He has given us a fascinating time discount theory of interest; and the time is defined by the economic career of instruments of production.

The issue is not whether concrete capital goods are or are not to be studied at all. For certain purposes they have to be studied. The question is whether, in addition to this attention given to the perishable goods, the permanent fund of capital is to be studied in its entirety. Is the problem of accounting for the current rate of interest anything else than the problem of discovering why a certain permanent fund of producers' wealth annually creates and secures for its owners an income that is equal to a certain fraction of the fund itself? If this is true, the conception of capital as a permanent thing, existing and acting in its entirety, is introduced in the statement of the interest problem.

On the one side, then, we have a theory that studies only concrete instruments. It measures the period that their action defines, and reduces interest to an agio due to the particular intervals of time that are thus measured. On the other side we have a theory that recognizes these instruments and their qualities, but gives a cardinal place to the study of that permanent capital which the endless succession of instruments constitutes. It defines the interest problem in terms of that fund, and makes the rate to be the fraction of itself that the fund annually creates. It is a productivity theory; and it relegates the separate periods of production to a subordinate place.

The dialectical issue is a sharp one, and there is a question of fact involved. In an article in the Yale Review for November, 1893, I expressed the opinion that the abandonment of permanent capital as a subject of study is a departing from the line that leads directly to the goal in view. By the attractive quality of his work Professor v. Böhm-Bawerk has drawn many students after him upon what I ventured to call a scientific side-track. I did,

however, express the opinion that, if this track be followed far enough, it will bring the traveller again to the main line. It is the significance of this second assertion that I wish now to point out. What it means is that the study of concrete capital goods cannot be complete unless it becomes a study of permanent capital. I claim also that it affords a productivity theory of interest.

The periods of production that figure in Professor v. Böhm-Bawerk's analysis cannot have the importance that he has attributed to them unless there are in society persons who must wait through such intervals in order to have their wants gratified. If there were a class of persons who could be correctly pictured as standing at the beginning of the period marked by the life of some instrument of production, looking forward to the end of the interval, and knowing that their wants could, in the natural course of industry, only be gratified at the end, then there would be a class on whom this interval of waiting would impose a certain burden. If they waited through the period in order that the products of their industry might mature, they would themselves feel the burden of the delay. They would undergo what may be called a time sacrifice. If they were unable personally to undergo this sacrifice, and if, therefore, they avoided it by inducing others to endure it for them, the burden of waiting through the interval would still have to be carried by some one. Some class of social producers would, for a consideration, thrust an interval of time between wants and satisfactions. In the study of Professor v. BöhmBawerk loan interest is the consideration for this. payment for vicarious waiting.

It is a

Interest is a static income. This means that the existence of it does not depend on social progress. Changes for the better in the industrial system react on the rate of interest, as they do on other shares in distribution; but they are not necessary in order that this income may exist.

Methods of production might remain unchanged, and the form of society might be, as it were, frozen into fixity; and yet capital would do its work and earn its pay. Interest is to be accounted for by a cause that would act in a static society, if such an organism existed. In dynamic societies this income is due to static causes. It is not

contingent on progress.

If a time sacrifice, or a sacrifice entailed by merely waiting for something, is at the basis of interest, it must be one that would be incurred under static conditions. If the periods referred to cause the time sacrifice that lies back of interest, then waiting through these particular periods must be a cardinal fact in static industry. There must be actual persons somewhere who might have had things at the beginning of such a period, who do get them at the end, and who demand and get pay for this waiting. In the article referred to I have claimed that such time sacrifice as this has no existence. Nowhere in society can we find men who incur it. Every one gets finished goods to-day as a consequence of the work of to-day. To-day we work, and to-day we eat; and the eating is the consequence of the working." Moreover, a worker's immediate eating is not secured by making other persons wait through one of these intervals. A laborer does not do this kind of waiting himself, and he does not do it by proxy. Interest accrues daily, like wages, as industry proceeds, and as the product of capital is created. The finished goods that the capitalist desires for use he gets as his capital virtually creates them. Production and its returns are synchronous.

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Creating new capital is not a part of the process by which interest is secured. All that is needed is that existing capital should be properly used. It might conceivably be that for several generations no one would do more than to preserve unimpaired the capital handed down to him. In that case there would be no true abstinence practised.

A static condition excludes abstinence, but admits of the earning of interest. If permanent capital has once been created, the income from it may be enjoyed without further time sacrifice of any kind.

It is not a simple study that will reveal the whole relation between Professor v. Böhm-Bawerk's theory of goods and a theory based on the productivity of permanent capital. It involves close analysis, and may make demands on the reader's patience. It ends by showing how a study of concrete goods, with their periods of production, must, in order to be true, translate itself into a study of permanent capital.

In the article in the Yale Review already referred to I criticised a formula used by Professor v. Böhm-Bawerk. "As a rule, present goods have a higher subjective value than future goods of like kind and number." * A certain controversy has ensued on the subject of formulas. The one just quoted contains the germ of Professor v. BöhmBawerk's theory. I have claimed that no one has to wait for his income through the so-called periods of production, so that, in connection with them, this comparison of present and future does not need to be made at all. It is made only in connection with the creation of new capital. (In deciding to "save" wealth rather than to

spend it, a capitalist looks forward to the unending series of accretions of interest, and sets a subjective value on them. The remoteness of most of them in time is one fact to be considered. The kind of enjoyments that they will bring to him is another element; and, in fact, they will bring enjoyments quite different from those that were, by the act of abstinence, relinquished.) The man does not compare present goods with future goods of like kind and number."

If the man who saves capital foregoes a pleasure and gets, at some future time, a similar pleasure, then the

*The Positive Theory of Capital, pp. 247-249.

effect of the delay is, in his calculation, isolated and measured. In fact, it never is thus isolated. There is no economic person who has occasion to calculate an agio that is due to mere time. The man who saves capital does not do it, since he foregoes certain enjoyments and gets others. In a static condition no consumer computes the present worth of future goods at all, since in that state there is no abstinence.

In his recent article in this journal Professor v. BöhmBawerk says that the object of the formula is to express "the superiority which difference of time gives present over future goods. Now, every one will admit that the circumstances of present diamonds, for example, being worth more than future pebbles, has as little to do with this superiority as has the circumstance that two thousand present dollars are worth more than one thousand future dollars. On the other hand, this superiority is most nicely tested and expressed in the statement that one thousand present dollars are worth more than one thousand future dollars, or that ten present tons of iron are worth more than ten future tons of iron." *

If the object of the study be to isolate the single element, time, I should say that a comparison of one thousand present dollars with one thousand future dollars is inherently incapable of accomplishing the purpose in view. This sum in the present will buy certain things, and a like sum hereafter will buy different things. The superiority of the present over the future is not what it would be if only the lapse of time were to be considered. If the capitalist's forward glance, at the moment at which he is deciding how much capital to save, has the effect of fixing the amount of capital and thereby influencing the rate of interest, that rate is not what it would be if the capitalist were comparing personal gains alike in kind and in amount. Interest is not, as a mathematical

* Quarterly Journal of Economics for January, 1895, p. 119.