THE THEORY OF INTEREST

Or if the body mechanism, with its debits and credits,be omitted the total result is not his enjoyment income,subjectively considered, but the real income as aboveset forth. If we measure this, his real income, in moneyunits, we find it equal to the total valuation of hiscost of living less the total valuation of his own laborpain.

How to place a money valuation on a labor pain is adifficult question. This question is important in account-ing theory, especially in its relation to the problems ofmeasuring human welfare. But, fortunately for us, thedifficulties of this valuation do not disturb the theoryof the rate of interest, since this theory is actually con-cerned only with differences in the income stream at dif-ferent times, not in a meticulous measurement of thetotal. Moreover, practically the only point in interest the-ory where labor pain enters is the case of a worker whosuffers present labor pain in order to secure future satis-factions for himself or his family. This case is that of alaborer’s savings; and all we need do here is to take thelaborer’s own valuation. Presumably, if the rate of inter-est is 5 per cent, the labor he will exert this year for thesake of $100 next year has a valuation in his mind ofabout $95.

But a laborer’s savings are practically a negligible ele-ment in determining the rate of interest. To others thanlaborers the only important way labor enters is throughthe payment of wages and salaries, and these are moneyexpenses incurred for the sake of future money returns.A laborer building a railway does not work for the futuredividends from the railway. He is paid for immediate liv-ing by his employer in expectation of those future divi-dends. Thus wages are a sort of measure of labor pain

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