THE THEORY OF INTEREST

exclusive divisions of the income stream of society is totreat different classifications of one thing as if they werethemselves different things. It is as if we should speak ofa certain total space as consisting partly of acres of land,partly of tons of soil, and partly of bushels of ore. Oragain, it is like classifying a pack of cards into aces, clubsand red suits and pretending that these three classes aremutually exclusive.

The simple fact is that any or all income may be capi-talized, including that credited to human beings, thusgiving the resultant economic value of a man. WilliamFarr, J. Shield Nicholson, Louis I. Dublin, and othershave made such computations. 13 However, we so seldomcapitalize wages that we have no practical need to callwages or any portion of them interest. Nor where riskis a dominant factor, as in profits, is there real need tocall the income interest. For instance, hoped-for divi-dends, according as the hope varies, are daily and auto-matically capitalized in the stock market and need notthemselves be called interest. Much less would it be worthwhile to call enterpriser’s profits interest. No one everattempted to capitalize them. But in meticulous theory,all may be capitalized and so become interest.

§18. A Working Concept of the Rate of Interest

While any exact and practical definition of a pure rateof interest is impossible, we may say roughly that thepure rate is the rate on loans which are practically devoidof chance. In particular, there are two chances whichshould thus be eliminated. One tends to raise the rate,

“For instance, Dr. Dublin computes the total value of the “humancapital” of the United States to be 1,500 billion dollars, or about fivetimes the value of all other capital.

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