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ch. 17 PROPERTIES OF INTEREST AND MONEY

for our analysis of the behaviour of the economic system.

It may be that in certain historic environments thepossession of land has been characterised by a highliquidity-premium in the minds of owners of wealth;and since land resembles money in that its elasticities ofproduction and substitution may be very low , 1 it isconceivable that there have been occasions in history inwhich the desire to hold land has played the same rolein keeping up the rate of interest at too high a levelwhich money has played in recent times. It is diffi-cult to trace this influence quantitatively owing to theabsence of a forward price for land in terms of itselfwhich is strictly comparable with the rate of interest ona money debt. We have, however, something whichhas, at times, been closely analogous, in the shape ofhigh rates of interest on mortgages . 2 The high ratesof interest from mortgages on land, often exceedingthe probable net yield from cultivating the land, havebeen a familiar feature of many agricultural economies.Usury laws have been directed primarily against en-cumbrances of this character. And rightly so. Forin earlier social organisations where long-term bonds inthe modern sense were non-existent, the competition ofa high interest-rate on mortgages may well have had thesame effect in retarding the growth of wealth fromcurrent investment in newly produced capital-assets, ashigh interest rates on long-term debts have had in morerecent times.

1 The attribute of “liquidity” is by no means independent of the presenceof these two characteristics. For it is unlikely that an asset, of which thesupply can be easily increased or the desire for which can be easily divertedby a change in relative price, will possess the attribute of “liquidity” in theminds of owners of wealth. Money itself rapidly loses the attribute of“liquidity” if its future supply is expected to undergo sharp changes.

2 A mortgage and the interest thereon are, indeed, fixed in terms ofmoney. But the fact that the mortgagor has the option to deliver the landitself in discharge of the debt—and must so deliver it if he cannot find themoney on demand—has sometimes made the mortgage system approximateto a contract of land for future delivery against land for spot delivery.There have been sales of lands to tenants against mortgages effected by them,which, in fact, came very near to being transactions of this character.

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