THE THEORY OF INTEREST

if unmolested may double in numbers every two yearsinterest is therefore inherent in nature. As a matter offact, this productivity, as we shall see, is a real elementin the explanation of interest; but it is not the only onenor is it as simple as it seems.

In some degree, the theory elaborated in this book isa productivity theory. I am, therefore, not attempting torefute all productivity theories indiscriminately butmerely to show the inadequacy of what Bohm-Bawerk called the “naive” productivity theory. This theory, orfallacy, is not espoused by any careful student of theinterest problem, but it exists in the minds of many beforethey begin to analyse the problem. It confuses physicalproductivity 4 with value return.

Following the principles of Chapter I, we may take, asan illustration, an orchard of ten acres yielding 1000barrels of apples a year. The physical productivity, 100barrels per acre per year, does not of itself give any clueto what rate of return on its value the orchard yields. Toobtain the value return on the orchard, we must reduceboth physical income and capital goods (the farm) to acommon standard of value. If the net annual crop ofapples is worth $5000 and the orchard is worth $100,000,the ratio of the former to the latter, or 5 per cent, is arate of value return; and if this rate is maintained with-out depreciation of the value of the orchard, this rate ofvalue return is also the rate of interest. But how can wethus pass from heterogeneous quantities to homogeneousvalues? How can we translate the ten acres of orchardand the 1000 barrels of apples into a common standard—dollars? May not this apparently simple step beg thewhole question? The important fact, and the one lost

* The Nature of Capital and Income, Chapter XI.

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