Recent Literature on Interest.pdf

8/11/2019 Recent Literature on Interest.pdf

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RECENT LITERATUREON

INTEREST(1884-1899)

A SUPPLEMENT TO CAPITAL AND INTEREST"

BY

EUGENE v. BOHM-BAWERKAUSTRIAN MINISTER OP FINANCE, AND HONORARY PROFESSOR OF POLITICAL

ECONOMY IN THE UNIVERSITY OF VIENNA

TRANSLATED BY

WILLIAM A. S C O TT, P H . D .DIRECTOR OF TUB SCHOOL OF COM MERCK AND TROFESSOR OF ECONOMIC

HISTORY AND THEORY IN THE UNIVERSITY OF WISCONSIN

ANO

PROFESSOR DOCTOR SIEGMUND FEILBOGENUN1VERS1TATS-DOCBNT IN THE UNIVERSITY OF VIENNA

Neto gotft

THE MACMILLAN COMPANY.

LONDON: MACMILLAN & CO., LTD.1 9 0 3

All rights reserved


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COPYRIGHT, 1903,

BY T H E M A C M I L LA N C O M PA N Y.

Set up, electrotyped, and published September, 1903.

N o r f o o o t oJ. 8. Cuihlng 8c Co . Berwick & Sm ith Co.

Norwood, Musa., U.S .A ..


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T R A N S L AT O R ' S P R E FA C E

T H I S little volume is intended as a supple-ment to the admirable translation of the firstedition of Professor Bohm-Bawerk's " Ge-schichte und Kritik der Capitalzins-Theorien,"given to the world by Professor William Smartof Glasgow in 1890. During the twelve years

since this notable contribution to the criticalliterature of economic science has been avail-able to English-speaking students, great prog-ress has been made in the realm of economictheory, and for this Bbhm-Bawerk and Pro-fessor Smart's translation are in no slightdegree responsible. W hatever may be thefinal verdict of science regarding the agiotheory, no one can doubt that the splendidexample of criticism and analysis which iscontained in Bohm-Bawerk's work has raised

theoretical discussion to a higher level andhas been a constant and powerful stimulusto investigation in this field.


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vi TRANSLATOR'S PREFACE

In the United States the appearance ofSmart's translation must be regarded as anevent of prime importance in the history ofpolitical economy. The work of some of ourtheorists1 had already been directed alongpractically the same line as that of Jevonsand the Austrians, and a new generation ofyoung economists had just entered the field.Bohm-Bawerk's masterly treatise gave supportand encouragement to the former, and guidanceand stimulus to the latter. It has been dis-

cussed over and over again in the courses ineconomic theory and in the economic semi-naries of the country, and it is safe to saythat no candidate for the doctorate in ecpnom-ics during the last twelve years has beenabsolved from the requirement of familiarizing

himself with this work.Abundant proof of Bohm-Bawerk's influence

is furnished by our literature. A glance atthe files of the Political Science Quarterly,the Quarterly Journal of Economics, and theAnnals indicates that a large proportion of

1 Notably Professor John B. Clark and Professor Simon N.Patten.


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the articles treating of economic theory areeither directly upon some phase of Bohm-Bawerk's work or theories, or have beenclearly influenced, if not directly inspired, bythem . Of the books on economic theorywhich have appeared during the last twelve

years, not one that I can recall fails to takeaccount of his work, and few, if any, of themfail to show the effects of his influence. Itis impossible to say as much as this of anyother book or any other man. Great as hasbeen Marshall's influence, it has not approxi-mated Bohm-Bawerk's either in scope or in-tensity.

In 1900 the second edition of the " Ge-schichte und Kritik der Capitalzins-Theorien "appeared, and the present volume contains

in its nine main chapters a translation of theAppendix, in which Bohm-Bawerk reviews theliterature on interest which had appeared since1884, the date to which the first edition trans-lated by Sm art brought the subject. In thispreface we propose to give a summary of themost important of the other additions con-tained in the second edition. These are the


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author^ Preface, chapter XI on John Rae,and a supplement to the chapter on KarlMarx. To the author and the translators ithas not seemed necessary or desirable topresent a complete translation of these lessimportant additions. A brief summary is

sufficient to indicate their general characterand scope, and the English-speaking readerwho is unfamiliar with German and whodesires more may avail himself of Miss AliceM. Macdonald's translation1 of Bohm-Bawerk'scriticism of the posthumous volumes of KarlMarx's "Das Kapital," of the author's replyto Walker's strictures in the QuarterlyJournal of Economics? and of Rae's bookitself. 8

The Preface of the second edition treats

1 "K arl Marx and the Close of his Sy stem ." A Criticism byEu ge ne v. Bohm-Bawerk. Translated by Alice M. Macdon ald,with a preface by James Bonar, M. A., LL.D Lon don, T . FisherUnwin, Paternoster Square, 1898.

3 "The Positive Theory of Capital and its Critics." QuarterlyJournal of Economics April, 1895.

8 Statement of some new principles on the subject of Political

Economy, exposing the fallacies of the system of free trade, andof some other doctrines maintained in the 'Wealth of Nations.1"Boston, 1834.


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chiefly of the author's defence of his methodagainst the strictures of Alfred Marshall andof the late Francis A. W alker. These menhad charged Bohm-Bawerk with misinterpret-ing many of the authors whom he criticisedin " Capital and Interest," claiming that he fre-

quently mistook " blunders of expression " forerrors of judgment. W alker was a firm ad-herent of the productivity theory, and wasunable to believe that any really able thinkercould have sought for an explanation of in-terest in any other direction. He, therefore,denied the separate existence of the abstinenceand the use theories. He claimed tha t theauthors of these so-called theories intendedthem only as a social justification of interest,"and did not themselves mistake them for

adequate explanations of the causes of thisphenom enon. In this connection he men-tioned especially Hermann, Karl Menger, andSenior.

Professor Marshall finds the explanation ofinterest in the cooperation of what he calls the" productiveness and the (prospectiveness ofcapital, the former determining the demand for


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X TRANSLATOR'S PREFACE

that factor of production, and'the latter limitingthe supply. He believes that most of thewriters on interest have had both these ele-ments of the problem in mind, and have dif-fered from each other chiefly in the fact thatsome have laid more emphasis upon the one

element, and others upon the other. He hasexpressed the opinion that many of the au-thors criticised by Bohm-Bawerk would nothave accepted his statements as fair and com-plete presentations of their views.1

In reply, Bohm-Bawerk says that the ques-tion at issue between himself and such criticsas W alker and Marshall does not so muchconcern the interpretation and estimation ofthe views of other authors as the real essenceof the interest problem, and the requirements

for its solution. Regarding what the authorscriticised really meant, he is quite willing toleave the decision to the intelligent readers ofhis book, for whose benefit he has very oftenquoted their exact words; but in justificationof his view of the nature of the problem ofinterest, and the conditions necessary for its

1 " Principles of Economics," 3d ed., pp. 142-664.


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solution, he submits some characteristic state-ments of W alker and Marshall to analysisand criticism.

He disposes ' of W alker in a single para-graph. Referring to his statement regardingthe teachings of Hermann, Menger, and Senior

that " they thus reached a social justification ofinterest which no one of them probably evermistook for a scientific ascertainment of thecause of interest," and that on account oftheir " blunders in expression " Bohm-Bawerkascribed to them independent, deeply thought-out theories which they never held, our au-thor says: " I do not think that I need waste asingle word to prove that, on the contrary, itwould have been most ungenerous, and fora true historian absolutely impossible, to have

simply obliterated the use and abstinence theo-ries from the history of the development of in-terest theories and to have drawn the old storyof the productivity theory from the most widelydiffering methods of explanation, or, moreaccurately, to have forced that interpretationupon them."

The criticism of Marshall bears upon two


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points chiefly. In Bohm-Bawerk's opinion heoverestimates the explanatory power of thecooperation of productiveness " and " pro-spectiveness," and is deceived regarding theactual relation in which the different groups oftheories stand to this cooperation. On the firstpoint Bohm-Bawerk refers to a passage in thechapter on the eclectics, in which he says that noimpartial observer could fail to see that interestis in some way connected with the productivityof capital, and with the abstinence required for

saving, but such an observation, he says, comesfar short of an explanation of interest. It maybe compared to the observation that a rainbowappears whenever the sun strikes a rain-cloudat a certain angle. No one would regard thisas a scientific explanation of the rainbow. Itis the duty of science to point out the exactconnection between this apparent cause and itseffects, and the explanation would be very dif-ferent according as the scientist assumed theundulatory or the emission theory of light. In

like manner, "productiveness" and "prospec-tiveness" furnish no explanation of interest.They constitute only the framework of an


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explanation. The problem is to show theconnection between these facts and interest.

The injustice of Marshall's charges and hisevident misunderstanding of Bohm-Bawerk'sreal attitude toward the authors he criticisesis further shown by reference to certain pas-

sages in the first edition in which our authorpointed out the affinity between the use and theproductivity theories. In one place1 he calledthe former an offshoot of the latter, and in an-other2 he sa id: " This theory [the use theory]assumes capital to be productive." Again, onpage .187, he said: The relation of use theoriesto the productive power of capital will not,however, be found stated so clearly in the writ-ings of their representatives as I have thoughtnecessary co state it. On the contrary, indeed,

appeals to the productive power of capital longaccompany the development of the use theoryproper, and we are very often left in doubtwhether the author relies, for his explanationsof surplus value, more on the productive powerof capital or on the arguments peculiar to the

use theory."1 Smart's translation, p. 185. fl Ibid. } p. 186.


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Marshall reproaches our author for having

failed to credit some of the naive-productivitytheorists with a recognition of the significanceof abstinence in the explanation of interest.In reply, Bohm-Bawerk affirms that he notedevery express utterance of the most importantwriters of this group indicative of such recog-

nition; for example, of J. B. Say, Roscher,Rossi, Leroy-Beaulieu, Cauwes, and others.He adds that he classed as eclectics thosewriters who combine the distinct and explicitrecognition of sacrifice and abstinence withpositive assertions of the independent value-creating power of capital, bu t insists that thereare writers belonging to the "naive-produc-tivity" group who do not accompany theiremphatic assertions of the independent pro-ductivity of capital with any allusion to the

concurrent influence of sacrifice or "prospec-tiveness," and that he would have been unjustto these authors and unfaithful to history ifhe had assumed that they recognized such aninfluence. " I believe," he says, that a cer-tain tendency of thinking, once rather popular,

though at present entirely obsolete, led to the


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belief that the theoretical problem of interest

could be perfectly explained by reference tothe independent, value-creating power of capi-tal, and tha t this tendency occupies a middleposition in point of time between the old physi-ocratic view of the exclusive, value-creatingpower of land and the more recent socialisticdoctrine, now on the road to destruction, ofthe exclusive, value-creating power of labour,and is allied to both these ideas." He would,therefore, have been unjust to history if he hadfailed to point out this tendency. He would

have been unjust to the writers he discussed ifhe had criticised them for views which he as-sumed, without direct evidence and sometimeseven against indirect evidence, that they held.He concludes with the statement that in hisopinion Marshall would not have brought

against him the charges to which he has beenmaking a reply " had not: unfortunately the ex-traordinary clearness and exactness which ishabitual to him in the conception and workingout of his theoretical ideas failed him in thatpart of his most excellent work devoted to the

subject of capital."


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Next to the Appendix here translated on the

recent literature of interest, the most importantaddition to the second edition is the chapteron John Rae inserted between the chapters onthe labour and the exploitation theories. Raeclearly anticipated some of Bohm-Bawerk'sideas, though this fact was not known to the

latter at the time of the publication of the firstedition, and in this chapter, which contains anexcellent summary and criticism of Rae's work,this fact is clearly recognized, and the precisepoints anticipated explained.

John Rae was a Scotchman who emigrated

to Canada, and in 1834 wrote a book whichwas published in Boston and entitled "State-ment of some new principles on the subject ofPolitical Economy, exposing the fallacies of thesystem of free trade, and some other doctrinesmaintained in the * W ealth of Nations.1" A sthe title implies, the book was written prima-rily for the purpose of pointing out the inappli-cability of Adam Smith's free trade doctrinesto Canada, and does not seem to have attractedmuch attention among the economists of thattime. John Stuart Mill (Bk. I, Ch. X I) m ade


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some quotations from it, and in a note ex-pressed a high opinion of the author and hiswork. In 1856 this book was translated in toItalian and published as Volume XI of the"Biblioteca dell1 Economista," but Italian econo-mists do not seem to have read it extensively.At any rate, Luigi Cossa in his " Introduzioneallo studio dell' Economia Politica" devotesbut five lines to it, in which it becomes evidentthat his knowledge of it was derived from Milland not from the book itself. In view of thesefacts and the scarcity of the book in Germany,

it is not surprising that Bohm-Bawerk had notread it at the time of the publication of his firstedition. His attention was called to the im-portance of this work by C. W. Mixter's articlein the Quarterly Journal of Economics for Jan-uary, 1897, entitled "A Forerunner of Bohm-Bawerk," and Professor Karl Menger placeda copy of the book at his disposal.

Rae's book is divided into three parts, thefirst treating of the lack of identity betweenthe interests of individuals and nations, thesecond of "the nature of stock and the lawsgoverning its increase and diminution," and


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the third, "of the operations of the legislator

on natural stock." Part II contains fifteen ofthe twenty-two chapters, -and two hundred andeighty of the three hundred and eighty-sevenpages of the book, and it is to this part thatBShm-Bawerk devotes his analysis and criti-cism in the chapter here under consideration.

Rae begins his exposition of the nature ofstock by describing production as a process offashioning or manipulating the materials"of nature into " instruments " which shall pro-duce "events" in the future. The objects ofmen's desires, or the means of satisfying theirwants, are " mere arrangem ents of matter," andall the combinations or manipulations of mate-rials made by men for this purpose he terms" instrum ents." " In general, then," he says onpage 87, all those changes which man makes in

the form or arrangement of the parts of materialobjects, for the purpose of supplying his futurewants, and which derive their power of doingthis from his knowledge of the course of events,and the changes which his labour, guided by hisreason, is hence enabled to make in the issue of

these events, may be termed instruments."


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This description of the nature and purposes

of production bears considerable resemblanceto Bbhm-Bawerk's treatment of the subject inthe early chapters of the " Positive Theory," inwhich he describes "goods," their "materialservices," and the functions of capital. Rae'sconception of "instruments" and Bohm-Bawerk's conception of capital or intermedi-ate goods," however, are not identical, as thelatter shows in a footnote on pages 379, 380,but they have much in common.

Rae next describes the common features of

these instruments. "T hey are all," he says, directly formed by human labour, or indirectlythrough the aid of other instruments them-selves formed by human labour;" they all"bring to pass, or tend, or help, to bring topass events supplying some of the wants of

man, and are then exhausted;" and a space oftime intervenes between their formation andtheir exhaustion. The power of instrumentsto bring events to pass, or the amount of goodsthey can produce, is termed their "capacity."A proper measure of this, in Rae's opinion, isthe amount of labour for which the returns of


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the instruments will exchange, this amount

being measured by the wages rather than thesacrifices of labour. He adds that a com-parison of the capacities of different instrumentsbelonging to the same class, that is, contribut-ing to the satisfaction of the same categoryof wants, may be made on the basis of theirrelative physical effects, as, for example, therelative heating power of different woods.

Rae then classifies instruments according tothe advantages or profits which may be derivedfrom their ownership. This involves a com-parison of the cost of their production inlabour, of the amount of their returns or prod-uct, and of the length of time interveningbetween the formation of the instruments andtheir exhaustion. The relation between thesethree factors is indicated by arranging the

instruments in orders or series determined bythe period of time at which instruments placedin them issue (or would issue if not beforeexhausted) in events equivalent to double thelabour expended in forming them." Thusinstruments belonging to series A will yield a

return equal to double their cost in one year,


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those in series B in two years, in series C inthree years, etc.

The most important part of Rae's expositionnow follows, in which he explains the causesand the laws of the increase and decrease of theinstruments of a society. The former are said

to be four in num ber: (i) " T h e quantity andquality of the materials owned by i t ; " (2) " th estrength of the effective desire of accumula-tion; (3) "the rate of wages;" and (4) "theprogress of the inventive faculty." Of these thesecond and fourth receive the major portion of

attention, and in their discussion Rae revealsthe points of chief importance in his theory ofcapital and interest. As a preliminary to thisdiscussion he attempts to establish the follow-ing proposition: " The capacity which any peo-ple can communicate to the materials theypossess, by forming them into instruments,cannot be indefinitely increased, while theirknowledge of their powers and qualities re-mains stationary, without moving the instru-ments formed continually onwards in the series

A, B, C, etc .; but there is no assignable limitto the extent of the capacity which a people,


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having attained considerable knowledge of thequalities and powers of the materials theypossess, can communicate to them withoutcarrying them out of series A, B, C, etc., evenif that knowledge remain stationary,"

The first part of this law is established bythe following process of reasoning: Thecapacity of instruments can be increased bymaking them more durable or by increasingtheir efficiency. In the first case a largeramount of labour must be expended in theirproduction, and, even if this new labour adds as

much to their productive power as that previ-ously expended, the returns are moved fartheroff in time, and in consequence the instrumentsare pushed down to a lower series. To in-crease the efficiency of an instrument likewiserequires the expenditure of more labour, since

instruments of greater efficiency can only beobtained by the manipulation of scarcer ormore refractory materials. The increased costthus necessitated forces the instruments into alower series. In proof of the second part ofthe law Rae mentions the almost innumerable

combinations of productive powers and mate-


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rials possible in nations whose knowledge ofnature and of technique is extensive. Undersuch circumstances the movement toward thelower series is slow and there is no assignablelimit to the quantity of instruments that maybe produced with profit. The question of theincrease of instruments of production, there-fore, becomes one of technique or knowledgeof natural forces and materials and the methodsof manipulating them on the one hand, and ofthe extent to which a people will be willing tocarry the process of producing instruments of

lower and lower series on the other; that is,of what Rae calls the progress of the inventivefaculty," and the effective desire of accumula-tion." The former increases the number ofinstruments which may be produced withoutgreatly increasing the number of lower series,

and the latter determines the remoteness ofthe future period for which a people are willingto provide by the sacrifice of present labour orits equivalent.

Rae's analysis of the circumstances whichdetermine the effective desire for accumulationbrings him to the discussion of the relation


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between present and future enjoyments. Most

men, he says, discount future pleasures, partlyon account of the uncertainty and shortness oflife, and partly on account of their inability torealize the future. Their intellectual qualitiesand their " social and ' benevolent affections "are, therefore, elements in the problem. Thestronger the former are, the more keenly theyappreciate future needs, and the less liable arethey to be influenced by the passions of themoment; the stronger is their interest inand their affection for others, the greater theirdesire to influence events in the future. Thegrowth of family and social ties, the develop-ment of the moral powers of a people, andthe improvement of all those conditions, social,political, and economic, which increase theprobability that we ourselves, or those forwhom we care, will be permitted in thefuture to enjoy the results of our present sac-rifices, are calculated to strengthen the effectivedesire for accumulation.

From this discussion Rae proceeds to thesubject of the division of labour and exchange.

He sees the advantages of the former in the


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fact that when a worker devotes himself to onebranch of production, instruments are morecontinuously used and more quickly exhausted,and hence are raised to higher and more pro-ductive series. Their increase and accumula-tion thus become more profitable, and theeffective desire for accumulation is increased.This method of viewing the advantages of thedivision of labour is considered so importantby Rae that he devotes a special appendix toits defence, and to a criticism of Adam Smith'streatment of the subject.

The discussion of the division of labour andof exchange leads to a consideration of valuewhich he explains in. accordance with the costof reproduction theory, to which, however, hemakeis one important and very significant addi-tion. When two persons in the same society

exchange commodities," he says (p. 300), " . . .the exchanges they make are for equal quanti-ties of labour, reckoned according to the timewhen applied and the actual order of instru-ments 1 The time element, to which attentionis called in this last clause, is considered by

1 The italics are mine.


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Rae of equal importance with labour. Ma-

terials, tools, etc., as well as labour, are con-sumed in production, and they must berepresented in the price of the goods. Inthis connection he shows that not only thelabour which produced these instruments mustbe taken into consideration, but also the length

of time that must elapse before that labour isremunerated. The rate of compensation forthis element of time will depend upon theeffective desire for accum ulation. By way ofillustration, he assumes the case of a weaverwho can weave a certain amount of thread intolinen in thirty days with the aid of a loomwhich cost one hundred days' labour andwhich will last seven years. H e then 'pro-ceeds as follows: "Suppose that the effectivedesire of accumulation of the individual is ofstrength sufficient to carry him to the order G,doubling in seven years, that the loom cost onehundred days' labour, and that it will be ex-hausted in seven years; it would then requireto return two hundred days' labour, or anequivalent, at the end of that period. Thereturn, however, is not delayed so long, but


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begins to come in daily, immediately after its

con .ruction. Calculating then what yearly re-turn is equal to two hundred days at the endof seven years, in the estimation of a man whoreckons one day now equal to two then, it willturn out to be nearly twenty days. W e mayallow that the loom is in employment threehundred days a year; it would, therefore, onthese principles, have to return two days' labourfor every thirty days during which it was inoperation, and the weaver would consequentlyhave to receive an equivalent to thirty-two

days' labour; at least, had he not a moralcertainty of receiving this, he would not haveformed the instrument, and were such returnto cease, he would not reconstruct it" (pp..169, 170).

Farther on he adds that "even in cases

where labour alone seems to be paid for, thetime generally also forms one of the items tobe taken into account. Thu s an individualcontracts to fell the trees on a certain pieceof forest land in a North American settlementwithin three months. If then he be paid atthe commencement of the three months, he


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will expect to receive less than if paymentbe deferred until the expiration of that time,and the difference between the two amountswill be regulated, as in other cases, by theparticular orders to which instruments, inthat particular situation, are generally wroughtup. The same thing holds good in all in-stances where labour is paid for by the workexecuted, or, as it is termed, by the piece."

The same idea appears in another passagein which the difference between the valuationplaced upon present and future goods of thesame kind and amount is expressed in a strik-ing manner. After stating that all instrumentspossess a capacity for supplying wants orsaving labour, he ad ds : " But the wants whichthey supply, and the labour which they save,are in general not immediate, but future. Nowwe cannot estimate the same amount of laboursaved, or wants supplied, to-morrow, and fiveor fifty years hence, as equivalent, the one tothe other. Thu s, if we compare together ahundred full-grown trees, and as many sap-lings, it may be that, estimated in the supply

they yield the wants of futurity, they are alike.


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If the former be cut down to-morrow, they mayyield a hundred cords of fire-wood, and if thelatter be cut down fifty years hence, they mayyield the same. W e should not, nevertheless,conceive that they were equal the one to theother. W ha t measure, then, are we to adoptfor comparing them and other such instru-ments together, and thus finding an expressionin a quantity of immediate labour for the wholecapacity of instruments possessed by any com-munity or for the whole stock of that com-munity ? The natural measure would seem to

be the relative estimate, which the individualsconcerned themselves form of the present andthe future, that is, the strength of the effectivedesire of accumulation of the particular com-modity. Thus in a community whose effectivedesire of accumulation is of a strength sufficient

to carry it to the formation of instruments ofthe order E, doubling in five years, an instru-ment, which at the expiration of five yearsyielded a return equivalent to two days' labour,might fairly be estimated as equivalent to oneday's present labour; if at the expiration of tenyears it yielded an equivalent to four days'


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labour, it might also now be rated at one day's

labour, and so for other periods" (pp. 171, 172).In this connection Bohm-Bawerk calls atten-

tion to the fact that Rae has given us twomethods of measuring the influence of thetime element upon value, the one being thestrength of the effective desire for accumula-

tion, and the other the productivity of thelowest order of instruments produced by thesociety in question. That these two measuresare not identical is recognized by Rae himselfin a statement in which he distinguishes be-tween cases "where the effective desire ofaccumulation of a community has had oppor-tunity to work up the materials possessed byit into instruments of an order correspondingto its own strength," and those "where theaccumulative principle has not yet had timefully to operate." (See pp . 172 sq., 194, 264.)

Bohm-Bawerk claims that the latter is thenormal condition of things, because certaincircumstances, among which are the new dis-coveries which play so important a role inRae's exposition, prevent the complete realiza-tion of the effects of the psychological facts


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referred to in the expression "the effectivedesire of accumulation."

The longest chapter in Rae's book treats"of the causes of the progress of inventionand of the effects arising from it." This sub-ject is treated historically, and in a very inter-

esting manner. The most important pointsfor the student of interest concern the wayin which technical progress affects the magni-tude of national wealth and the rate of interest.

The effect of discoveries is to reveal newor more suitable materials, or new qualities, or

new methods of working in materials. Thefirst effect of progress along this line is, there-fore, to render labour more productive, and thiseffect in turn changes the relation between thecapacity of instruments and the costs of theirproduction, and thus transfers them to morespeedily returning orders," and increases themagnitude of the wealth of thi nation. Im-provements also raise the rate of profits, evenif no change takes place in the effective desirefor accumulation, since they increase the pro-ductivity of all instruments, and thus thereturns of every series.


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after the manner of the productivity theory,and the psychological facts after the mannerof the abstinence theory. Launhard t and Saxdid not seem to feel the necessity of employingthe former element in their explanation, butcontented themselves with the use of the im-

perfect materials prepared but left unusedby Jevons. Rae recognized the importance ofboth elements, but failed in his explanationof how they cooperate in the determinationof interest. His treatm ent of this part of thesubject may be summarized as follows:

The fact that people estimate present goodsmore highly than future goods of the samequality and quantity explains the fact of in-terest. T he rate depends upon the effectivedesire for accumulation on the one handand certain facts concerning the technique of

. production on the other. If, for example, ac-cumulation continues, while the state of know-ledge remains stationary, the rate of interestmust fall, because the use of materials of poorerquality increases the cost.of production and

thus diminishes the surplus which remainsafter deducting costs from product. The ten-


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At this point Bohm-Bawerk calls attentionto the fact that Rae's explanation is subject tothe same criticism as the productivity theory.He confuses physical and value productivity,and the cause of this confusion seems to be theambiguous use of the terms "capacity" and

" returns." In his formal definitions and illus-trations of "capacity" the purely technicalconception is employed. For example, thecapacity of a good is said to be great or smallaccording as it helps to bring into existencemany or few products. The capacity of aninstrument can be increased either by lengthen-ing its duration or by increasing the quantity ofgoods which it can produce in a given periodof time. He illustrates the effects of inven-tions or improvements by the statement(p. 259) that with an improved form of plough,people can plough a larger piece of land withthe same expenditure of human and animallabour. Rae then passes over to the concep-tion of value productivity when he attempts toarrange instrum ents into series on the basis of

the surplus they yield over costs. This heaccomplishes by a comparison of the labour


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expended on the production of an instrument

with the returns of that instrument, and as ameasure of these two magnitudes he takes thevalue or the wages of the labour. Thus hecompares the wages of the labour expended inthe production of an instrument with the wagesof the labour for which the returns or productof the instrum ent would exchange. In otherwords, he compares the value of the costelements with the value of their product, theinstrument, so-called, being the intermediatefactor. He assumes that this comparison willreveal a surplus, the magnitude of which ascompared with the value of the instrument de-termines the series to which the latter belongs.He then argues that this surplus is increasedor decreased directly by changes in the physi-cal productivity of instrum ents. For example,

improvements or inventions make it possibleto secure the same returns with less labour orgreater returns with the same labour, and this,he argues, will increase the surplus clue to theinstrument in question, and will thus raise itto a higher series. The returns of which he

speaks in the first part of the argument are


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TRANSLATOR'S PREFACE xxx vii

concrete goods, but the surplus referred to isa surplus of value, obtained by subtracting thevalue of the cost elements from the value ofthese concrete goods. W hat he proves is thatinventions increase the physical productivity oflabour, and from that fact he draws the unwar-

ranted conclusion that the value of the productand the value of the labour are farther apartthan before. In like manner he explains thefall in the rate of interest due to increasingaccumulations. These increasing accumula-tions, he argues, involve the use of materials

of poorer quality or of materials more difficultto procure. Thus costs are increased. Agiven amount of labour yields a smaller returnor a larger amount of labour is required to pro-cure the same return. From this fact he drawsthe conclusion that the surplus due to the in-strument in question must decrease. Thu sfrom a decrease in the physical productivity ofan instrument he argues a decreasing differ-ence between the value of the instrument andthat of its product.

Eohm-Bawerk also refers to the fact thatRae's reasoning is contradicted by his own


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xx xv iii TRANSLATOR'S PREFACE

doctrine of value. According to the cost of

production theory, the value of the productought to rise in the same proportion as thecosts, and in that case no change in the sur-plus would be experienced. Rae also assumesthroughout that the value of labour remainsstationary, and that the sum of value repre-sented by the costs increases and decreasesonly as the quantity of labour represented byit increases and decreases. He thus comm itsthe fatal error of assuming that the forces whichdetermine value operate upon the goods whicfvconstitute the re turns, but has no influencewhatever upon those which constitute costs.

After summarizing the similarities and thedifferences between Rae's theory and his own,Bohm-Bawerk concludes with the statementthat in respect to one-half of his doctrine,

that, namely, which treats of the difference inthe valuation of present and future goods andthe importance of this phenomenon in the ex-planation of interest, Rae deserves the creditof originality and of having anticipated him,but regarding the other half he declares that

Rae was a follower of the productivity theo-


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TRANSLATOR'S PREFACE xx xix

rists, and especially of his great contemporary,

Thiinen.The chapter on the exploitation theory has

been considerably enlarged in the second edi-tion by the addition of a section on u Th e Doc-trines of Marx in the Mouths of his Successors,"and by the extension of the critical portion ofthe section on Marx. The occasion of theseadditions was the publication in 1894 of thethird volume of " Das Kapital," which existedonly in manuscript at the time of the publica-tion of the first edition and the contents ofwhich were at that time unknown to the gen-eral public.

In the first two volumes many parts ofMarx's theory were left incomplete, notablythat portion of the doctrine of profits and ofsurplus value in which it became necessaryto harmonize the law of the equalization ofprofits with the labour theory of value. Marxrecognized two varieties of capita], which hedistinguished by the terms variable and con-stant." Variable capital is paid to labourers,and by means of their value-creating power

reappears with a surplus. Constant capital


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xl TRANSLATOR'S PREFACE

reappears likewise, but without a surplus. It

follows, therefore, that the rate of profits shouldbe higher where the proportion of variablecapital is large, and lower where it is small.The fact is, however, that the rate of profitstends toward equality without reference tothe composition of the capital, and a conse-

quence of this is that products do not exchangein accordance with the amounts of labour neces-sary to their production.

In his first volume Marx recognized theapparent discrepancy between his theory ofvalue and the facts, and promised to harmonizethe two in a subsequent publication, and themanuscript published in 1894 contained thefulfilment of that promise. Bohm-Bawerkshows, however, that he completely failed toremove this discrepancy. Marx's argum ent isthat, though the law of the equalization ofprofits requires that the value of some goodsshould be too low and that of others too high,the excess of value in the one case exactly off-sets the deficit in the other, and that, therefore,total values correspond to the amounts of labourwhich produced them. In criticism Bohm-


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TRANSLA TORS PREFACE xli

Bawerk shows that this argument completelyoverlooks the problem of value which is toexplain the proportions in which goods ex-change for each other, and not the relationbetween the sum of values and their labourcosts. Marx's admission in the third volume,

that goods actually do not exchange for eachother in proportion to the amounts of labournecessary to their production, is a completedenial of the doctrine of value so elaboratelyworked out in the first volume. It is impos-sible to harmonize or to explain away so pal-

pable a contradiction.In Bohm-Bawerk's opinion the publication

of the third volume of " Das Kap ita l" marksthe beginning of the end of the labour theoryof value. Some of M arx's followers of thepresent day have attempted to harmonize their

master's contradictory statements, or at least toshow that there is still a remnant of truth inthe venerable theory, but our author finds littledifficulty in exposing the futility of these at-tempts, The curious reader who does notunderstand German may examine these argu-ments and Bohm-Bawerk's criticisms in Miss


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xlii TRANSLATOR'S PREFACE

MacdonalcTs translation entitled " Karl Marx

and the Close of his System."Bohm-Bawerk's review of the literature of

interest produced during the fifteen years pre-ceding 1900, is presented herewith in transla-tion, and needs no description or commendation.It speaks for itself. It is the hope and thebelief of the translators that the English-speak-ing world will accord to this little book thesame welcome they gave to the translation ofthe first edition.

WILLIAM A. SCOTT.

UNIVERSITY OF WISCONSIN,

May, 1903.


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CONTENTSPAG3

TRANSLATOR'S P R E FA C E v

CHAI'TEIl

I. I N T R O D U C T I O N i

II . T H E A G I O T H E O R Y 6

I II . T H E U S E T H E O R I E S 14

I V. T H E A B S T I N E N C E T H E O R Y 17

V . L A B O U R T H E O R I E S . . . . . . 63

V I T H E P R O D U C T I V I T Y T H E O R I E S . . . . 9 0

V I I T H E E X P L O I T A T I O N T H E O R Y . . . . 1 2 2

V I I I T H E E C L E C T I C S 1 3 2

I X T H E P R E S E N T S T A T E O F O P I N I O N . . . 1 4 0

I N D E X 1 4 9

x l i i i


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R E C E N T L I T E R A T U R E O N I N T E R E S T

CHAPTER I

INTRODUCTION

SINCE the appearance of the first edition ofmy work the problem of interest has been thesubject of lively and varied discussions. Theliterature on this subject during the last fifteenyears has been relatively more abundant thanduring any previous period of equal length, andwhile the strife which it indicates has broughtno solution of the great problem, there is per-ceptible on the literary battle-field a certain shift-ing among the contending forces which seemsto me to indicate a more advanced stage ofthe conflict, one approaching a final decision.The struggle is less desultory than it was fif-teen years ago. Though some new opinionshave appeared, many of the older ones have been

entirely or almost entirely discarded, and the bat-tle now centres about a few earnestly defended


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2 RECENT LITERATURE ON INTERE ST

points between which the decision hang:.And even with reference to these the deci-sion seems to me to be really nearer than everbefore. There is no more skirmishing, nomore fighting between advanced outposts.The preliminary actions have so far donetheir work, the premises and consequences ofthe contending theories, the essential natureof their theoretical content, so to speak, havebeen so clearly revealed, that the dispute canscarcely again deviate into side issues, andthe pending decision must strike the very

core of the matter.To be the historian of the present is, forwell-known reasons, a precarious matter. H ewho himself stands in the midst of the forestcannot easily obtain a good view of it. Inmy case there are two special reasons which

render very difficult the task of being a goodexpositor of the present condition of the liter-ature of interest. The fact that I myself amthe author of one of the competing theoriesmakes me partial in spite of the best ofintentions, and, in particular, it is doubly

difficult to preserve the right perspective in


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INTRODUCTION 3

estimating the magnitude of the points atissue if to the nearness of the point of viewbe added the personal preference of theobserver. Besides, the present generation ofpolitical economists are undoubtedly in theprocess of transforming their views regarding

the interest problem. W hatever theory mayfinally maintain its ground, it is certain tha tthe one which we shall transmit to the nextgeneration as that of our times, will beessentially different from that which we foundin the text-books of our youth and acceptedas the basis of our thinking. W e all, eventhe most conservative among us, have trans-formed the ideas which were transmitted tous. T o review with an unbiassed historicaleye and correctly to judge a literature in

such a state of transformation, is a matterof peculiar and exceptional difficulty. One isconfronted with a mass of transitional views,among which may be found, and apparentlyin the largest number, insignificant varia-tions of expiring theories, as well as hopeful

links in the chain of progressive develop-ment, and it would require an absolutely


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4 RECENT LITERATURE ON INTEREST

prophetic eye to decide with certainty whethera given theory is to bfe ranged in the onecategory or the other.

In spite of these difficulties, however, Ishould consider myself guilty of leaving aperceptible gap in the work which I have

undertaken, if by these considerations I shouldpermit myself to be frightened away from thetask of attempting to give to my readers acritical survey of th e . contemporary literatureof interest. Generally a critical history ofdoctrine is written for the purpose of illumi-

nating the path of future investigation, andit would evidently on this account be in thehighest degree improper if one were to leavein wilful darkness that portion of the roadmost recently covered and that point fromwhich future travellers must start. However,

I cannot proceed to this part of my taskwithout the frankest acknowledgment of falli-bility and insufficiency.

Regarding the larger part of the literatureof the present day, I must limit myself inadvance to a summary sketch. As a rule,I shall omit to present in detail and to discuss


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INTRODUCTION 5

doctrines which are mere modifications of amain theory. And by so doing it is not mydesire to indicate that I regard the modifica-tion as of little consequence or the respectivedoctrine as unimportant. I shall submit toan exhaustive exposition and criticism only a

few of the most recent theories, indeed, onlythose which are either of such evident pecu-liarity that they are distinguished by essentialcharacteristics from the types of theoriespreviously described, or which, in case theyare mere modifications or combinations of

previous theories, have been so clearly formu-lated and at the same time so carefully workedout that the extent of the modification whichthey involve can be seen with perfect clearness.


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CHAPTER I ITHE AGIO THEORY

I HAVE

already remarked that'in the mostrecent times some new opinions have beenadded to the old rivals. The most influentialadditions of this sort are represented by thosetheories which explain interest by a differencein value between present and future goods.

Remote allusions to this thought hadalready been made by Galiani and TurgotA half-century later John Rae had given toit a very remarkable formulation, in spite ofwhich, however, it was not his fate to exertany influence upon its further literary devel-

opment. Again, forty years later, Jevonsworked out in a masterly way most of thepremises upon which that theory rests, buthe neglected to develop the lines of thoughtwhich connect these premises with the phe-nomena of interest. In this respect his workis inferior to that of his forgotten predecessor,

6


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TH E AGIO THEORY . 7

Rae, whom he about equals in the develop-

ment of the psychological part of the premisesand undoubtedly suipasses in the recognitionof those premises which are derived from thetechnique of production.

In immediate connection with Jevonsshould be mentioned Launhardt1 and EmilSax.2 Both of these authors excel Jevonsin so far as they clearly express the concept, involved, but not clearly expressed, inJevons's work, and meantime announced in1884 a s *he foundation of my interest theory,

that interest springs from the differencein value, resting upon psychological grounds,between present and future goods.8 But

1 Mathematische Begrlindung der Volkswirtschaftlehre,"Leipzig, 1885 (see especially pp. 5-7, 67 sg .y and 129).

2 Grundlegung der theoretischen Staatswirtschaft," Vienna,

1887 (PP- 178 sg y 3*3 sg>);8 The rate of interest demanded rests upon an estimation ofthe smaller value possessed by a future enjoyment in comparisonwith an equally great enjoyment offered in the presen t." (La un-hardt, p. 129.)

" T he value iof a production go od is derived from that of theconsum ption goo d which proceeds from it. Since the needwhich the production good indirectly satisfies is a future need,

this derived value is smaller than that which the economic sub-ject attributes to the consumption good available in the present


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these authors merely formulated this principlewithout carrying it to its final consequences.Their failure to develop it in detail preventedthem from testing whether the psychologicalcauses of the lower estimation of future goodsare able to furnish a sufficiently broad basisfor a complete explanation of the phenomenaof interest, or whether in addition certainfacts connected with the technique of produc-tion, and entirely neglected by them, mustnot be employed in the explanation.

The works of Launhardt and Sax fall in

the period between the appearance of thefirst (1884) and the second (1889) volumesof my published work upon "Capital andInterest." The " Positive Theory of Capital"set forth in the second volume contains an

for rendering the same satisfaction; or what amounts to the samething, smaller than the value which that concrete consum ptiongood, after it has come into existence, will have for him in viewof the need which at that time exists . Th e value of the futureconsumption good from which the value of the capital is deriveddepends upon the future need, which is weaker than the need atpresent felt. . . . In the difference of value between the pro-duction good and the consumption good derived from it lies theso-called 'prod uctivity' of capital." (Sa x, pp. 317 and 32 1; cf.

also p. 178 sq.)


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TH E AGIO THEORY 9

attempt to derive all forms of the interestphenomenon from the difference in valuebetween present and future goods, and to ex-plain this difference by means of the coopera-tion of a series of causes, partly psychologicaland partly connected with the technique of

production. This attempt met with muchopposition, but also with agreement and sup-port from many quarters. Cognate ideas wereexpressed at about the same time by Americanthinkers, especially by Simon N. Patten,1 S. N.Macvane,2 and J. B. Clark,8 though in a less

exhaustive way, and for the time being with-out any conscious break with the trend ofideas involved in the old abstinence theory.

1 " T h e Fundam ental Idea of Capital," in the Quarterly Jour-nal of Economics > January, 1889.

2 See his short but very noteworthy article entitled Analysisof Cost of Production," in the Qua rterly Journal of Econ omics}July, 1887, and later articles in the same periodical for October,1890, and January, 1892.

8 The extensive series of articles in which this sagacious andindefatigable theorist has during the last decade presented hisinvestigations on the subject of capital and interest begins withhis monograph, Capital and its Earn ings," published in 1888.Most of his later articles may be found in the Qua rterly Journalof Economics; some also in the Annals of the Am erican Academ y,July, 1890, and in the Yale Review November, 1893.


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At the same time there was in operation theimpulse given by Jevons's brilliant work, whichhas steadily grown in the appreciation of thetheorists of the various nations. The fact isthat on account of one or the other of thesestimulating influences, the theory of the differ-ence in value between present and futuregoods, to use a short expression, the agiotheory,1 has taken root in the literature ofall civilized nations, and has even acquired apredominant place in that of some of them.Especially it seems to me that cognate views,with this or that shade of difference, haveacquired wide acceptance in English-Ameri-can,2 Italian,8 Dutch,4 and Scandinavian5

literature.6

1 Macfarlane (" Valu e and D istribution," pp. xxii and 230 sq.)proposes the name " exch ange theory," because according to thistheory interest arises from an exchange between present and

future go od s. But this term doe s not seem to me to characterizethe theory sufficiently. By a strange misunderstanding, Zaleski("Lehre vom Capital," Kazan, 1898) regards the title "PositiveTheory of Capital," which I gave to the second part of my workin order to contrast it with the historical first part, as a character-istic attribute of my theory.

2 Besides the authors included in the text there are others whohold more or less similar view s. Fo r exam ple, J. Bonar {Quar-

terly Journal of Economics April and October, 1889, and April,


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T H E A G IO T H E O RY H

1890) ; William Smart (" Introduction to the Theory of Value,"

London, 1891, "The New Theory of Interest," Economic Journal,1891) ; F. Y. Edgeworth (Economic Journal, June, 1892); E. B.Andrews ("Institutes of E conom ics," Boston, 18 89 ); Lowrey(Annals of Am erican A cademy, Nl?crd\ 1892 ); E ly (" Outlinesof Econ om ics," New York, 1 89 3) ; Carver (Quarterly Journal ofEconomics, October, 18 93 ); Taussig ( "W ag es and Capital,"New York, 1896); Irving Fisher (Economic Journal, December,1896, June and Decem ber, 18 97 ); Mixter ("A Forerunner of

Bohm-Bawerk," Quarterly Journal of Economics, January, 1897) ;Macfarlane (" Value and Distribution," Philadelphia, 1899) ; andespecially also Hobson ("Evolution of Modern Capitalism,"London, 1894); and Hadley ("Economics," New York, 1896,and Annals of American Academy, November, 1893). G iddingshas also expressed himself as partially in agreement with thisidea, but he believes that in order to complete and extend thetheory, it is necessary to make an addition to it, in which h e

would explain the constant deficiency in the supply of presentgo od s or capital by the fact that the last hours o f labour, per-formed with ever increasing reluctance and pain, contribute tothe formation of capital. T hi s increase in the pains of labour con -stitutes the extra costs of capital building, in comparison w iththe cost of the manufacture of goods designed for immediate con-sumptionwhich extra costs must find their remuneration ininterest. But I am neither able to convinc e myself of the reality

of all the assumptions of fact involved in this theory, nor, if theseassumptions be granted, am I able to discover their operation inthe process by which interest is produced. See , besides, theexhaustive discussion in the Quarterly Journal of Economics fromJuly, 1889, to April, 1891, in which, besides Giddings and myself,Bonar, David J. Green, and H. Bilgram also took part.

8 Ricca-Salerno ("Teorie del Valore," Rome, 1894), Monte-martini ("II Risparmio dell' Econom ia pura," Milan, 1896) ; Cro-cini (" Di alcune questioni relative alP utilita finale," Tu rin, 1896) ;G raziani (" Studi sulla teoria delP interesse," Turin, 189 8) ; further


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1 2 R E C E N T L I T E R AT U R E O N I N T E R E S T

in essentials perhaps, Barone (u Sopra un libro cli W icksell," Gior~nale degli Economist N ovem ber, 1895, and "S tud i sulla distri-butione in the sam e journal for February and M arch, 1896) ; andpartly at least, Ben ini (" II valore e la sua attribuzione ai beni stru-mentali," Bari, 1 893 ).

4 Under this head must be mentioned before all others N. G.Pferson's classical work, Leerboek der Staatshuishoudkunde"(2d ed., Harlem, 1896, and an older article in De Economist,March, 1899, p. 193 s?.)-

6 Th is subject ha s been m ost exhaustively treated by K untW icksell (" Ueber W ert, Capital und R ent," Jena, 1893, Finan z-theoretische Untersuch ungen," Jena , 189 6). Dr. W icksell waskind enough to supplement my insufficient knowledge of Scandi-navian literature by some private communications, in which hemen tions as representatives of cognate view s the following au tho rs:in Denmark, Professors W estergaard and Folb e-H anse n; inSweden, Count Hamilton, David Davidson, and John Leffler;in Norway, Professors Aschehoug and Morgenstierne, Dr. Oskar

Jaeger and D r. Einarsen.6 Am ong the original G erman works in which similar ideas

are expressed, I wish to make special mention of that of Effertz("Arbeit und Boden," Berlin, 1889), which appeared almost con-temporaneously with my a Positive Theory," and the profoundwork of the Sw iss author, G eorge Sulzer (" D ie wirtschaftlichenG rundgesetze in der G egenwartsphase ihrer Entwicklung," Zurich,189 5). Effertz expressed in an original way the though t that

interest o wes its existenc e to a difference of time, and that the" a g e " ( alter ) of labour and of land is an element of exchangevalue, and that interest is " the paym ent for the age quality oflabour and land (pp. 190 sq.} 198 sq.f and 278 ). Th e necessity ofthe add itional paym ent for the " age of the elements of produc-tion is remotely, although perhaps inadequately, explained by thefact that o ld labour and old land are rarer than present labour andpresent land (p p. 19 0, 19 5, 19 8; cf. also in addition, pp. 218 ,221 ,354). T h e fact that the author on principle avoids literary


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T H E A G IO T H E O RY 1 3

references makes it impossible to know whether and to what

extent the work o f Effertz, wh ich appeared in 1889, was influ-enced by several previous discussions of the same fundamentalthough t. Sulzer's treatment of the subject seem s to me in ge n-eral to move upon a middle line between that of Jevons and myow n. On the position occupied by Adolf W agner at thepresent time, see Chapter V.


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CHAPTER I I I

THE USE THEORIES

O F the numerous opinions which have con-

tended for mastery upon the literary battle-fields of the past, some have received noreenforcement whatever in recent times, andothers have had only an occasional champion.Of the first kind, for the most part, has beenthe fate of those groups of theories which have

either reduced the problem bf interest to toogreat simplicity, or have subjected it to a re-finement of treatm ent which is fatal. For thefirst reason the colourless theories,1 the naiveproductivity theory, the fructification theory

1 1 am almost inclined to class under this head tfie interest

theory of Lehr ( Grundbegrifle und Grundlagen der Volkswirt-schaft," Leipzig, 1893, Pt. VII, Ch. 6) ; at least, I am unable todiscover any characteristic point in his rather voluminous disqui-sition upon this subject. He refuses his adherence to most ofthe theories ordinarily held, but on his part presents only suchstatements as in substance constitute either an appeal to thereality, propriety, justice, and equity of certain phenomena orecho certain universal motives (such as the motive referred to by

Adam Smith, that without the prospect of interest, capital would14


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THE USE THEORIES 15

of Turgot, and the theory of Henry George,have remained without new adherents; and forthe second reason theories of the type ofSchellwien's. 1

To the group which has only received occa-sional reenforcement belongs the interesting

use theory. From its most distinguished rep-resentative, Karl Menger, nothing new hasappeared ; though in his highly esteemed mono-graph on " Th e Theory of Cap ital"l thisauthor has subjected the concept of capitalto a thoroughgoing and fruitful investiga-

tion, which, however, does not extend to thecontested question of interest. W alras, whohad previously expounded the use theory in aform which reminds us of J. B. Say, still holdsto this theory.2

Among recent works which adhere clearly

not be accumulated for purposes of production or loan, p. 332),but in my opinion constitute no real explanation of the phenome-non of interest.

1 Coma& s/a/irduc/ier, new series, Vol. XX II (18 88 ).2 "E lem en ts d'Economic politique pure," 1st ed., Lausanne,

1874, 2d ed., 1889. W alras considers interest as the paymentfor the productive serv ice (" serv ice producteur ) of capital, which

is a distinct immaterial good (see, for example, pp. 201, 211, andXI II of the 2d c d .) . In essentials Pareto (Corns d'Econom ie


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and firmly to the standpoint of the use theory(occasional allusions to this theory are frequent,especially among eclectic writers1), only thatof Ladislas Zaleski in the Russian languageon " The Doctrine of Capital"2 is known tome. Since for linguistic reasons my know-ledge of this work is confined to a few extractsplaced at my disposal, I can only make thestatement that Zaleski expresses his adherenceto the use theory ahd attempts to base it uponthe doctrine of natural science regarding theunity of matter and the conservation of en-ergy." How far removed he is in th is newdeparture from the use theory of Menger, andto what extent he approaches the intricate prod-uctivity theory, I am unable to say.politique, Vol. I, p. 40 sq.) adheres to the conception of Walras,but not without occasional allusions to the difference in valuebetween present and future goods (see, for example, p. 50).

1

Fo r example, Conrad (" G ruqdriss zum Studium der p olit-ischen Okonomie," Jena, 1896, Pt. I, 67) ; Dietzel, in an articlequoted farther on (Gottinger gelehrten Anztigen) \ Diehl("Proudho n, sein e L ehre und sein L eben," Jena, 1890, Pt. II,p. 2 04 ); M. Block ("P rogre s de la science Econom ique depuisAdam Smith," Paris, 1890, Pt. II, Ch. X X IX ) ; Ch. G ide ("P rin-cipes d'E conom ie Politique," 5th ed., Paris, 1896, p. 4 5 1 ); andseveral others.

2 Kazan, 1898.


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18 RECENT LITERATURE ON INTER EST

it has been shown that this lack of harmony

cannot be regarded as a conclusive argumentagainst the truth of the abstinence theory,since the market price of products by whichthe sacrifice involved in their production is re-munerated tends to equal the greatest of thevarious sacrifices required. On this accountit is not remarkable that the same rate of in-terest which is adequate to reward the greatestabstinence undergone may give an excessiveremuneration to those persons with whom theaccumulation and maintenance of capital in-volves a relatively small sacrifice of abstinence.1

But this argument answers only one of themost superficial objections to the abstinencetheory, and does not touch the more funda-

1 In his ap ology for the abstinence theory, Macfarlane (" Valueand D istribution," Philadelphia, 1899, pp . 175 -177 ) lays thestrongest em phasis upon this line of thou ght. Substantially inagreement with him are Loria (" La Ren dita Fondiaria," M ilan,1880, p. 619 sg.), and M arshall with h is theory of "saver 's sur-pl us " ("Principles," 3d e d., Lond on, 1895, p. 6 0 6) ; s ee furtherCarver, Baron e, and indeed in general all investigators w horecognize the marginal utility theory of value and who at thesam e time are inclined to adhere to the abstinen ce the ory ;see also p. 277 sq . of Smart's translation of "Capital and

Interest."


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THE ABSTINENCE THEORY 19

mental one, based on logical grounds, uponwhich I have constructed my criticism of it.1

A significant change in terminology hasbeen suggested by Macvane, who proposes tosubstitute for the expression "abstinence,"which has been the occasion of so much op-

position, the weaker but more suitable term"waiting."2 This suggestion involves a cer-tain approach to the standpoint of that theorywhich in the explanation of interest lays chiefstress upon the influence of the element oftime upon the difference in value between

present and future enjoyments and gockls, andit is a significant fact that not a few of themost recent representatives of the abstinencetheory regard this and the agio theory as sub-stantially identical.8 But there is a real ob-

1 A remark of Macfarlane's (p. 179) bearing upon my objec-tion does not appear to me to strike the heart of the matter, butto consist of a mere counter-proposition.

2 "An alysis of Cost of Produ ction" {Quarterly J ournal ofEconomics July, 188 7). See also abov e, p. 9.

8 For exam ple, Macfarlane is of the opinion that the ex-change theory," as he calls it (see also above, p. 10, note 1), ofthe essential features of which he approves, is only an improvedand developed form of the theory of Bohm-Bawerk (" the theoryhere proposed is after all but an extension of Bohm-Bawerk^


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2 0 RECENT LITERATURE ON INTEREST

stacle in the way of the amalgamation of thesetwo theories, namely, that to the "waiting,"which Macvane and his followers suggest asa milder term than abstinence, must be as-signed the position of an independent sacri-fice which must be paid for in addition tothat of labour.

The inclination of the abstinence theorists,which was noticeable in previous periods, tointroduce in an eclectic way into their dis-cussions of the interest problem propositionswhich belong to other types of theories, is

also perceptible in the most recent times.Similar to the incorporation of elements of theagio theory, which has just been described, isanother combination w ith elements of the exploi-tation theory,1 for which Loria is responsible.analysis.11 Value and Distribution,1' p. 231 ). Fo r this improvedform he also suggests the improved title normal value theory."Carver holds a similar opinion regarding the relation between thetwo theories (see below), and perhaps also Professor Marshall.

1 1 do not believe that I am in error in assigning the ideas ofLoria, which in all respects are not perfectly clear to me, in themain to the abstinence theory. At least the clearest passages inhis older works ("R end ita Fondiaria," p. 610 sqn and "Analisidella Proprieta Capitalista," Turin, 1889) point in this direction,and in agreement therewith is the idea expressed in the mostrecent comprehensive work of the author ("La Costituzione


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T H E A B S T I N E N C E T H E O RY 2 1

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