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of age, begins to make something by his profession, ought to receive the retribution, not only of his own so tedious and expensive education, but of that of more than twenty others who are never likely to make anything by it. How extravagant soever the fees of counsellors at law may sometimes appear, their real retribution is never equal to this. The lottery of the law, therefore, is very far from being a perfectly fair lottery; and that, as well as many other liberal and honourable professions is, in point of pecuniary gain, evidently under-recompensed.

Those professions keep their level, however, with other occupations, and, notwithstanding these discouragements, all the most generous and liberal spirts are eager to crowd into them. Two different causes contribute to recommend them. First, the desire of the reputation which attends upon superior excellence in any of them; and, secondly, the natural confidence which every man has more or less, not only in his own abilities, but in his own good fortune. .



From the earliest times down to, and including, our own day, the question as to whether or not interest is legitimate has been one of much practical importance. But the legitimacy of interest is largely a question of the origin of interest. It, therefore, becomes of much importance to determine how interest comes to exist. Among the various theories on this matter which have been put forth from time to time, the one most widely accepted in our day makes interest a premium received by the person who relinquishes present goods in exchange for future goods, and, therefore, finds the explanation of interest in the greater value of present goods as compared with future goods. This doctrine has been given wide publicity through its advocacy by the Austrian economist, Boehm-Bawerk; and, while many do not accept completely that writer's putting of the case, almost all would probably admit that his doctrine is satisfactory for certain classes of cases, and anyhow is a useful element in any theory which they would consider adequate.

The following restatement of the doctrine by Pierson is chosen for presentation here, as being sufficiently brief for our space, and as bringing in an element in the causing of interest which is unduly neglected by Boehm-Bawerk, i. e. the relative scarcity of present goods.

*Interest can always be obtained for capital; exchanges such as we have described take place every day. There are

* Pierson-Principles of Economics (1902), translation published by the Macmillan Co., 1906. Part I, Chapter IV, pp. 201-209.

always people who, for present money or goods, are prepared to promise a larger amount of future money or goods. The inference is obvious enough, but Von Boehm-Bawerk, the Austrian writer, was the first to state it in his wellknown book on Capital. The inference is this. If a premium can be obtained on present as against future things, then present things must, on the whole, be more valuable than future things. To inquire into the origin of interest is an attempt to explain this difference of value.

A manufacturer sells goods on three months' credit and offers to deduct I per cent. from the price for ready-money payment. By the mere fact of his making such an offer to a man whose credit is good, he shows that he places greater value upon future things. A railway company raises a 3 per cent. loan of £500,000 at 10 per cent. below par and undertakes to redeem £10,000 of the stock each year at par. In this way the company obtains £450,000, but has to pay back, besides £50,000 in excess of that sum, interest amounting to £15,000 in the first year, £14,700 in the second, and so on, till in the fiftieth year there is still some interest (£300) to pay. Surely an unprofitable arrangement for this company, if Von Boehm-Bawerk's proposition could not be applied to it. A house can be let for a rent of £140 per annum; the taxes and cost of repairs amount to £40 per annum, so that the net rent yielded by the house is £100. How profitable it would be to build such a house as this, if future money possessed the same value as present money in the estimation of the owner of house property! The house would fetch, on sale, £100 multiplied by a figure corresponding to the number of years for which it could be expected to yield a net rental of £100.

The proposition which we have enunciated is little else than an application of the truth that every market price which is not purely speculative indicates a value, in which it has its origin. It would be impossible to conceive of any reason why a premium should always be put upon present as compared with future goods or money, were it not that the former are esteemed more valuable than the latter. If both afforded the same amount of enjoyment-or, to employ once more the well-known technical expression, if the mar

ginal utility of both were the same- -then it would be for future goods alone that any demand would exist, and the premium would soon disappear. And as a matter of fact it does sometimes almost disappear in a certain branch of the credit market which we shall make the subject of special inquiry later on. Whenever a large number of capitalists are unable, for the time, to find a means of employing the whole or part of their circulating capital, the rate of interest for short loans falls to a very low figure.

It may cause surprise that some people should have disputed Von Boehm-Bawerk's proposition. All they have been able to do in this respect has been to point to a number of cases in which future goods are chosen in preference to present goods. It must be admitted at once that these cases are not of rare occurrence. We like to provide ourselves with new clothing at the proper time, but always according to the needs of the moment. Even in the case of good that are not liable to perish or to go out of fashion, we prefer that our supply should not reach us too soon; who would care to have delivered to him now all the fuel, wine, or water that he was likely to use during the remainder of his life? Money admits of being lent and can therefore never be unwelcome; if this were not so, we should be equally averse to receiving money before we required it for use, as few houses have places where it could be stored with absolute safety. Our wishes and wants must be satisfied at the right moment. This may have the result that, at a given moment, we prefer present to future things, but the reverse is also possible, and frequently the case.

But what does this reasoning prove? The number of persons who use tobacco is certainly far below the number of those who do not; nevertheless, tobacco has value. Corn growers do not buy corn, in fact they take it to market; yet corn yields money. An article may have value, even though the demand for it be confined to a portion of mankind, even though another portion of mankind be glad to dispose of it. In the same way, goods or gold may be worth more in the present than in the future, even though many should prefer them in the future. Everything depends upon the urgency and extent of the demand in either direc

tion, and in our case there is no uncertainty as to the side on which the demand is more urgent. If the number of people offering to supply, were to be equal to the number desiring to obtain, present in exchange for future things, and if supply and demand were equally extensive and equally pressing, it would be impossible for interest to emerge. The premium which present capital obtains when it is exchanged for future capital, proves incontestably that the former is scarce in relation to the latter.

It will be useful to pause here for a moment in order to point out an error into which certain socialists have fallen. Some writers, who have sacrificed accuracy to clearness, have wrongly represented interest as being the natural produce of capital, in the same way as apples are the produce of the apple-tree, or eggs the produce of fowl. This view of interest is fostered by the use of such an expression as "begetting interest." We have only to reflect for a

moment in order to see that the income out of which interest on capital is paid is always obtained by means of labor. A sum of money, a stock of raw material, even a machine, produces nothing of itself.* It is the labor, not the capital, that is productive; the labor for which the money is paid, and which converts the raw materials into manufactured articles or works the machine. The socialists were right in pointing this out, but they sometimes combined incorrect views with their criticism.

If, said they, all wealth be produced by labor, then labor alone has a claim to the wealth produced. Interest is an unjust tax levied by the capitalist. He owes his power of levying this tax to the organisation of society, which concedes to him the direction of production and the ownership of the instruments of production, thus enabling him to dictate terms to the laborer. But the tax, though permitted, is none the less unjust. Capital per se produces nothing and has therefore no right to receive anything.

In testing the soundness of this argument we have to distinguish between what the laborer gives and what he receives. He tills the soil-for a crop that has yet to grow.

*[This is quite inadequate. It is just as correct to say that labor "produces nothing of itself."]

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