CHAPTER 17

The Essential Properties of Interest and Money

1

It seems, then, that the rate of interest on money plays apeculiar part in setting a limit to the level of employ-ment, since it sets a standard to which the marginalefficiency of a capital-asset must attain if it is to be newlyproduced. That this should be so, is, at first sight, mostperplexing. It is natural to enquire wherein thepeculiarity of money lies as distinct from other assets,whether it is only money which has a rate of interest,and what would happen in a non-monetary economy.Until we have answered these questions, the fullsignificance of our theory will not be clear.

The money-rate of interest—we may remind thereader—is nothing more than the percentage excess ofa sum of money contracted for forward delivery, e.g. ayear hence, over what we may call the “spot” or cashprice of the sum thus contracted for forward delivery.It would seem, therefore, that for every kind of capital-asset there must be an analogue of the rate of intereston money. For there is a definite quantity of (e.g.)wheat to be delivered a year hence which has the sameexchange value to-day as 100 quarters of wheat for“spot” delivery. If the former quantity is 105 quarters,we may say that the wheat-rate of interest is 5 per cent,per annum; and if it is 95 quarters, that it is minus5 per cent, per annum. Thus for every durable com-modity we have a rate of interest in terms of itself,—a