THE THEORY OF INTEREST

credit—it is most simply and lazily pictured to the mind’seye as being itself money.

The student should also try to forget all former no-tions concerning the so-called supply and demand ofcapital as the causes of interest. Since capital is merelythe translation of future expected income into presentcash value, whatever supply and demand we have to dealwith are rather the supply and demand of future income.

It will further help the student if he will, from the out-set, divest himself of any preconception he may haveacquired as to the role of the rate of interest in the dis-tribution of income. This subject will be dealt with inChapter XV; but it may be well here to point out thatinterest is not, as traditional doctrine would have it, aseparate branch of income in addition to rent, wagesand profits.

The income stream is the most fundamental fact ofeconomic life. It is the joint product of many agencieswhich may be classified under many heads, such as humanbeings, land, and (other) capital. The hire of human be-ings is wages; the hire of land is land rent. What, then,is the hire of (other) capital—houses, pianos, typewriters,and so forth? Is it interest? Certainly not. Their hire isobviously house rent, piano rent, typewriter rent, and soforth, just as the man in the street calls them. Rent isthe ratio of the payment to the physical object—land,houses, pianos, typewriters, and so forth—so many dollarsper piano, per acre, per room. Interest, on the other hand,is the ratio of payment to the money value of thesethings—so many dollars per hundred dollars (or percent). It is, in each case, the ratio of the net rent to thecapitalized value of that rent. It applies to all the cate-gories—to land quite as truly as to houses, pianos, type-

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