which is called money. Using our money to the best advantage, we shall secure for ourselves, with successive equal sums, less and less returns of satisfaction. We have, then, M"> M'> M > M1 > M2 > M3 . . . and hence 1 2 M+ M' + M”+ ...> M1+ M2+ M3+ . The advance of which I spoke will become possible only if it is to yield a surplus1 at least equal to the difference (M + M' + M"+ "If it were a question of advancing 2000 francs instead of 1000 francs, the surplus 2 exacted would have to be more than doubled; for to the series M+ M' + M" + . . there would have to be added ten terms all greater than the first ten, and to the series M1+ M2 + M3+ . . . there would have to be added ten terms all smaller than the first ten. As the sum to be capitalized increased, the surplus exacted would have to increase not proportionally but acceleratively. Thus diminishing utility acts as a sort of check to capitalizing 1; and the greater the capitalization, the more powerful its action. 3 "It is clear how closely bound together are the considerations that have just been developed. All follow from one principle, namely that the best way to dis 1 Rendement. 2 Rendement. 3 In the sense of advanced. tribute one's consumption through time is that which makes the last wants satisfied at each moment of the time have the same importance. From this principle, which I shall call the principle of the equilibrium of the consumption, the following conclusions may be deduced: Ist. capitalizing [advancing] costs the capitalist [capitalizer or advancer] nothing when it tends to establish equilibrium of the consumption; 66 2nd. capitalizing [advancing] costs the capitalist [capitalizer or advancer] something—and therefore he will decide upon it only in case he is sure of receiving a surplus thereby - when it destroys the equilibrium of the consumption, or when it aggravates a defect of the equilibrium of this consumption. “But capitalizing [advancing] tends to establish the equilibrium of the consumption 1: (a) when wants are to increase; (b) when resources are to decrease. "Capitalizing [advancing], on the other hand, destroys the equilibrium of the consumption,1 or aggravates a defect of equilibrium : (a) when wants are to decrease; (b) when resources are to increase; (c) when wants and resources are to remain the same. "If we regard only the factors that check capitalizing [advancing], we can say that these factors may be reduced to one, since it is always the law of diminishing utility which, in the cases enumerated above, causes the 'scarcity of capital,' prevents the advancement of 1 The word in the text is "capitalisation," evidently a misprint for "consommation." capital except with the assurance of a surplus. In a certain sense, however, we are right in saying that we have three causes: sometimes, indeed, it is because a decrease of wants upsets the equilibrium of the consumption that capitalizing [in the sense of making advances], aggravating this defect of the equilibrium, is in itself disadvantageous; sometimes it is because there is an increase of resources that capitalizing is disadvantageous, and in the same way; sometimes, finally, capitalizing, instead of aggravating, creates the defect of the equilibrium of the consumption. For convenience I shall say henceforth, in speaking of these three causes, the decrease of · wants, the increase of resources, and the sacrifice of capitalizing [le sacrifice capitalistique]." § 96. The principle which Landry thus explains under the name of the "sacrifice capitalistique" may well be explained again briefly in different words. Suppose a man whose wants are to remain the same next year as this year earns $500 this year and expects to earn the same next year. The question arises whether he shall invest $10 for one year. If he does so, he will have for consumption this year, aside from any interest that he may receive on the investment, $490; and for consumption next year, aside from interest, $510. This means that, aside from any benefit he may receive from interest, he is injured by the transaction to just the extent that the wants satisfied by the last $10 of $510 are less urgent than those that would have been satisfied by the last $10 of $500. The transaction involves his shifting the expenditure for consumption of $10 from a time when he has already spent only $490 in the year to a time when he has already spent $500 in the year, and when, therefore, so far as the shifting is concerned, the next $10 is less urgently needed. To undertake the transaction, therefore, involves a sacrifice, the "sacrifice of capitalizing," the sacrifice caused by the very capitalizing itself, the "sacrifice capitalistique." Consequently, says Landry, a man will not normally undertake the transaction unless he is assured of a surplus for doing it, which surplus is interest or at least an element of interest. This principle, Landry believes, is constantly at work, no matter what the relations of want and provision at the two times in question; and its resultant effect is bound to be to help maintain a positive rate of interest. § 97. Now, plausible as this reasoning may seem at first, it is, if I am not mistaken, fallacious. It is quite true that the shifting of consumption involved in capitalizing may often require the sacrifice Landry points out. It may be admitted, indeed, for the sake of argument, that that shifting of consumption involves the sacrifice pointed out more often than not. But that by no means proves that this "sacrifice of capitalizing" is a cause of the persistence of a positive rate of interest. Why? Because a corresponding sacrifice is required, according to the very principle pointed out by Landry, by the shifting of consumption involved in decapitalizing what has once been capitalized. In other words, though capitalizing may often cost the capitalizer something, unless he gets a surplus through it, by distributing his consumable income unfavorably in time, yet decapitalizing costs the capitalizer something just as often, for the same reason; so that the resultant effect of the principle would seem to be, not to reduce the total amount of advances to nature, but only to check capitalizing and decapitalizing equally. Just as it is a disadvantage, as Landry points out, for a man, for example, whose income and whose needs are constant to give up the consumption of $10 when he has spent but $490 in the year in order to have the consumption of the same $10 when he has spent $500 during the year, so it is a disadvantage also for the same man, after having once capitalized the $10, to give up the consumption of $.30 per year for 331 years in each of which years the $.30 is in addition to a constant income of, say, $500 in order to consume $510 the year he decapitalizes and only $500 for each of the 32 years thereafter.1 It seems to me that the principle pointed out by Landry has as much effect in keeping invested in advances to nature what is once invested there as it has in preventing them to begin with. And if that is true, the principle is not a cause of the persistence of interest. THE MONOPOLY THEORY § 98. Some writers of the philosophical anarchist school, including Proudhon in France and Benjamin R. Tucker in the United States, have held a theory of interest which is fairly summed up, I think, in the following interpretation of it by a Philadelphian engaged in the banking business. 1 Here I am considering only the principle pointed out by Landry. For other reasons, of course, which I have explained at length in the previous chapters, it may be of advantage to a man to exchange $.30 a year for 33 years for $10 at present. |