344 THE GENERAL THEORY OF EMPLOYMENT bk. vi

reduction in the rate of interest has no direct effect onthe price-level and affects prices “only as the Change ofInterest in Trade conduces to the bringing in or carry-ing out Money or Commodity, and so in time varyingtheir Proportion here in England from what it wasbefore”, i.e. if the reduction in the rate of interest leadsto the export of cash or an increase in output. But henever, I think, proceeds to a genuine synthesis. 1

How easily the mercantilist mind distinguishedbetween the rate of interest and the marginal efficiencyof capital is illustrated by a passage (printed in 1621)which Locke quotes from A Letter to a Friend concerningUsury: “High Interest decays Trade. The advantagefrom Interest is greater than the Profit from Trade,which makes the rich Merchants give over, and put outtheir Stock to Interest, and the lesser Merchants Break.”Fortrey ( England's Interest and Improvement , 1663)affords another example of the stress laid on a low rateof interest as a means of increasing wealth.

The mercantilists did not overlook the point that,if an excessive liquidity-preference were to withdrawthe influx of precious metals into hoards, the advan-tage to the rate of interest would be lost. In somecases (e.g. Mun) the object of enhancing the power ofthe State led them, nevertheless, to advocate theaccumulation of state treasure. But others franklyopposed this policy:

Schrotter, for instance, employed the usual mercantilistarguments in drawing a lurid picture of how the circulationin the country would be robbed of all its money through agreatly increasing state treasury ... he, too, drew a perfectlylogical parallel between the accumulation of treasure by the

1 It illustrates the completeness with which the mercantilist view, thatinterest means interest on money (the view which is, as it now seems to me,indubitably correct), has dropt out, that Prof. Heckscher, as a good classicaleconomist, sums up his account of Locke’s theory with the comment—Locke s argument would be irrefutable ... if interest really were synony-mous with the price for the loan of money; as this is not so, it is entirelyirrelevant” {op. at. vol. ii. p. 204).