CH. 8 THE PROPENSITY TO CONSUME: I 93

wealth-owning class may be extremely susceptible tounforeseen changes in the money-value of its wealth.This should be classified amongst the major factorscapable of causing short-period changes in the pro-pensity to consume.

(4) Changes in the rate of time-discounting,i.e. in theratio of exchange between present goods and future goods.—This is not quite the same thing as the rate of interest,since it allows for future changes in the purchasingpower of money in so far as these are foreseen. Ac-count has also to be taken of all kinds of risks, such asthe prospect of not living to enjoy the future goodsor of confiscatory taxation. As an approximation,however, we can identify this with the rate of interest.

The influence of this factor on the rate of spendingout of a given income is open to a good deal of doubt.For the classical theory of the rate of interest,1 whichwas based on the idea that the rate of interest was thefactor which brought the supply and demand for savingsinto equilibrium, it was convenient to suppose that ex-penditure on consumption is cet. par. negatively sensi-tive to changes in the rate of interest, so that any rise inthe rate of interest would appreciably diminish consump-tion. It has long been recognised, however, that thetotal effect of changes in the rate of interest on the readi-ness to spend on present consumption is complex anduncertain, being dependent on conflicting tendencies,since some of the subjective motives towards saving willbe more easily satisfied if the rate of interest rises, whilstothers will be weakened. Over a long period sub-stantial changes in the rate of interest probably tend tomodify social habits considerably, thus affecting thesubjective propensity to spend—though in whichdirection it would be hard to say, except in the light ofactual experience. The usual type of short-periodfluctuation in the rate of interest is not likely, however,to have much direct influence on spending either way.

1 Cf. Chapter 14 below.