Page:Popular Science Monthly Volume 40.djvu/725

Rh advanced by economists to account for interest have been reviewed and subjected to criticism by the author in his previous work, Capital and Interest. This destructive criticism he now follows by a positive construction of his own, in which he seeks to find a lasting basis for the phenomenon of interest, in a theory which does not necessitate the resort to questionable hypotheses to support it. This basis he finds in considering interest, not as a bonus paid for the use of capital, but as a surplus arising from the greater value of present goods over future ones. He regards the transaction, say, of the loan of a sum of money and the payment of interest for it, as a case of the exchange of goods—the exchange of present goods for future ones.

As present goods are more desirable than future ones of the same face value, they command a premium, and this premium is interest. The following extract from the author's discussion of the sources of interest Bets forth clearly his own views, as well as his estimate of previous explanations:

"In the previous book I have tried to show, and account for, the natural difference that exists between the value of present and the value of future goods. I have now to show that this difference of value is the source and origin of all interest on capital. But, as the exchange of present commodities for future commodities takes various forms, the phenomenal forms of interest are as various, and our inquiry must necessarily deal with them all. In the following chapters, therefore, I intend to take up, in succession, all the principal forms of interest, and I shall endeavor to show that, notwithstanding all differences in shape and appearance, the active cause in them all is one and the same—namely, the difference in value between present and future goods.

"By far the simplest case of this difference in value is presented in the loan. A loan is nothing else than a real and true exchange of present goods for future goods; indeed, it is the simplest conceivable phenomenal form, and, to some extent, the ideal and type of such an exchange. The 'lender,' A, gives to the 'borrower,' B, a sum of present goods—say present pounds sterling. B gets full and free possession of the goods, to deal with as he likes, and, as equivalent, he gives into A's full and free possession a sum of entirely similar, but future, goods—say, next year's pounds sterling. Here, then, is a mutual transfer of property in two sums of goods, of which one is given as recompense or payment for the other. Between them there is perfect homogeneity, but for the fact that the one belongs to the present, the other to the future. I can not imagine how an exchange in general, and an exchange between present and future goods in particular, could be expressed more simply and clearly. Now, in the last chapter we proved that the resultant of the subjective valuations which determines the market price of present and future goods is, as a rule, in favor of present goods. The borrower, therefore, will, as a rule, purchase the money which he receives now by a larger sum of money which he gives later. He must then pay an 'agio' or premium (Aufgeld), and this agio is interest. Interest, then, comes, in the most direct way, from the difference in value between present and future goods.

"This is the extremely simple explanation of a transaction which, for hundreds of years, was made the subject of interpretations very involved, very far-fetched, and very untrue."

Prof. Böhm-Bawerk considers the profit of capitalist undertakings as a case of interest, and explainable by his formula, on the ground that the "owners of capital are merchants in present goods, such goods being more valuable than the "future goods"—labor, uses of land, and capital—which the capitalist buys. While this work is primarily addressed to economists, it is quite within the range of the general reader who is interested in economic questions.

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