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How do I find a book? Can I borrow this item? Can I get a copy? Can I view this online? By it all three kinds of interest are traced to the one identical source, the increasing value of what are, either naturally or economically, future goods, as they ripen into present goods. But when dealing with the principal form of interest, that in which it appears as part of the profit of undertaking, Dr. As it suffers somewhat, however, from its position in the text, I shall take the liberty of putting it in my own way. Taking the Labour market as the most typical and the most difficult, its prominent features are these.

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On the one side are the Capitalist Undertakers. These are men presumably possessed of a surplus of wealth which they cannot advantageously use in their own consumption; to them personally, therefore, the present goods which constitute their surplus have per se no advantage over future goods. But in this surplus they have the means of waiting over lengthy processes of production.

As their wealth increases the average period of production is extended, and with every extension the absolute productiveness of the process increases.

Positive Theory

On the other side is the majority of the population, the Wage-Earners. Their circumstances, as a class, are such that they cannot engage in any independent production that takes time. Even if they could, their production period would necessarily be short, and in competition with the long process the handicap would be too heavy. Evidently the big battalions are on the side of the capitalist, and in regard to this particular kind of present good, Labour, it seems to need no further demonstration that the price of it, namely Wage, will always be less than that of product, and thus allow the employer an interest.

This is, in general terms and in a more dispassionate way, the Socialist answer. But, while admitting, as we very well may, that there is enough and to spare of exploitation in profit generally, the question is by no means so simple as Socialist theory would have it. If there is force on the one side there are certain forces which work steadily on the other. The Trade Unions give the labourers a certain power of waiting, and tend to force employers, as a class, to give up at least that portion of profit which is pure exploitation.

Yet wage would not be explained if it were shown to be, in many cases, the exploitation of profit!

The inter-competition of capitalists, again, has surely been effective enough of late decades to force the remuneration of capital towards an economic—as distinguished from an exploitation—level. If there is no economic level of interest, why has it not been wiped out of existence altogether?

The argument is one that Socialism itself often uses; that, in some respects, the dependence of capital is as absolute as that of labour. It is necessary even for the status quo of wealth that the capitalist should bury his surplus in the fertile womb of earth, or in the living powers of man. But in the present state of economic development there is no question of mere preservation of wealth—there can scarcely be, so long as the seed sown returns some thirty, some fifty, some a hundred fold. The motive of the capitalist undertaker is certainly not preservation but increase. He changes his wealth into means of production in order that the value of the products should be more than the value of the costs.

In this state of sharpened competition the insufficiency of the exploitation theory becomes manifest to experience. We are forced to see that there is a level of interest which no amount of competition normally levels away, and we conclude that this is the economic level.

Psychological Capital

This explanation will be found if we turn from the question as between labourers and employers, and consider the larger question as between owners of present goods on the one side, and labourers and employers alike on the other. No one nowadays hoards wealth, drawing on it as needed. Thanks to banking systems and facilities for investment, nearly all wealth that is not actually being consumed by the owners is made available to supply this double demand.

Disregarding as before the demand for consumption, the effect of which is merely to lessen the amount of wealth available for productive borrowers—and remembering in passing that the agio on present goods is the joint result of these two collateral demands, we find this wealth confronting the demand of labour, transmitted through the employers for the means of subsistence during the production period.

Now, thanks to well-known motives, wealth in normal circumstances increases faster than population. As it accumulates it becomes possible for the labourers to extend their processes. Seed-time and harvest become separated, not by months but by years, and the amount of wealth in a community, as enabling labour to bridge over the long time of growth, becomes visibly the condition of its average production period, and so of its average productiveness.


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Thus to him that hath much much is given: the rich nation is the heir of the economic promises. From this it is not difficult to see that the value of means of production must always lag behind that of finished products. There is always a demand for ampler means of living, and the condition of obtaining ampler means is—time to extend the production process.

So long, then, as the wants of spiritual beings call for fuller and finer satisfactions, and so long as the working life rises to higher levels, so long will there be a premium put on the present wealth which makes more ample wealth possible. Thus we are justified in saying that the demand for means of production will always be greater than the supply, and interest, as the agio on such, will appear in the price of products.

The difference between the two will be found in the few pregnant sentences on pp. In case of misunderstanding, however, two cautions may be given here.

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The caution is much needed quite outside of this connection. The mischief that this idea does, in making people think that a rise of wages is a social calamity, is, to my mind, very great. The other caution is that this wealth available for subsistence does not consist exclusively of goods already in the finished state. To put all wealth into this form, indeed, would be the greatest possible waste. What is required is, that the various means of subsistence should be ready when wanted, and this involves that, at any given time, the wealth of a country consists of products at all stages of maturity.

Remembering these cautions we can see the full import of this conception. It defines the true relation of wealth to labour in the following terms: The function of existing wealth is to subsist the workers during the interval between the beginning and the end of the social production period. This strikes us as strange mainly because of the bourgeois idea that wealth is the end and goal of labours, and the more vicious idea that labour is a tax on life.

For certain purposes of economic study we may think of labour as the means, and consumption wealth as the end of production, but the economist falls into error whenever he forgets that economic life is an endless circle, where wealth, as subsistence, passes into muscle and brain, and muscle and brain pass into wealth again.

The Positive Theory of Capital

In working we live; and in working we produce wealth: this wealth, again, permits of freer work and fuller life. In correspondence with this, the type of labourer is not the man who produces on one day to consume on the next, but the man who consumes during his work day—who consumes while he produces—and, moreover, whose consumption increases with his production.

The function of wealth, then, we say, is to support this working life, with its increasing claims, during its work. Thus instead of making wealth the final cause of industry—as the economist in virtue of his professional bias is apt to do—or making it the beginning and limit of industry—as the Wage Fund theory tended to do—this conception places wealth in the centre as the maintenance of the working world during its rise to higher and higher levels of working life.

In other words, it puts the economic conception into line with the moral by making wealth simply the mean to the working life. If, then, interest is so purely a natural phenomenon, why has it met with so much covert dislike, and so much scientific opposition? There are at least three reasons. First, the element on which all interest is based, namely time, has come to be a peculiarly important factor in modern production.

All things come to him who waits, and, in economic life, this describes the capitalist.

But this fact involves that the labouring classes who cannot wait, and cannot compete with the productiveness of lengthy processes, are put in a position of peculiar dependence: hence the possibility of exploitation of wage, of usurious rates of interest, of unjust rents. Second, from a moral point of view, there is much that is objectionable in the fact that interest allows certain classes to live without working and to make this possibility hereditary in their families. Third, in this income there is no ratio between gain and desert.

Those who have little must accept Savings Bank interest for their hard-earned shillings; those who have much have all the chances of bonds, mortgages, joint-stock investments and the like. All the same, so long as men do put a different valuation on present and future goods, interest cannot be prevented. Even a Socialist state could not prevent it: if by forcible means it were stopped between individuals it would still obtain between commune and labourer. In Book VII. Here, however, we shall find him using terms which are scarcely intelligible without some knowledge of the theory of value enunciated by Jevons and Menger, and now held practically as the fundamental doctrine of the Austrian school.

The formulation of this theory, so far as was necessary to the theory of capital, occupies Books III.