BK. IV APPENDIX TO CHAPTER 14 187

work,1 and the extra waiting, to which a rise in the rate ofinterest would act as an incentive, would not quickly amountto much, as compared with the work and waiting, of which thetotal existing stock of capital is the result. An extensive increasein the demand for capital in general will therefore be met for atime not so much by an increase of supply, as by a rise in the rateof interest;2 which will cause capital to withdraw itself partiallyfrom those uses in which its marginal utility is lowest. It is onlyslowly and gradually that the rise in the rate of interest willincrease the total stock of capital” (p. 534).

“It cannot be repeated too often that the phrase ‘the rateof interest’ is applicable to old investments of capital only in avery limited sense.3 For instance, we may perhaps estimatethat a trade capital of some seven thousand millions is investedin the different trades of this country at about 3 per cent netinterest. But such a method of speaking, though convenientand justifiable for many purposes, is not accurate. What ought

1 This assumes that income is not constant. But it is not obvious in whatway a rise in the rate of interest will lead to “extra work”. Is the suggestionthat a rise in the rate of interest is to be regarded, by reason of its increasingthe attractiveness of working in order to save, as constituting a sort ofincrease in real wages which will induce the factors of production to workfor a lower wage? This is, I think, in Mr. D. H. Robertson’s mind ina similar context. Certainly this “would not quickly amount to much”;and an attempt to explain the actual fluctuations in the amount of investmentby means of this factor would be most unplausible, indeed absurd. Myrewriting of the latter half of this sentence would be: “and if an extensiveincrease in the demand for capital in general, due to an increase in the scheduleof the marginal efficiency of capital, is not offset by a rise in the rate of interest,the extra employment and the higher level of income, which will ensue as aresult of the increased production of capital-goods, will lead to an amountof extra waiting which in terms of money will be exactly equal to the valueof the current increment of capital-goods and will, therefore, preciselyprovide for it.”

2 Why not by a rise in the supply price of capital-goods ? Suppose, forexample, that the “extensive increase in the demand for capital in general”is due to a fall in the rate of interest. I would suggest that the sentenceshould be rewritten: “In so far, therefore, as the extensive increase in thedemand for capital-goods cannot be immediately met by an increase in thetotal stock, it will have to be held in check for the time being by a rise inthe supply price of capital-goods sufficient to keep the marginal efficiencyof capital in equilibrium with the rate of interest without there being anymaterial change in the scale of investment; meanwhile (as always) the factorsof production adapted for the output of capital-goods will be used in pro-ducing those capital-goods of which the marginal efficiency is greatest in thenew conditions.”

3 In fact we cannot speak of it at all. We can only properly speak of therate of interest on money borrowed for the purpose of purchasing investmentsof capital, new or old (or for any other purpose).