Returns (economics) - Interest

Interest

The classical economists referred to the fee paid for the use of money or stock as "interest" but declared this to be a derivative income. The distinction between interest and profit is murky:

"Whoever derives his revenue from a fund which is his own, must draw it either from his labor, from his stock, or from his land. The revenue derived from labor is called wages. That derived from stock, by the person who manages or employs it, is called profit. That derived from it by the person who does not employ it himself, but lends it to another, is called the interest (f)or the use of money (or stock). It is the compensation which the borrower pays to the lender, for the profit which he has an opportunity of making by the use of the money (or stock). Part of that profit naturally belongs to the borrower, who runs the risk and takes the trouble of employing it; and part to the lender, who affords him the opportunity of making this profit. The interest of money is always a derivative revenue, which, if it is not paid from the profit which is made by the use of the money, must be paid from some other source of revenue, unless perhaps the borrower is a spendthrift, who contracts a second debt in order to pay the interest of the first." (Smith)

Smith uses the word profit in two different ways here. Is the owner of the money/tractor in his capacity as owner realizing profit or interest? It is certain that the proprietor of the money/tractor is realizing profit as opposed to interest. See "Smith on Profits and Interest" below.

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Interest - Formulae
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Famous quotes containing the word interest:

    Whoever lives for the sake of combating an enemy has an interest in the enemy’s staying alive.
    Friedrich Nietzsche (1844–1900)

    Parentage is a very important profession; but no test of fitness for it is ever imposed in the interest of children.
    George Bernard Shaw (1856–1950)

    There is not a subject in which I take a deeper interest than I do in the development of Alaska, and I propose, if Congress will follow by recommendations, to do something in that territory that will make it move on.
    William Howard Taft (1857–1930)