Page:The Economic Journal Volume 1.djvu/699

 THE NEW THEORY OF INTEREST 677 interest primarily paid from funds raised by taxation, and obviously the nation cannot pay interest on its debts unless the citizens, as idividuals, produce the wealth wherewith this interest is paid. The phenomenon, then, must primarily be studied as it appears in some one or other of the forms of production of wealth. Let us take the case of a manufacturing company. Here the essential features are that, over a year's time, the products manu- factured are sold at a price which not only covers the value of raw materials, reimburses the various wages of manual and intellectual labour, and replaces the fixed capital worn out, but leaves over that amount of value which is divided out among the capitalist shareholders as interest--that is to say, in normal capitalist pro- duction not only is the value of capital consumed in the productive process replaced, but a surplus value is produced. re may dismiss the idea that this can be a me surplus representing no service, real or imaginary, and go on to ask: rhat is the service for which interest is the remuneration ? Three answers are given by practical men generally, and corresponding to them are three well-defined economic theories: the Productivity, the l. lse, and the Abstinence theory. The two first are based on the idea that capital does something, the third on the idea that the capitalist abstains from doing something. The argument of the Productivity theory may be put thus: Human labour., employing itself on the materials given free by nature, and making use of no powers .beyond the natural forces which manifes themselves alike in the labourer and in his environment, can always produce a certain amount of wealth. But when wealth is put into the active forms of capital--of which machinery may be taken as instance and type -and capital be- comes intermediary between man and his environment of nature, the result is that the production of wealth is indefinitely increased. The difference between the results of labour unassisted and labour assisted by capital is, therefore, due to capital, and its owner is paid for this service by interest. The simple answer to this is that it does not face the problem at all. The services of machinery to man, e.g. in producing enormous quantities of products, explain why machinery is highly valued, but not why the product obtained from the machinery should have more value than the machinery. It is forgotten that the productiveness of concrete capital--its prisoning of natural forces, its power of replacing labour, &c. is discounted in the price of it. To put it in the simplest terms: this theory shows why a machine should sell for 100, but it does not explain why