Recent Literature on Interest

CHAPTER VI

THE PRODUCTIVITY THEORIES

THE number of those theorists who in recent times have professed in a pure or an eclectic form an indirect productivity theory is far from being insignificant. Without any pretension to completeness, I may mention from the literature of the Romance nations Maurice Block1 and Maffeo Pantaleoni,2 from the Anglo-American literature Francis Walker,3 and from the German once more Dietzel, who with a peculiarly eclectic method would explain a portion of the phenomena of interest by the exploitation theory and the rest by the theory of productivity,4 then Philippovich,5 Diehl6 Julius Wolf,7 and Wieser.8

The greater number of these authors confine themselves within the bounds of this type of theory, or do not step out of them far enough to admit of a reproduction and criticism of their views in detail without tedious repetitions of well-known ideas.9 There is only one of these theories which seems to me to justify a special examination, and that is Wiesen’s.

Wieser has put science under lasting obligations to him for his thorough investigation10 into the general relations between the value of cost goods and that of their products, as well as by his unsurpassably clear explanation of the fact that the problem of the imputation of value to the agents which coöperate in the production of a good is essentially different from that of the determination of the physical contribution of each to the common product; and that this problem is not practically or theoretically insolvable.11 Wieser seems to me to have been somewhat less fortunate in the positive formulation of his attempt at the solution of this problem, and especially in his application of the theory of imputation to the explanation of interest. In my opinion this is chiefly due to the fact that he has not remained completely true to his own theoretical assumptions, but has passed over to a train of reasoning which in its essence is unfit to solve the problem, and clashes with the other premises of his theory.

In his model exposition of the imputation problem, Wieser starts from the assumption that the economic part which each of the several coöperating factors has in the common product (Wieser names this the “productive contribution”) can be calculated and separated, and that the value of the productive goods is derived from the magnitude of the shares assigned them in such a manner that the whole value of the product12 (determined according to the law of marginal utility) is distributed among all the productive goods coöperating in its production, the part of each factor in the whole value depending upon the size of its “productive contribution,” and the sum of all “productive contributions” exactly exhausting the value of the product.13

The manner in which, according to Wieser’s opinion, the amount of the productive contribution of each factor is to be found, need not be explained here. Important as this question may be for other problems, for the solution which Wieser tries to give to the interest problem, it is irrelevant. For our present purpose it is sufficient to remember that, according to Wieser, products as a rule result from the coöperation of land, capital, and labour, and that a certain part of the total is to be assigned to each of these factors and thus also to the factor capital as its productive contribution. The fact that pure interest results from the imputation of a share to capital depends, according to Wieser’s opinion,—an opinion which in this particular is surely justified,—not upon the question whether the productive contribution of capital is higher or lower as compared to those of land and labour, but upon forces which operate exclusively within the province of capital.

“Every capital,” he says, “yields at first and immediately only a gross return, that is, a product obtained by a diminution of its substance.”14 The conditions under which this gross return can become the source of a net income, Wieser formulates in the statement that in the gross product all the consumed parts of capital must be reproduced and a surplus be present in addition. And with reference to this surplus and the “productivity of the capital” directed toward its production, one must distinguish between a physical surplus and the physical productivity of capital on the one hand and a surplus of value and a value-productivity of capital on the other. Whoever wishes to solve the problem of interest must, in the last analysis, prove the existence of a value-productivity in capital, and explain it. But in this proof the demonstration of the physical productivity of capital15 forms a necessary intermediary link. Accordingly, Wieser gives his explanation in two stages. In the first his aim is to prove and explain the “physical productivity of capital” or the fact that “the quantity of goods contained in the gross return of capital is greater than the quantity of productive goods consumed in the process of production.” In the second stage it remains to be explained why “the value of the gross return is greater than that of the consumed capital.” The first part of his process of reasoning is as follows:—

“Unquestionably the whole return of the three factors of production, land, labour, and capital, taken together, is large enough to replace the consumed capital and to give a net product. This is an economic fact which is as notorious and as little in need of proof as the fact, for example, that there are goods and that there is production. Sometimes, it is true, an enterprise of production proves to be a failure and does not meet its expenses; there are even undertakings which yield no available product at all; but these are exceptions. The rule is that net returns are obtained, yes, net returns of the greatest extent, so that more than a thousand millions of men are maintained, and additions to capital continually made. But one question, therefore, can be asked, namely, whether a part of these unquestioned net returns is also to be ascribed to capital; but the answer to this question cannot be doubtful. Why is it that no such part should be attributed directly to capital? As soon as it is understood and granted that capital is a factor of production, to the coöperation of which, with other causes, the result of the productive process must be ascribed, so soon will it be understood and granted that a part of the net returns in which that result is embodied is also due to capital. Should capital be supposed to be always able to produce only somewhat less than its own reimbursement? This assumption would evidently be arbitrary. Should it be assumed to produce always exactly its own reimbursement, however various the results of productive enterprises may be? This supposition would evidently be no less arbitrary. He who denies to capital a net return can do so only by denying returns to capital at all” (p. 124 sq.).

Here, I think, Wieser has taken the first step from the right path. By the assumption that by way of imputation one may ascribe to a factor immediately some net return or some share in a net return, he has attributed to the operation of imputation something which by its very nature it cannot accomplish. Let us disregard all misleading words and hold ourselves strictly to the bare, dry facts of the case. What, according to Wieser himself, is the object and office of imputation? It is to distribute the result of production among the various factors coöperating in it, consequently to ascertain the share of each factor in the production of the gross product. Thus has Wieser himself repeatedly explained the problem of imputation in expressions quite unambiguous, and thus has he illustrated it by practical examples. So must it also necessarily be understood, if the method indicated by him for computing those shares (p. 87) is to be employed. If Wieser, for example, attributes the value of a tin vessel to the labour of the artisan and to the material out of which it is formed (p. 86), if in measuring the share of the produce belonging to land he takes his starting-point from the aggre gate value of its produce (p. 113), if he assumes that the sum of all the productive contributions exhausts the value of the aggregate product (p. 87), and each factor derives its value from its productive contribution, it is perfectly evident that the thing to be imputed is the gross product and that the special contribution of the factor capital is and can be nothing else but an aliquot part of this gross product. If, for example, a husbandman, with the coöperation of labourers, and of capital composed of seed, agricultural implements, manure, live stock, etc., obtains from his land an aggregate product of 330 bushels of grain, it is the task of imputation to decide what portion of these 330 bushels is due to land, what to labourers, and what to the capital coöperating and in part worn out thereby. If this imputation happens to lead to the result that to each of the three factors the same share in producing the product is to be attributed, the productive contribution will be determined at 110 bushels for each, and it is perfectly evident that the no bushels ascribed to the coöperation of capital is a quota of gross returns. Whether in this quota of gross returns there will be found also a quota of net returns, likewise whether or not the portions of the gross product ascribed to land and labourers, from any point of view whatsoever, may be considered as net revenue, these are questions which go beyond the problem of imputation. For the solution of these questions the magnitude of the portions of gross returns imputed may be a relevant, even a very important element, but it can never form more than one single element, beside which other facts and considerations have an influence, though they have nothing to do with the process of imputation. In our example, the imputation ends with the statement that out of the gross product of 330 bushels the producer owes to each of the factors of production no bushels. Beyond this, imputation has not a single word to say.

But Wieser, nevertheless, thinks that he is able to make plausible the claim that a share even in the net revenue may be ascribed to capital by the process of imputation. But it is as interesting as it is significant, that he can only find the connecting link for his exposition by employing, unconsciously, of course, the term “net revenue” in a double sense. “Unquestionably,” he says, in the passage above quoted, “the aggregate product of all the three factors of production,—land, labour, and capital together, is large enough to replace the capital consumed and to supply a net revenue!” Certainly, and this may be easily understood; for what is called “net revenue” in this sentence is the surplus of the aggregate product of land, labour, and capital above the value of the consumed capital alone, or, in other words, the surplus of the value of the product of three factors over that of one of them. But that three factors can produce more than one of them is worth, is not only a thing very plausible in itself, but becomes self-evident in connection with a theory which, like Wieser’s, rests on the principle that the value of a product is identical with that of the sum of its factors. In the light of this principle the existence of the said “net revenue”, is self-evident in the same degree as the axiom that the whole must be greater than one of its parts, or that a filled chest must have not only a “gross weight,” but also a “net weight” beyond the weight of an empty chest.

It is thus clear that the reasons why, in the determination of that net return which results from production as a whole, the value of the capital consumed but not that of the consumed land and labour is deducted from the gross return, have nothing whatever to do with the question of imputation. It is well known that these reasons are rather to be found exclusively in the particular point of view from which the observer considers the outcome of production. If this point of view changes, the method of procedure in the matter of deducting or not deducting the value of those other factors of production also changes. For example, from his individual, economic standpoint, the employer who buys and pays for the labour of other people is certainly obliged to deduct from the gross product the value of the consumed labour also.16 On the other hand, from the so-called national economic standpoint,—the one which Wieser occupies when he says that more than a thousand millions of men are maintained out of these enormous net revenues,—that deduction must be omitted. But it is clear that the problem of imputation has absolutely nothing to do with the choice between these different standpoints and the corresponding methods of calculating the net revenue. How much of the gross product is to be attributed to the factor labour is one question, and that too a question of imputation; but whether or not one ought to deduct from the gross product the value of labour resulting from this computation is a completely different and an independent question.

Nevertheless Wieser wishes to utilize the existence of a net revenue of the above-described origin and nature in his explanation of the statement that a net revenue must be attributed also to capital. As he puts it in the passage above quoted, only one question can be seriously asked, namely, whether a part of that unquestioned net revenue should also be attributed to the factor capital. “Why, then,” he asks, “should no such share be attributed to capital?” The answer is very simple. Because what is called a “net return” from capital is no “such” net return at all, but a quantify of a very different nature, the existence of which depends on quite different and much more severe conditions. For, while a net product from the point of view above indicated is created as soon as the gross product of all the three factors together exceeds the value of the capital consumed, a net product of capital comes into existence only when the quota of the gross product assigned to the factor capital is greater than the capital consumed; and because there is so great diversity between the premises in the two cases, the realization of the first relation furnishes no probability or analogy in support of the conclusion that the second relation also must or will be realized. That three men together can lift more than the weight of one may be perfectly explicable and clear, but from this it by no means follows that one alone would be able to lift more than his own weight. It may be that he can, but he who wishes to maintain and at the same time to prove this will be obliged to allege some special cause having reference to that particular person; but such a cause can neither be derived from nor strengthened by the fact that three men together are able to lift more than the weight of one.

But if one destroys the fallacious bridge of explanation which Wieser constructs from net product in the one sense to net product in the other, no argument is left on which an explanation of the net revenue of capital could be based. When to the question, “Can the produce of capital only be something less than its own replacement,” Wieser gives the answer, “This supposition would be perfectly arbitrary,” he is quite right. But when he continues with the question, “Can the produce of capital only be as much as its own replacement, however various the results of productive processes may be,” and answers, “This supposition would evidently be no less arbitrary,” there is some doubt about the correctness of his statement; for it might well be that the returns of capital, according to the chance success of the individual undertaking, would fluctuate now above and now below the amount of the consumed capital, and yet on the average tend just to replace this amount. This assumption can scarcely appear arbitrary in connection with a theory like Wiesens which derives the value of a product from that of the factors which produced it. But even supposing this to be the case, yet from the arbitrary character of the two first assumptions the inference can never be drawn that the third supposition, namely, that capital must regularly produce more than its own replacement, is legitimate and justifiable, or that it may in this way be explained. It is no doubt an arbitrary supposition, that a man can always lift only something less than his own weight; it is equally arbitrary to suppose that he can lift just his own weight, neither more nor less; and in itself and without any other positive reason, it is certainly no less arbitrary to suppose that every man can lift more than his own weight. If, of three possible rules, two cannot be established, it by no means follows that the third fits the case, since the existence of any rule may remain in doubt. And if, in the case in question, from a source of knowledge totally different from such syllogisms, that is, from experience, we know that the share which must be attributed to capital is regularly greater than the capital consumed, yet no ray of light is shed on this fact by these syllogisms, which are not conclusive in themselves and contain no trace of an explanation such as every interest theory is called upon and bound to offer.

In what follows we also look in vain for anything of this kind. Wieser wishes to make his doctrine clear in a concrete case, and chooses the example of a machine which supplants hand-labour. “Wherever capital supplants hand-labour,” he says, “where, for example, a machine does the work which up to that time has been done by hand, the capital, that is, the machine, must receive at least the amount previously attributed to the labour. That, however, was a net return; therefore, a net return must be attributed to capital also. That this syllogism likewise has no support except the above-criticised ambiguous use of the word net return, I need hardly tell the attentive reader. Here the non sequitur is still more striking. For a net return in the first sense, that is, in which the value of labour itself is not deducted from its product, might result from a very unprofitable, uneconomical employment of labour which does not cover the costs, and which therefore involves loss to the investor; an employment, for instance, in which labour to the value of 100 florins is consumed, but which adds a value of only about 50 florins to the raw material worked up. But who, following Wieser’s method of reasoning, would be satisfied with the conclusion that. the capital, which, with equal or somewhat more favourable results, takes the place of such labour, must receive not only a gross but also a net return, because, forsooth, it must receive at least the same return as the labour which it supplanted, and this was a “net return”?17

When, in a longer explanation, based upon Thünen’s reasoning, Wieser further endeavours to make technically plausible the claim that capital must assist in the creation of a product in excess of its own substance, he strikes precisely the same rock upon which Thünen made shipwreck. Capital does not literally reproduce itself and something else in addition. It produces some other kinds of products, and these are commensurable with it only from the point of view of value. Bows and arrows do not produce bows and arrows, but dead game. The fact that this dead game is of greater value than the bow and arrow used up in its killing is not a technical fact which could be employed to explain the net profit of capital,—the object of the interest problem,—but is itself the thing to be explained.18 Wieser himself also very clearly sees this difficulty. He distinctly adds that the product of bows and arrows is a “gross product in other kinds of goods, out of which they are not replaced, and with which they may be compared in value but not in quantity” (p. 130). But he believes that he is able to surmount this difficulty by means of a somewhat vague assumption of a “mediate efficiency (mittelbare Wirksamkeit) of capital.” The possession of arrows, bows, and nets facilitates the conditions for reproduction, even though they do not contribute to it; it facilitates them by the extraordinary increase of the gross return in game and fish, in consequence of which far more labour than before is free for the production of capital. The final result, therefore, is that a net return is imputed to these capital goods, just as if they immediately reproduced themselves with a surplus.

In my opinion, there may possibly be some doubt whether this “mediate” connection is close and continuous enough to enable an exact computation to be based upon it. It might especially be doubted whether the technical commensurability between products which the labourer consumes and those which he will produce is not rather interrupted than mediated by the intercalation of the intermediary link, “person of the labourer”; for, if we except the case of slavery considered from the rudest slaveholder’s standpoint, the working economic subject, as a factor of production on the one hand, represents an original productive force, and as a consumer on the other hand, represents the goal and final end of the productive endeavours which have gone before, so that his intervention seems to signify rather a caesural pause in the technical process of production, a conclusion of previous efforts which attained their goal in his consumption and the beginning of a new production, rather than the continuation of one and the same productive process.

However, I will leave in abeyance this question, as delicate as it is difficult. Even if one does not wish to struggle with the manifold objections to which it leads, still the explanation proposed by Wieser would come to grief in the second part of his programme, that part which undertakes the task of deducing the value-productivity of capital from its physical productivity. Suppose that he has really succeeded in proving that to capital a concrete quantity of products must be ascribed which is greater than the quantity represented by the consumed capital itself, it still remains to be proved and explained that this greater quantity of produce must also have a greater value than the capital out of which it has arisen. This again is not at all self-evident, but in direct contradiction to the general premises of Wieser’s imputation theory. Wieser’s entire theory of value and imputation rests on the idea that the value of goods arises from the (marginal) utility to be attributed to them. This is true for production as well as for consumption goods. Now, production goods realize their utility through their products, and hence the utility which is ascribed to them is precisely the same as that ascribed to their products. Therefore, because a production good derives its value from the same quantity of utility as its product, it necessarily follows that it must have exactly the same value as that product. Consequently, provided no entirely new factor of special influence intervenes, a surplus of value in the product over and above that of its corresponding productive good or goods, or a value-productivity of capital-, is entirely out of the question.

Wieser also sees this obstacle, to which I had called attention in my criticism of the older forms of the productivity theory,19 and brings it clearly before his own eyes and those of his readers. “Capital,” he says, “receives its value from its fruits; therefore, if you deduct ... from the value of these fruits the value of the capital consumed, ... no balance is left.... The amount deducted must always be as great as the value of these fruits, since these latter furnish the measure of the value of the quantity deducted.... Consequently the calculation of value furnishes no net return, and not only can interest not be explained by it, but it is proved to be quite impossible!” Wieser believes, however, that he has solved these difficulties by the results of his investigations regarding imputation. His imputation theory justifies him, he thinks, in attributing to capital not only a gross return, but also a physical net return. “In the gross product capital reproduces itself with a physical surplus, the net product. Hence the value of capital cannot be rated equal to that of the gross product. In its reproduction capital forms but a part of its own gross product, consequently it can absorb only a part of the value of the gross product.” If the gross product is worth 105, and a part equal to five be deducted for fruits which may be consumed without disturbing the complete replacement of capital, only “the remainder, 100, can be reckoned as the value of capital.”20

To this argument two objections can be made. First of all, as I endeavoured to show above, one may contest the premise that the rules of imputation lead to the imputation of a physical net product to capital.21 But even if this premise were correct, the conclusion drawn from it is not. Suppose we had really to attribute to a capital consisting of 100 pieces of goods, a gross product of 105 pieces of the same kind and a net product of 5 pieces, the only conclusion which could be correctly drawn from this statement, in view of the universal law of the identity of the value of the means of production and of their products, is that the value of a single piece cannot be the same in both these generations of capital, but that 100 pieces of the earlier generation must be equivalent in value to 105 pieces of the following, i.e. the next year’s generation. Thus evidently the value-equivalence of capital and its gross product would be maintained.

Indeed, Wieser can reach his opposite conclusion, that the value of capital can be estimated only at a smaller amount than that of its gross product, only by means of a deceptive logical blunder due to a dialectical trick. In this case he repeats a mistake already famous in the history of interest theories. Like the old canonists, together with their contemporary antagonists,22 and like Knies in more. recent times, Wieser imagines the identity of the original capital with an equal number of like pieces of goods in a subsequent period. He introduces this fiction by a bit of dialectics. The fact, rightly or wrongly assumed, that a greater number of pieces than was contained in itself is assigned to capital as its share in the product, is expressed by Wieser in the words: “In the gross product capital reproduces itself with a physical surplus.” From this basis, he proceeds step by step as follows: “In its reproduction capital represents only a part of its own product,” and in consequence it cannot absorb more than a portion of the value of the gross product. In a more correct manner Wieser should have said in his first statement: “In the gross product capital produces an equal number of pieces of the same kind but available under other conditions of time and in addition a surplus of such pieces.” The second sentence should then have read: “That equal number represents only a part of the gross product,” and finally he could reach only the conclusion that that equal number could not absorb more than a portion of the value of the gross product. In short, it is clear and demonstrable that 100 pieces or units of the second generation of capital are worth less than 105 pieces of the same generation; but since the original capital of 100 pieces is by no means identical with the 100 pieces of the second generation, there is no justification for applying to the former the relation of value to gross product proved to exist in the latter. The truth, on the contrary, is that, as the general premises of Wieser’s theory, to which the author has not remained quite true, postulate, capital is equivalent in value to its whole gross product, though this may consist of more pieces. How, in spite of this equivalent, an increment of value can arise which furnishes the material for interest, is the salient point of the interest problem. For this phenomenon, I believe, an explanation presents itself, if we take into account the influence of distance in time on the estimation of goods and the maturing of the future, originally less valued, goods into the full value of present goods;23 whereas no satisfactory explanation can be found by supposing, contrary to principles, that productive goods in distinction from all others derive their value from a part only of the utility originated by them!

It is rather strange that in the further course of his inquiry Wieser also is led to the recognition of the central principle of my theory of interest, namely, that present goods as a rule are worth more than future ones. Only he is not willing to recognize this as a starting-point but as a conclusion of his demonstrations, not as a cause but as an effect of the phenomenon of interest.24 However, if I am not wholly mistaken, this principle cannot be regarded as a deduction from Wieser’s views, but must be considered incompatible with them. If a capital of 100 pieces gives in one year a gross product of 105 pieces, it cannot possibly at the same time be true that it possesses a value 5 per cent smaller than its gross product of 105 pieces, and yet is of the same value as 105 pieces of the ensuing year! Wieser could arrive at the latter conclusion,25 in itself perfectly true, only by dropping here the fiction of the identity of present capital with a like number of pieces of its product. Only he ought not to have employed this fiction in his preceding arguments.

Wieser’s theory of interest, expounded with much ingenuity and eloquence, is particularly interesting because it represents a peculiar attempt to attach to a system, modern through and through, an addition constructed out of old materials, namely, out of the “productivity of capital“ which has so often appeared on the scene, and that venerable old fiction of the identity of thè original capital with the “principal sum“ which serves to replace it at some future period. This attempt, I believe, has not succeeded. The old and the new notions clash with each other. Thanks to the author’s dialectical skill, the conflict of the new theories, —for the foundation of which Wieser himself has worked with lasting merit,—with the old were with difficulty concealed at the critical points; but the conflicting elements could not be brought into any intimate union. The failure of the attempt of a theorist of such force and resources to revive the productivity theory seems to me to be the best proof that the solution of the problem of interest can never be found in the process of thought peculiar to that theory.

26 “Progrès de la science économique depuis Ad. Smith“ (Paris, 1890), II, pp. 319 sq., 328, 335 sq.

27 “Principii di Economia pura,” Florence, 1889 (2d ed. unchanged, 1894), p. 301. Pantaleone theory, but briefly indicated, seems to move wholly in the course of Wieseris views, which will- be more amply criticised further on.

28 Quarterly Journal of Economics, July, 1892. See also my reply, ibid., April, 1895.

29 See Chapter VIII of this book.

30 “Grundriss der politischen Ökonomie,” 2d ed., § 121.

31 P. J. Proudhon, “Seine Lehre und sein Leben,” II. Abth., Jena, 1890, pp. 216–225.

32 “Socialismus und capitalistische Gesellschaftsordnung,” Stuttgart, 1892.

33 “Der naturliche Wert,” Vienna, 1889.

34 This is also true of the explanations of Wolf, which, though very explicit, are to my mind very obscure. He maintains “the value-productivity of capital,” but in proof contents himself with reflections which I cannot regard as real explanations or solid arguments, but only as paraphrases of the problem. He describes the “value-productivity of capital,” the existence of which he is attempting to prove, as “the capacity of capital to furnish a revenue exceeding (a) its own costs, and (b) the costs of those factors of production which are technically able eventually to replace the capital consumed”; and he wishes to support his affirmation by the well-known fact that a balance of the kind mentioned shows itself whenever by the intervention of capital the advantages of the division of labour, of production on a large scale, of machinery, and of natural forces, the employment of which demands an investment of some kind, are obtained. “Capital,” says Wolf, “is doubtless an objective intermediary of productivity” (p. 461 sq.).

That capital acts as an “intermediary” in the production of surplus-value cannot be doubted. This is indeed the reason why this surplus-value has in general been theoretically and practically considered as the income from capital or the interest on capital, and not as wages of labour or entrepreneur’s profits. But precisely this is the substance of the interest problem, the fact to be explained by any theory of interest, and by no means a proof or an evidence of the correctness of any specific theory, for example, of that one which attributes value-productivity to capital. In the polemical parts of his argument, Wolf himself feels the necessity of amplifying the above explanation. He thinks, for example, that the consumer will necessarily have to value the quantity of the product, increased perhaps fourfold by the employment of capital, higher than the capital consumed, in order to offer “the producer any inducement for employing his capital at all“; and that the consumer will be ready to put this increased valuation upon the product “because by so doing he can share in the advantages of the operations of capital, without which he would be obliged to pay fourfold as much for the fourfold increased quantity of product, whereas now he pays only double or treble as much. Therefore, he who decides the value of goods, the consumer, by force of reason, in order to derive advantage from the employment of capital, is obliged to leave more to the capitalist than the mere equivalent of his expenses, and thus to afford him an interest upon his capital.” In this way the productivity of goods passes over into a productivity of value (p. 466). But in all other case;*, efficient competition being granted, reason is accustomed so to govern the actions of both parties on the market that the price of goods is brought to a level with the costs of their production. The reduction of cost is transformed into a decline of prices. Why should not this be the case here, or at least up to a certain point? This puzzle needs a clearer explanation than the allusion to Adam Smith’s old-fashioned truism that capitalists need interest, in order to have a motive for employing capital!

35 “Ueber den Ursprung und die Hauptgesetze des wirtschaftlichen Wertes,” Vienna, 1884, p. 139 sq.; “Der natürliche Wert,” Vienna, 1889, pp. 67 sq., 164 sq.

36 “Der natürliche Wert,” § 20.

37 “Der natürliche Wert,” p. 96 sq.

38 Ibid., p. 85 sq., especially pp. 87, 90,91, 92.

39 “Der natürliche Wert,” p. 123.

40 “The problem of the theory finally is to prove ‘the value-productivity of capital’; but for this purpose, first of all, the physical productivity of capital must be proved, the latter being the stepping-stone to the former. Value-productivity presupposes the determination of the value of the capital, but you can only reach the determination of the value of capital after having answered the question how to calculate the physical share of capital in the product, because the value of capital rests on the physical share attributed to it in the product.”

41 Those who produce for their own account may also judge the success of production by considering whether the product of labour attains or exceeds the trouble of labour; if the utility which the labourer draws from his product is less than the trouble connected with the labour, one may say, from a point of view admissible and relevant, that labour is not remunerative. On the contrary, the surplus of utility over the trouble taken in its acquisition may be considered as a “net utility” (Marshall’s “producer’s surplus”; “Principles,” 3d ed., p. 217),

42 “Der natürliche Wert,” p. 125.

43 See “Capital and Interest,” Smart1s translation, p. 169 sq.

44 See Smart’s translation, p. 179.

45 “Der natürliche Wert,” pp. 134 sq. and 136.

46 To avoid a misunderstanding, I wish to remark that Wieser maintains the “physical productivity of capital” in a sense which differs from all the numerous meanings of the term which I enumerated and explained in Section VII (p. 111 sq. of Smart’s translation), and also from that recognized in my “Positive Theory” and made a support for a part of my exposition.

47 See “Capital and Interest,” Smart’s translation, Ch. IX.

48 For a more explicit explanation see my “Positive Theory of Capital.”

49 “Yet it is not the same thing whether one possesses it (a capital) from the present moment or only a year hence, because the present possession warrants one more term of interest.... A present sum is always superior in value to an equal sum due at a later term” («Der natürliche Wert,” p. 138).

50 In a substantially identical form it is to be found on page 138 (“Der natürliche Wert”) in the statement that “100, which I shall obtain after a year only, are to-day worth but about 95.”

• 1“Karl Marx and the Close of his System.” A Criticism by Eugene v. Böhm-Bawerk. Translated by Alice M. Macdonald, with a preface by James Bonar, M.A., LL.D. London. T. Fisher Unwin, Paternoster Square, 1898.
• 2“The Positive Theory of Capital and its Critics.” Quarterly Journal of Economics) April, 1895.
• 3“Statement of some new principles on the subject of Political Economy, exposing the fallacies of the system of free trade, and of some other doctrines maintained in the ‘Wealth of Nations.” Boston, 1834.
• 4“Principles of Economics,” 3d ed., pp. 142–664.
• 5Besides the authors included in the text there are others who hold more or less similar views. For example, J. Bonar (Quarterly Journal of Economics April and October, 1889, and April, 1890); William Smart (“Introduction to the Theory of Value,” London, 1891, “The New Theory of Interest,” Economic Journal, 1891); F. Y. Edgeworth (Economic Journal June, 1892); E. B. Andrews (“Institutes of Economics,” Boston, 1889); Lowrey (Annals of American Academy March, 1892); Ely (“Outlines of Economics,” New York, 1893); Carver (Quarterly Journal of Economics) October, 1893); Taussig (“Wages and Capital,” New York, 1896); Irving Fisher (Economic Journal December, 1896, June and December, 1897); Mixter (“A Forerunner of Böhm-Bawerk,” Quarterly Journal of Economics January, 1897); Macfarlane (“Value and Distribution,” Philadelphia, 1899); and especially also Hobson (“Evolution of Modern Capitalism,” London, 1894); and Hadley (“Economics,” New York, 1896, and Annals of American Academy November, 1893). Giddings has also expressed himself as partially in agreement with this idea, but he believes that in order to complete and extend the theory, it is necessary to make an addition to it, in which he would explain the constant deficiency in the supply of present goods or capital by the fact that the last hours of labour, performed with ever increasing reluctance and pain, contribute to the formation of capital. This increase in the pains of labour constitutes the extra costs of capital building,—in comparison with the cost of the manufacture of goods designed for immediate consumption—which extra costs must find their remuneration in interest. But I am neither able to convince myself of the reality of all the assumptions of fact involved in this theory, nor, if these assumptions be granted, am I able to discover their operation in the process by which interest is produced. See, besides, the exhaustive discussion in the Quarterly Journal of Economics from July, 1889, to April, 1891, in which, besides Giddings and myself, Bonar, David J. Green, and H. Bilgram also took part.
• 6Ricca-Salerno (“Teorie del Valore,” Rome, 1894), Monte-martini (“Il Risparmio dell’ Economia pura,” Milan, 1896); Crocini (“Di alcune questioni relative alP utilità finale,” Turin, 1896); Graziani (“Studi sulla teoria delP interesse,” Turin, 1898); further in essentials perhaps, Barone (“Sopra un libro di Wickseil,” Giornale degli Economisti, November, 1895, and “Studi sulla distributione” in the same journal for February and March, 1896); and partly at least, Benini (“Il valore e la sua attribuzione ai beni strumentali,” Bari, 1893).
• 7Under this head must be mentioned before all others N. G. Piersons classical work, “Leerboek der Staatshuishoudkunde” (2d ed., Harlem, 1896, and an older article in De Economist, March, 1899, p. 193 sq.).
• 8This subject has been most exhaustively treated by Kunt Wicksell (“Ueber Wert, Capital und Rent,” Jena, 1893, “Finanztheoretische Untersuchungen,” Jena, 1896). Dr. Wicksell was kind enough to supplement my insufficient knowledge of Scandinavian literature by some private communications, in which he mentions as representatives of cognate views the following authors: in Denmark, Professors Westergaard and Folbe-Hansen; in Sweden, Count Hamilton, David Davidson, and John Lefller; in Norway, Professors Aschehoug and Morgenstierne, Dr. Oskar Jaeger and Dr. Einarsen.
• 9Among the original German works in which similar ideas are expressed, I wish to make special mention of that of Effertz (“Arbeit und Boden,” Berlin, 1889),which appeared almost contemporaneously with my “Positive Theory,” and the profound work of the Swiss author, George Sulzer (“Die wirtschaftlichen Grundgesetze in der Gegenwartsphase ihrer Entwicklung,” Zurich, 1895). Effertz expressed in an original way the thought that interest owes its existence to a difference of time, and that the “age” (“alter”) of labour and of land is an element of exchange value, and that interest is “the payment for the age quality of labour and land” (pp. 190 sq., 198 sq., and 278). The necessity of the additional payment for the “age” of the elements of production is remotely, although perhaps inadequately, explained by the fact that old labour and old land are rarer than present labour and present land (pp. 190, 195, 198; cf. also in addition, pp. 218, 221, 354). The fact that the author on principle avoids literary references makes it impossible to know whether and to what extent the work of Effertz, which appeared in 1889, was influenced by several previous discussions of the same fundamental thought. Sulzer’s treatment of the subject seems to me in general to move upon a middle line between that of Jevons and my own. On the position occupied by Adolf Wagner at the present time, see Chapter V.
• 10Smart’s translation, p. 185.
• 11lbid., p. 186.
• 12The italics are mine.
• 13pp. 216, 315.
• 14Cf. the exposition of Senior’s theory to be found in my “Capital and Interest,” Smart’s translation, p. 271 sq.
• 15Smart’s translation, Bk. IV.
• 16See Smart’s translation, p. 403 sq.
• 17That is, with the omission of compound interest. Marshall himself develops for this an accurate algebraic formula in note 5 of the appendix to his “Principles.”
• 18pp. 313 sq., 429, n. 1, 662, 663, n. 1, and 668; indirectly also, p. 794, n. 5, in so far as interest, which elsewhere he explains as “the reward of waiting,” is brought into connection with the “discounting” of future pleasures.
• 19For simplicity’s sake, in this and the following cases I assume that the entire sacrifice of labour or money is made at once; that is, at one, and that the present, point of time.
• 20Marshall illustrates this, for example, in the case of the building of a house, the utility of which when finished must cover the efforts required for building in addition to an amount, increasing in geometrical proportions (a sort of compound interest) for the period which would elapse between each effort and the time when the house would be ready for use (p. 429).
• 21To avoid a misunderstanding, I wish to remark that Wieser maintains the “physical productivity of capital” in a sense which differs from all the numerous meanings of the term which I enumerated and explained in Section VII (p. 111 sq. of Smart’s translation), and also from that recognized in my “Positive Theory” and made a support for a part of my exposition.
• 22In order to forestall every possible misunderstanding, I will at once meet a certain objection which may possibly be urged. A superficial observer may, perhaps, be tempted to explain the matter in the following manner. The future utility of ten, to be acquired only after five years, will, in fact, in our present estimation, be perspectively diminished, and thus estimated at only 6.21, and over against this present value of the gratification stands a present sacrifice in labour or money of 6.21. The sacrifice of waiting, on the other hand, appears first in the future, and will find its compensation in the then full future value of the gratification, in amount, ten. On the one hand, therefore, present value and present sacrifice offset each other, and on the other, the future value is in harmony with the total magnitude of sacrifice, which includes also that of the future. In this process of thought, however, the fact is overlooked that every rational economic calculation must include the sacrifices not yet due as well as those at present experienced. If I propose to myself the problem, whether I shall buy a dwelling house offered me for the payment of twenty annual instalments of 1000 florins each, I may not bring the present value of the house into comparison with the rate of sacrifice at present experienced, that is, with the first instalment of 1000 florins alone, but I must, of course, place over against the value of the house the value of the entire twenty instalments. To be sure, the instalments not yet due will enter the calculation at their reduced present value. In an analogous manner, and according to the abstinence theory, the total sacrifice which must be made for a remote gratification consists of present sacrifice of labour or money, and of a series of further sacrifices of waiting spread over the entire period of time. In our present calculations this latter, like the instalments on the house due at a later period, may enter into the account only after the deduction of a certain discount corresponding to the distance of their removal from us in time. But they must certainly, in some way, be taken into consideration, especially since, as we know, in the case of the abstinence theorists, it is precisely the consideration of these which should hold the producers back from directing production toward less valuable future goals. In our illustration, this conception would be expressed in the following manner: The labour or money sacrifice to be endured amounts to 6.21; the sum of the sacrifices of five years of waiting, through which the total sacrifice is brought up to 10, amounts accordingly to 3.79. Since, however, these sacrifices of waiting belong still to the future, and indeed are to be experienced on the average only after two and a half years, their present value is estimated correspondingly lower; that is, on the basis of a discount rate of 10 per cent, at about 2.96. According to this the present value of the sacrifices to be considered would amount to 6.21 + 2.96 = 9.17. The present value of the gratification to be obtained, however, amounts to only 6.21. The proportion between these aggregates, therefore, precludes any intelligent economic action.
• 23If some one should here object that the labour which is expended as a precaution against the future pain might have been expended also in the preparation of a present positive gratification, and that the loss of this other gratification forms the content of the sacrifice of waiting, I should think first of all that by such a method of viewing the situation the fundamental question was only avoided, not solved, and in the second place I should propose that such a method of eluding the question be cut off by considering a concrete situation. Let us assume, for instance, that the subject of our example is a prisoner who has no winter clothing, and who knows that his dismissal will occur in the course of a year, and at the time of the greatest cold of winter, and who, according to the regulations of the prison, is permitted, but not compelled, to earn a sum sufficient to purchase winter clothes by labour which he is not permitted to employ in any other way, or for the securing of any earlier gratifications during the continuance of his incarceration. In this case there is absolutely no room for the sacrifice of waiting in addition to that of labour which would be imposed upon him by the devotion of his labour to the acquisition of warm winter clothes, and he who does not entirely deny the fact that even in the case of a man who finds himself in this condition the regard for the future can be less efficient than that for the present will indeed be forced to declare the second interpretation, recommended also by so many other considerations, as the only one permissible, namely, that the remoteness in time diminishes the magnitude of future pleasures and pains in our present estimation.
• 24As, for example, in former times John Stuart Mill and Jevons, in our day Macfarlane, and indeed also Carver; in reference to the last see farther on.
• 25See my Preface to the second edition.
• 26In 1900 the second edition of the “Geschichte und Kritik der Capitalzins-Theorien” appeared, and the present volume contains in its nine main chapters a translation of the Appendix, in which Böhm-Bawerk reviews the literature on interest which had appeared since 1884, the date to which the first edition translated by Smart brought the subject. In this preface we propose to give a summary of the most important of the other additions contained in the second edition. These are the author’s Preface, chapter XI on John Rae, and a supplement to the chapter on Karl Marx. To the author and the translators it has not seemed necessary or desirable to present a complete translation of these less important additions. A brief summary is sufficient to indicate their general character and scope, and the English-speaking reader who is unfamiliar with German and who desires more may avail himself of Miss Alice M. Macdonald’s translation of Böhm-Bawerk’s criticism of the posthumous volumes of Karl Marx’s “Das Kapital,” of the author’s reply to Walker’s strictures in the Quarterly Journal of Economics, and of Rae’s book itself.
• 27In 1900 the second edition of the “Geschichte und Kritik der Capitalzins-Theorien” appeared, and the present volume contains in its nine main chapters a translation of the Appendix, in which Böhm-Bawerk reviews the literature on interest which had appeared since 1884, the date to which the first edition translated by Smart brought the subject. In this preface we propose to give a summary of the most important of the other additions contained in the second edition. These are the author’s Preface, chapter XI on John Rae, and a supplement to the chapter on Karl Marx. To the author and the translators it has not seemed necessary or desirable to present a complete translation of these less important additions. A brief summary is sufficient to indicate their general character and scope, and the English-speaking reader who is unfamiliar with German and who desires more may avail himself of Miss Alice M. Macdonald’s translation of Böhm-Bawerk’s criticism of the posthumous volumes of Karl Marx’s “Das Kapital,” of the author’s reply to Walker’s strictures in the Quarterly Journal of Economics, and of Rae’s book itself.
• 28In 1900 the second edition of the “Geschichte und Kritik der Capitalzins-Theorien” appeared, and the present volume contains in its nine main chapters a translation of the Appendix, in which Böhm-Bawerk reviews the literature on interest which had appeared since 1884, the date to which the first edition translated by Smart brought the subject. In this preface we propose to give a summary of the most important of the other additions contained in the second edition. These are the author’s Preface, chapter XI on John Rae, and a supplement to the chapter on Karl Marx. To the author and the translators it has not seemed necessary or desirable to present a complete translation of these less important additions. A brief summary is sufficient to indicate their general character and scope, and the English-speaking reader who is unfamiliar with German and who desires more may avail himself of Miss Alice M. Macdonald’s translation of Böhm-Bawerk’s criticism of the posthumous volumes of Karl Marx’s “Das Kapital,” of the author’s reply to Walker’s strictures in the Quarterly Journal of Economics, and of Rae’s book itself.
• 29Professor Marshall finds the explanation of interest in the coöperation of what he calls the “productiveness” and the “prospectiveness” of capital, the former determining the demand for that factor of production, and the latter limiting the supply. He believes that most of the writers on interest have had both these elements of the problem in mind, and have differed from each other chiefly in the fact that some have laid more emphasis upon the one element, and others upon the other. He has expressed the opinion that many of the authors criticised by Böhm-Bawerk would not have accepted his statements as fair and complete presentations of their views.
• 30The works of Launhardt and Sax fall in the period between the appearance of the first (1884) and the second (1889) volumes of my published work upon “Capital and Interest.” The “Positive Theory of Capital” set forth in the second volume contains an attempt to derive all forms of the interest phenomenon from the difference in value between present and future goods, and to explain this difference by means of the coöperation of a series of causes, partly psychological and partly connected with the technique of production. This attempt met with much opposition, but also with agreement and support from many quarters. Cognate ideas were expressed at about the same time by American thinkers, especially by Simon N. Patten, S. N. Macvane, and J. B. Clark, though in a less exhaustive way, and for the time being without any conscious break with the trend of ideas involved in the old abstinence theory. At the same time there was in operation the impulse given by Jevons’s brilliant work, which has steadily grown in the appreciation of the theorists of the various nations. The fact is that on account of one or the other of these stimulating influences, the theory of the difference in value between present and future goods,—to use a short expression, the agio theory, —has taken root in the literature of all civilized nations, and has even acquired a predominant place in that of some of them. Especially it seems to me that cognate views, with this or that shade of difference, have acquired wide acceptance in English-American, Italian, Dutch, and Scandinavian literature.
• 31The works of Launhardt and Sax fall in the period between the appearance of the first (1884) and the second (1889) volumes of my published work upon “Capital and Interest.” The “Positive Theory of Capital” set forth in the second volume contains an attempt to derive all forms of the interest phenomenon from the difference in value between present and future goods, and to explain this difference by means of the coöperation of a series of causes, partly psychological and partly connected with the technique of production. This attempt met with much opposition, but also with agreement and support from many quarters. Cognate ideas were expressed at about the same time by American thinkers, especially by Simon N. Patten, S. N. Macvane, and J. B. Clark, though in a less exhaustive way, and for the time being without any conscious break with the trend of ideas involved in the old abstinence theory. At the same time there was in operation the impulse given by Jevons’s brilliant work, which has steadily grown in the appreciation of the theorists of the various nations. The fact is that on account of one or the other of these stimulating influences, the theory of the difference in value between present and future goods,—to use a short expression, the agio theory, —has taken root in the literature of all civilized nations, and has even acquired a predominant place in that of some of them. Especially it seems to me that cognate views, with this or that shade of difference, have acquired wide acceptance in English-American, Italian, Dutch, and Scandinavian literature.
• 32The works of Launhardt and Sax fall in the period between the appearance of the first (1884) and the second (1889) volumes of my published work upon “Capital and Interest.” The “Positive Theory of Capital” set forth in the second volume contains an attempt to derive all forms of the interest phenomenon from the difference in value between present and future goods, and to explain this difference by means of the coöperation of a series of causes, partly psychological and partly connected with the technique of production. This attempt met with much opposition, but also with agreement and support from many quarters. Cognate ideas were expressed at about the same time by American thinkers, especially by Simon N. Patten, S. N. Macvane, and J. B. Clark, though in a less exhaustive way, and for the time being without any conscious break with the trend of ideas involved in the old abstinence theory. At the same time there was in operation the impulse given by Jevons’s brilliant work, which has steadily grown in the appreciation of the theorists of the various nations. The fact is that on account of one or the other of these stimulating influences, the theory of the difference in value between present and future goods,—to use a short expression, the agio theory, —has taken root in the literature of all civilized nations, and has even acquired a predominant place in that of some of them. Especially it seems to me that cognate views, with this or that shade of difference, have acquired wide acceptance in English-American, Italian, Dutch, and Scandinavian literature.
• 33The works of Launhardt and Sax fall in the period between the appearance of the first (1884) and the second (1889) volumes of my published work upon “Capital and Interest.” The “Positive Theory of Capital” set forth in the second volume contains an attempt to derive all forms of the interest phenomenon from the difference in value between present and future goods, and to explain this difference by means of the coöperation of a series of causes, partly psychological and partly connected with the technique of production. This attempt met with much opposition, but also with agreement and support from many quarters. Cognate ideas were expressed at about the same time by American thinkers, especially by Simon N. Patten, S. N. Macvane, and J. B. Clark, though in a less exhaustive way, and for the time being without any conscious break with the trend of ideas involved in the old abstinence theory. At the same time there was in operation the impulse given by Jevons’s brilliant work, which has steadily grown in the appreciation of the theorists of the various nations. The fact is that on account of one or the other of these stimulating influences, the theory of the difference in value between present and future goods,—to use a short expression, the agio theory, —has taken root in the literature of all civilized nations, and has even acquired a predominant place in that of some of them. Especially it seems to me that cognate views, with this or that shade of difference, have acquired wide acceptance in English-American, Italian, Dutch, and Scandinavian literature.
• 34The works of Launhardt and Sax fall in the period between the appearance of the first (1884) and the second (1889) volumes of my published work upon “Capital and Interest.” The “Positive Theory of Capital” set forth in the second volume contains an attempt to derive all forms of the interest phenomenon from the difference in value between present and future goods, and to explain this difference by means of the coöperation of a series of causes, partly psychological and partly connected with the technique of production. This attempt met with much opposition, but also with agreement and support from many quarters. Cognate ideas were expressed at about the same time by American thinkers, especially by Simon N. Patten, S. N. Macvane, and J. B. Clark, though in a less exhaustive way, and for the time being without any conscious break with the trend of ideas involved in the old abstinence theory. At the same time there was in operation the impulse given by Jevons’s brilliant work, which has steadily grown in the appreciation of the theorists of the various nations. The fact is that on account of one or the other of these stimulating influences, the theory of the difference in value between present and future goods,—to use a short expression, the agio theory, —has taken root in the literature of all civilized nations, and has even acquired a predominant place in that of some of them. Especially it seems to me that cognate views, with this or that shade of difference, have acquired wide acceptance in English-American, Italian, Dutch, and Scandinavian literature.
• 35The injustice of Marshall’s charges and his evident misunderstanding of Böhm-Bawerk’s real attitude toward the authors he criticises is further shown by reference to certain passages in the first edition in which our author pointed out the affinity between the use and the productivity theories. In one place he called the former an offshoot of the latter, and in another he said: “This theory [the use theory] assumes capital to be productive.” Again, on page 187, he said: “The relation of use theories to the productive power of capital will not, however, be found stated so clearly in the writings of their representatives as I have thought necessary to state it. On the contrary, indeed, appeals to the productive power of capital long accompany the development of the use theory proper, and we are very often left in doubt whether the author relies, for his explanations of surplus value, more on the productive power of capital or on the arguments peculiar to the use theory.”
• 36The injustice of Marshall’s charges and his evident misunderstanding of Böhm-Bawerk’s real attitude toward the authors he criticises is further shown by reference to certain passages in the first edition in which our author pointed out the affinity between the use and the productivity theories. In one place he called the former an offshoot of the latter, and in another he said: “This theory [the use theory] assumes capital to be productive.” Again, on page 187, he said: “The relation of use theories to the productive power of capital will not, however, be found stated so clearly in the writings of their representatives as I have thought necessary to state it. On the contrary, indeed, appeals to the productive power of capital long accompany the development of the use theory proper, and we are very often left in doubt whether the author relies, for his explanations of surplus value, more on the productive power of capital or on the arguments peculiar to the use theory.”
• 37The discussion of the division of labour and of exchange leads to a consideration of value which he explains in accordance with the cost of reproduction theory, to which, however, he makes one important and very significant addition. “When two persons in the same society exchange commodities,” he says (p. 300), “... the exchanges they make are for equal quantities of labour, reckoned according to the time when applied, and the actual order of instruments.” The time element, to which attention is called in this last clause, is considered by Rae of equal importance with labour. Materials, tools, etc., as well as labour, are consumed in production, and they must be represented in the price of the goods. In this connection he shows that not only the labour which produced these instruments must be taken into consideration, but also the length of time that must elapse before that labour is remunerated. The rate of compensation for this element of time will depend upon the effective desire for accumulation. By way of illustration, he assumes the case of a weaver who can weave a certain amount of thread into linen in thirty days with the aid of a loom which cost one hundred days’ labour and which will last seven years. He then proceeds as follows: “Suppose that the effective desire of accumulation of the individual is of strength sufficient to carry him to the order G, doubling in seven years, that the loom cost one hundred days’ labour, and that it will be exhausted in seven years; it would then require to return two hundred days’ labour, or an equivalent, at the end of that period. The return, however, is not delayed so long, but begins to come in daily, immediately after its construction. Calculating then what yearly return is equal to two hundred days at the end of seven years, in the estimation of a man who reckons one day now equal to two then, it will turn out to be nearly twenty days. We may allow that the loom is in employment three hundred days a year; it would, therefore, on these principles, have to return two days’ labour for every thirty days during which it was in operation, and the weaver would consequently have to receive an equivalent to thirty-two days’ labour; at least, had he not a moral certainty of receiving this, he would not have formed the instrument, and were such return to cease, he would not reconstruct it” (pp.169, 170).
• 38Further particulars regarding this proposition result from the universal law of exchange, of which Marshall regards interest as merely, a special case. According to that universal law, the “normal” value of commodities tends constantly to adjust itself to that level at which demand is in equilibrium with the cost of production. Marshall lays special emphasis upon the coordinate position of these two factors which mutually influence each other. The real costs of production are made up of the totality of exertions and sacrifices which must be undergone in the production of goods. Besides labour these include also the sacrifice of waiting or of the postponement of enjoyment which is inseparably connected with the accumulation and employment of capital. The term “abstinence,” which has been widely used since the days of the older economists, Marshall regards as less suitable than waiting, and as the fruitful source of misunderstandings, since the largest accumulations of capital are made by very rich people who experience no abstinence in the sense of privation. It would, therefore, be more correct if, following Mac-vane’s example, we should designate the content of the sacrifice under consideration as a mere postponement of enjoyment. This, however, constitutes a real sacrifice which must be reckoned separately, and in addition to that of labour (p. 668).
• 39I do not think I am wrong in designating the view held by Marshall as in essentials a cautiously formulated abstinence theory with an improved terminology. In its fundamentals his doctrine is in complete agreement with that of Senior. The formation of capital demands on the part of capitalists a real sacrifice which consists in the postponement of enjoyment and forms an independent element in the cost of production side by side with labour. For this an independent payment must be found in the price of goods after the manner and according to the laws (to be sure, more carefully formulated by Marshall) by which in general costs influence the price of goods. Under these circumstances it is evident that my view of Professor Marshall’s interest theory cannot differ much from that which I expressed regarding the abstinence theory in general in my book on “Capital and Interest.” Though I am in full agreement with him on the point that the “prospectiveness” as well as the “productiveness” of capital have something to do with the explanation of interest, I think that the explanation by which he and other abstinence theorists connect these phenomena with interest, is presented in a form which is not in harmony with the facts and which is in unavoidable conflict with the laws of thought.
• 40In the first place, I regard as incorrect the contention that in the act of postponement which is involved in the employment of labour for the acquisition of a pleasure to be experienced at a remote period of time, we must recognize a separate sacrifice to be reckoned independent of and in addition to that of labour. The grounds for this opinion I have already presented in an exhaustive manner. However, if Professor Marshall, well acquainted with them as he is, still holds fast to his doctrine, which is in essentials identical with the abstinence theory, they do not appear to have been sufficiently convincing. I will, therefore, endeavour to support them by some further explanations, and for this a welcome opportunity is presented to me by some remarks which may be found in Professor Marshall’s exposition of his theory.
• 41Like Jevons, Marshall has included in his theory some psychological elements regarding the estimation of future pains and pleasures. Human nature is actually so formed that most men do not esteem a future pleasure, even though its acquisition is absolutely certain, so highly as a present pleasure of the same sort, but they discount it or make a deduction from it, the magnitude of which varies with different people according to the varying degrees of their patience and self-control. The present value of future pleasures, and, therefore, also the present marginal utility of a distant source of pleasure, are, therefore, smaller than the value of a like present pleasure or even than the value of the same future pleasure at the time when it actually appears. If, for example, according to his temperament, some one is accustomed to discount future pleasures at the rate of ten per cent, he will to-day esteem at ten the present worth of a pleasure which is still one year distant, and which will then have, roughly estimated, an actual value of eleven. From numerous remarks of Marshall, it appears that the psychological fact that the great mass of mankind gives to present satisfactions the preference over future is precisely the one upon which he founds his claim that waiting involves a sacrifice. That in general we give present pleasures the preference over equally great future ones, and that in general we feel that waiting for a future enjoyment is a sacrifice which increases the expense of acquisition, are in Marshall’s doctrine only two different methods of expression for one and the same psychological fact. As a matter of fact, however, they are not only different modes of expression, but different modes of conception, and, indeed,—a fact which is of interest for our purpose,—two discordant and incompatible modes of conception, of which the one is right and the other wrong, and which it is impossible to hold at the same time, and side by side with each other. The fact of the matter is as follows:—
• 42Like Jevons, Marshall has included in his theory some psychological elements regarding the estimation of future pains and pleasures. Human nature is actually so formed that most men do not esteem a future pleasure, even though its acquisition is absolutely certain, so highly as a present pleasure of the same sort, but they discount it or make a deduction from it, the magnitude of which varies with different people according to the varying degrees of their patience and self-control. The present value of future pleasures, and, therefore, also the present marginal utility of a distant source of pleasure, are, therefore, smaller than the value of a like present pleasure or even than the value of the same future pleasure at the time when it actually appears. If, for example, according to his temperament, some one is accustomed to discount future pleasures at the rate of ten per cent, he will to-day esteem at ten the present worth of a pleasure which is still one year distant, and which will then have, roughly estimated, an actual value of eleven. From numerous remarks of Marshall, it appears that the psychological fact that the great mass of mankind gives to present satisfactions the preference over future is precisely the one upon which he founds his claim that waiting involves a sacrifice. That in general we give present pleasures the preference over equally great future ones, and that in general we feel that waiting for a future enjoyment is a sacrifice which increases the expense of acquisition, are in Marshall’s doctrine only two different methods of expression for one and the same psychological fact. As a matter of fact, however, they are not only different modes of expression, but different modes of conception, and, indeed,—a fact which is of interest for our purpose,—two discordant and incompatible modes of conception, of which the one is right and the other wrong, and which it is impossible to hold at the same time, and side by side with each other. The fact of the matter is as follows:—
• 43Like Jevons, Marshall has included in his theory some psychological elements regarding the estimation of future pains and pleasures. Human nature is actually so formed that most men do not esteem a future pleasure, even though its acquisition is absolutely certain, so highly as a present pleasure of the same sort, but they discount it or make a deduction from it, the magnitude of which varies with different people according to the varying degrees of their patience and self-control. The present value of future pleasures, and, therefore, also the present marginal utility of a distant source of pleasure, are, therefore, smaller than the value of a like present pleasure or even than the value of the same future pleasure at the time when it actually appears. If, for example, according to his temperament, some one is accustomed to discount future pleasures at the rate of ten per cent, he will to-day esteem at ten the present worth of a pleasure which is still one year distant, and which will then have, roughly estimated, an actual value of eleven. From numerous remarks of Marshall, it appears that the psychological fact that the great mass of mankind gives to present satisfactions the preference over future is precisely the one upon which he founds his claim that waiting involves a sacrifice. That in general we give present pleasures the preference over equally great future ones, and that in general we feel that waiting for a future enjoyment is a sacrifice which increases the expense of acquisition, are in Marshall’s doctrine only two different methods of expression for one and the same psychological fact. As a matter of fact, however, they are not only different modes of expression, but different modes of conception, and, indeed,—a fact which is of interest for our purpose,—two discordant and incompatible modes of conception, of which the one is right and the other wrong, and which it is impossible to hold at the same time, and side by side with each other. The fact of the matter is as follows:—
• 44It is a common experience, doubted by no one, that the psychological phenomenon whose real meaning is now in question reveals itself in the fact, among others, that for gratifications equal in all respects except in their remoteness from us in time we are inclined to undergo unequally great sacrifices of labour or money. For example, if the amount of the gratification be ten, we will be inclined to devote to its acquisition a labour sacrifice up to the amount ten or an equivalent sacrifice in money, say up to ten florins, if this gratification be attainable at the moment. If, on the other hand, the same gratification be removed from us one year, and if the psychological fact in our special case acts with a force corresponding to a discount rate of ten per cent, we will be inclined to expend upon its acquisition a present amount of labour of, at the most, something more than nine (accurately 9.09) or a money sacrifice of, in the aggregate, something more than nine florins (9 fl. 9 kr.). If the same gratification stood five years distant, our willingness to acquire the same through a present sacrifice of labour or money would find its limits in about six units (accurately 6.21) of labour-pain or about 6 fl. 21 kr. of money.
• 45This fact, regarding the reality of which, as I have already said, there is no difference of opinion between Marshall and myself, admits of two explanations. One is that the distance of the gratification from us in time diminishes, in our eyes, its magnitude. Because it is future, we place a lower estimate upon a utility than we would if it were present. It is this explanation which finds expression in the remarks of Marshall mentioned above regarding the estimation of future pleasures. The present value of a future pleasure is less than ten; when removed from us one year it is only about nine, when removed from us five years, only about six; and because the gratification is worth no more to us than nine and six respectively, we are unwilling, for its acquisition, to submit to any greater sacrifice than is indicated by the figures 9 and 6.
• 46To this argument two objections can be made. First of all, as I endeavoured to show above, one may contest the premise that the rules of imputation lead to the imputation of a physical net product to capital. But even if this premise were correct, the conclusion drawn from it is not. Suppose we had really to attribute to a capital consisting of 100 pieces of goods, a gross product of 105 pieces of the same kind and a net product of 5 pieces, the only conclusion which could be correctly drawn from this statement, in view of the universal law of the identity of the value of the means of production and of their products, is that the value of a single piece cannot be the same in both these generations of capital, but that 100 pieces of the earlier generation must be equivalent in value to 105 pieces of the following, i.e. the next year’s generation. Thus evidently the value-equivalence of capital and its gross product would be maintained.
• 47In other words, it is evident that we can only employ the second of these explanations if we turn our backs upon the first. We must hold either that the postponement of the gratification expected in the future diminishes its utility in our estimation, or that it increases in our estimation the sacrifice to be undergone by the amount of the waiting; but we cannot hold to both explanations at the same time. It would be economic and mathematical nonsense to hold that, if in the calculations of the producer the future utility should fall from ten to six, while the sacrifice on account of the addition of the element due to waiting should at the same time be increased from six to ten, the production would be found remunerative.
• 48Still further, without any doubt, and even according to Marshall, the psychological phenomenon here under discussion is extended not only to the valuation of future pleasures, but also to that of future pains. Let us suppose that some one is threatened by an ill which, if precautions are not now taken, will come upon him one year hence, and at that time will have a magnitude represented by ten. Certain it is that this person, if he discounts future events at the rate of ten per cent, will not be inclined to undergo a sacrifice represented by a greater figure than 9 for the purpose of warding off that ill. Now, on a pinch, I can conceive that if the preparation in question concerns some sort of positive gratification, the waiting for that gratification might be felt as a sacrifice, which would swell the total sacrifice successively up to ten, but I cannot possibly imagine what sacrifice is involved in my inability to remove a threatened ill which does not yet press upon me. What “painful endurance of want” lies in the fact that in midsummer I am not in possession of the overcoat in process of preparation on the spindles and looms; or in the fact that a young man of thirty, who at the age of fifty expects to need a pair of glasses for long-sightedness, must wait twenty years for the preparation of those glasses, for the production bf which meantime remote preparatory labours in mine and factory have already been begun? To the unprejudiced observer I believe that the connection is as clear as daylight. By a painful waiting for the removal of an evil not yet present the sacrifice side of the scales is not more and more weighed down until it is equal to the full magnitude of a utility of ten, but the balance of both sides of the scales was established in the beginning at the moment, alone decisive, in which the economic calculation and decision was made, and by the fact that the estimation of the threatening future ill was perspectively diminished, and that its removal was therefore looked upon as a correspondingly smaller utility, and that in consequence a sacrifice of labour of correspondingly lesser magnitude would be regarded as its equivalent.
• 49The fundamental error of the abstinence theory, therefore, consists in the fact that it puts on the wrong side of the balance those differences which are undoubtedly created by the remoteness of time, and which exert an unfavourable influence upon the balance of our welfare; that it sees a greater sacrifice, where in reality there is a diminution in utility, and that thus it makes a wrong choice between the two conceivable interpretations of the facts. Professor Marshall, however, and with him all those scientists who have considered the psychological fact, introduced into the science by Rae and Jevons, of the smaller estimation of future pleasures and pains as identical with the recognition of the abstinence theory, makes an additional error, in that he fails utterly to see that ä choice must here be made between two conceptions which cannot possibly exist side by side.
• 50This is the most important, but not the only reason why I am unable to regard Professor Marshall’s treatment of the interest problem as a satisfactory solution. As I have had occasion to remark in another place, Professor Marshall is inclined to lay very little stress upon mere differences, or imperfections in the method of expressing a thought, and at the same time is inclined to regard very important differences as mere variations in the form of expression. There can be no doubt, however, that we are not here concerned with merely a less commendable form of expressing a correct thought. We are concerned with an essential and characteristic link in a logical chain of thought which should result in an explanation of interest. That Professor Marshall, himself, regards this critical link as a very essential one, is evident from the fact that he, although, as I think, wrongly, makes the entire decision between his conception and that of the socialists hang upon the question whether waiting is to be construed as an independent sacrifice in addition to that of labour or not. That, in any case, there is a material difference between his view of the matter and mine becomes clear from the fact that, according to his conception, the disappearance of that psychological fact which expresses itself in the preference of present for future goods must also have as its result the disappearance of interest, while, according to my opinion, in that case only one of several sources of the interest phenomena would be dried up. Interest itself would continue, though with diminished strength, because, even without any underestimation of the future, the fact that more roundabout methods of production are more fruitful must secure to present goods which render possible the undertaking of such roundabout processes a superiority of value over future goods, not merely for the moment, but for periods of time, which, measured by the strictest standard, must be counted as the longest “secular” periods.