Page:The Economic Journal Volume 1.djvu/134

 114 Finally there are further complications involved in the nature of land and capital. The first problem confronting us here is that of the rent of the soil, and it is not the most difficult. Ricardo's theory of rent is nothing else than an application of the theory of imputation, and that to the simplest conceivable case. Ricardo discloses the reasons why certain differences occurring in the returns from the cultivation of land must be imputed to just those portions of the soil in relation to which they arise, as constituting their share of reward, as rent. The value of the soil presents a much harder problem; the same is true of interest and the value of capital. Concerning these I shall say nothing, for special reasons, till the next section.

By our investing a certain amount of capital during a certain time in a certain product, we deprive ourselves of the interest which some other investment of our capital would fetch. The sacrifice of utility which we make in production consists therefore not only in the consumption of capital, but also in the sacrifice of interest, which is larger in proportion as the capital is larger and the period of investment longer. Accordingly, the current interest for the given interval of time is to be reckoned in the cost of production, and determines, together with the other elements of cost, the value of the products. I will not touch now on the knotty question, whether rent, too, is to be reckoned in the cost of production.

It has been objected that interest is a surplus of profit over expenditure, that it is conditioned by the value of the products and cannot, therefore, itself determine the value of the products. But is not the value of the productive commodities also conditioned by the value of the produce? And yet we say that it, as cost value, itself jointly determines the same. Equally are we entitled to say the same of interest. The value of iron depends on the value of iron products, but the relative value of the iron products is determined by the mass of iron required. The rate of interest depends upon the value of the goods, but the relative value of the goods is determined by the quantity of capital required and by the length of time during which it is invested.

III

We have asserted that the value of capital is based on the value of the produce into which capital is transposed. Experience does not wholly verify this theory. The sum of 105 gulden, which I am entitled to demand after a year's interval, constitutes the