1

calls the tendency to "attach a less importance to future pleasures and pains simply because they are future." This is given a place in my theory,2 it will be recalled, as a notable condition of that error of estimation — in respect to the cost and the value, to the advancer, of a proposed advance — which would prevent some advances whose value to him would in reality be greater than their cost to him.

To regard this cause as acting cumulatively with others that limit the supply of advances, as do Böhm-Bawerk and some other writers, seems to me entirely correct; but to give it as such a cause without explicitly mentioning any other such cause (see § 66 above), as do some writers, not including Böhm-Bawerk, is to offer a theory that is altogether inadequate. For it is clear from the analysis in Chapter IV above that interest would persist, provided only that men did not live forever and did not regard the pleasures and pains of their remote descendants as virtually their own, whether or not anybody ever underestimated his own future pleasures and pains, in other words whether or not anybody ever underestimated his own future subjective factor of pleasure and pain relatively to that of the changing society.

"TECHNICAL SUPERIORITY OF PRESENT GOODS"

§ 80. Consider now the third of the three conditions advanced by Böhm-Bawerk as the causes of interest, what he calls the "technical advantages residing in present goods," as compared with future goods, due to the 1 Positive Theory of Capital, p. 253.

2 See the fifth paragraph of § 41 and §§ 66 and 68.

alleged superiority, explained in Chapter V of Book V of The Positive Theory of Capital, of long over short processes of production.

1

The grounds of this third cause, which Böhm-Bawerk calls the "chief pillar" of his whole theory, are fully set forth by him in a passage, beginning at page 260 of his translated work, which the reader is requested to examine at this point. The passage consists of the first three paragraphs of the excerpts reprinted from BöhmBawerk in § 82 below. The heart of it is this sentence at the end of the first paragraph: "As a rule, present goods are, on technical grounds, preferable instruments for the satisfaction of human wants, and assure us, therefore, of a higher marginal utility than future goods.”

§ 81. Now it is true, for the reasons given in §§ 43-47 above, that present goods are, to any person or group of persons, preferable instruments, for the satisfaction of their wants, to future goods of the same nominal value. And therefore, of course, present goods command, in any exchange of present for future goods, a premium over future goods of the same nominal value. Therefore, too, the supply of advances to nature— that is, that of advances of services embodied in machinery, railroads, houses, and other future-service goods-is checked at the point where the only possible suppliers of such advances, namely particular persons or groups of persons, estimate the value to them of a further advance as no greater than its cost to them. And when advances to nature cease at that point, the services of the future-service goods are bound to show, when they accrue with the

1 Work cited, p. 264.

passing of time, a nominal surplus over present services equal to them in value to the advancers. And it is this nominal surplus, this preferability, from the point of view of the changing society contemporary with each moment of the passing time, of the future services that will be yielded by present future-service goods to those present goods themselves, that Böhm-Bawerk misconceived as a “technical superiority" of present goods that are capable of yielding future services (and therefore of any present goods of the same market value) to future goods or services of as I should express itthe same nominal value. The principle that “roundabout methods" of production "lead to greater results than direct methods," then, which Böhm-Bawerk considers "one of the most important and fundamental propositions in the whole theory of production,” becomes, when rightly conceived, merely the principle that opportunities exist for so embodying present labor in advances to nature that the future services resulting shall exceed in nominal value the present services which that labor might have rendered instead. And that these opportunities remain open is due to repeat again the point I have repeated so often to the fact that the supply of advances to nature, which are inevitably involved in making the labor yield its services in the future instead of in the present, is limited, for the reasons explained in the preceding chapters, at the point where future services, when they accrue, show a nominal surplus over present services that are exactly equivalent to them from the point of view of the advancers, or in other words at the point where, in the estimation of advancers, present services

have more value to them than future services of the same nominal value will have.

This, together with what I say in the third paragraph of § 84 below in regard to the conception of "productivity," seems to me to express the true conception of the facts which Böhm-Bawerk misconceived as the "technical advantage residing in present goods," as compared with future goods, due to the superiority of long over short processes of production.

§ 82. Some of Böhm-Bawerk's errors on this point should, perhaps, be pointed out specifically.

In the first place it is not true- though Böhm-Bawerk implies it throughout 1 that processes long in time are

1

1 The Positive Theory of Capital, p. 19: "The lesson to be drawn from all these examples alike is obvious. It is that a greater result is obtained by producing goods in roundabout ways than by producing them directly. Where a good can be produced either way, we have the fact that, by the indirect way, a greater product can be got with equal labour, or the same product with less labour."

Same work, p. 260: "It is an elementary fact of experience that methods of production which take time are more productive. That is to say, given the same quantity of productive instruments, the lengthier the productive method employed the greater the quantity of products that can be obtained."

Same work, p. 84: "On the whole it may be said that not only are the first steps more productive, but that every lengthening of the roundabout process is accompanied by a further increase in the technical result; as the process, however, is lengthened the amount of product, as a rule, increases in a smaller proportion. This proposition also is based on experience, and only on experience. What it says must be simply taken as a fact of the technique of production.”

Same work, p. 91: "By means of these primary productive powers man may make the consumption goods he desires, either immediately, or through the medium of intermediate products called Capital. The latter method demands a sacrifice of time, but it has an advantage in the quan

necessarily more productive in any sense of the word per unit of labor than processes shorter in time. To suppose this to be true is an error analogous to supposing that the more a thing costs, the greater must be its value. Into this latter error Böhm-Bawerk would be, of all men, the last to fall; and that he fell into the former one is surprising.

It is true, of course, that many of the processes that are "most productive," in the sense, say, of yielding services of the most nominal value, require also a long time. But that is not because to lengthen a process in time is necessarily to make it more productive in that sense: it is because any lengthening of a process that does happen to increase the nominal value of the services resulting is limited, for the reasons already explained in this book, at the point where the advancing involved in the lengthening of the process barely fails to yield the advancers a surplus-to-them, and where, therefore, it must yield them a nominal surplus persistently.

It will be seen that these several amendments to the "main pillar" of Böhm-Bawerk's theory of interest are all involved in the one change of substituting for his vague "future goods" the definite and correct conception of future goods1 of the same nominal value as the present goods with which they are to be compared. The moment tity of product, and this advantage, although perhaps in decreasing ratio, is associated with every prolongation of the roundabout way of production."

1 This is the correct conception of the principal so far as goods are concerned. Of course the most helpful conception of the principal, as I have previously pointed out, is the conception of it in terms not of goods at all but of services. The best substitute for Böhm-Bawerk's "present goods and future goods" is present services and future services of the same nominal value.