attempts have been made to define.

In consequence of these views, it has been customary to judge of the
general rate of profits at any time or place, by the rate of interest at
that time and place: it being supposed that the rate of interest, though
liable to temporary fluctuations, can never vary for any long period of
time unless profits vary; a notion which appears to us to be erroneous.

It was observed by Adam Smith, that profits may be considered as divided
into two parts, of which one may properly be considered as the
remuneration for the use of the capital itself, the other as the reward
of the labour of superintending its employment; and that the former of
these will correspond with the rate of interest. The producer who
borrows capital to employ it in his business, will consent to pay, for
the use of it, all that remains of the profits he can make by it, after
reserving what he considers reasonable remuneration for the trouble and
risk which he incurs by borrowing and employing it.

This remark is just; but it seems necessary to give greater precision to
the ideas which it involves.

The difference between the profit which can be made by the use of
capital, and the interest which will be paid for it, is rightly
characterized as wages of superintendance. But to infer from this that
it is regulated by entirely the same principles as other wages, would be
to push the analogy too far. It is wages, but wages paid by a commission
upon the capital employed. If the general rate of profit is 10 per cent,
and the r