CH. 16 OBSERVATIONS ON NATURE OF CAPITAL 217

interest. In the case of the great majority of articlesit would involve great technical ^efficiency to start uptheir input more than a very modest length of timeahead of their prospective consumption. Thus even ifthe rate of interest is zero, there is a strict limit to theproportion of prospective consumers’ demand which itis profitable to begin providing for in advance; and,as the rate of interest rises, the proportion of theprospective consumers’ demand for which it pays toproduce to-day shrinks pari passu.

hi

We have seen that capital has to be kept scarceenough in the long-period to have a marginal efficiencywhich is at least equal to the rate of interest for a periodequal to the life of the capital, as determined by psycho-logical and institutional conditions. What would thisinvolve for a society which finds itself so well equippedwith capital that its marginal efficiency is zero andwould be negative with any additional investment; yetpossessing a monetary system, such that money will“keep” and involves negligible costs of storage and safecustody, with the result that in practice interest cannotbe negative; and, in conditions of full employment,disposed to save?

If, in such circumstances, we start from a positionof full employment, entrepreneurs will necessarily makelosses if they continue to offer employment on a scalewhich will utilise the whole of the existing stock ofcapital. Hence the stock of capital and the level of em-ployment will have to shrink until the community be-comes so impoverished that the aggregate of saving hasbecome zero, the positive saving of some individualsor groups being offset by the negative saving of others.Thus for a society such as we have supposed, theposition of equilibrium, under conditions of laissez-faire , will be one in which employment is low enough