CH. 16 OBSERVATIONS ON NATURE OF CAPITAL 213

the producers of new investment have to be contentcannot fall below the standard set by the current rateof interest. And the current rate of interest depends,as we have seen, not on the strength of the desire tohold wealth, but on the strengths of the desires to holdit in liquid and in illiquid forms respectively, coupledwith the amount of the supply of wealth in the oneform relatively to the supply of it in the other. If thereader still finds himself perplexed, let him ask himselfwhy, the quantity of money being unchanged, a freshact of saving should diminish the sum which it isdesired to keep in liquid form at the existing rate ofinterest.

Certain deeper perplexities, which may arise whenwe try to probe still further into the whys and where-fores, will be considered in the next chapter.

11

It is much preferable to speak of capital as havinga yield over the course of its life in excess of its originalcost, than as being -productive. For the only reason whyan asset offers a prospect of yielding during its lifeservices having an aggregate value greater than itsinitial supply price is because it is scarce ; and it iskept scarce because of the competition of the rate ofinterest on money. If capital becomes less scarce, theexcess yield will diminish, without its having becomeless productive—at least in the physical sense.

I sympathise, therefore, with the pre-classical doc-trine that everything is produced by labour , aided bywhat used to be called art and is now called technique,by natural resources which are free or cost a rent accord-ing to their scarcity or abundance, and by the resultsof past labour, embodied in assets, which also commanda price according to their scarcity or abundance. Itis preferable to regard labour, including, of course, thepersonal services of the entrepreneur and his assistants,