TIME PREFERENCE (IMPATIENCE)

that abundance of capital makes interest low, we shouldexpect the Nevada community to have a high rate of in-terest compared with the Florida community. This wouldordinarily be true if the two communities had incomestreams differing only in size with the same time shapesand probabilities. But, under our assumptions, it is evi-dent that, unless other circumstances should interfere,the opposite would be the case; for Nevada, due to theprogressive exhaustion of her mines, is faced by a decreas-ing future income, and in order to offset the depreciationof capital which follows from this condition , 19 she wouldbe seeking to lend or invest part of the income of thepresent or immediate future, in the hope of offsetting thedecreased product of the mines in the more remote future.The Florida planters, on the contrary, would be inclinedto borrow against their future crops. If the two commu-nities are supposed to be commercially connected, it wouldbe Nevada which would lend to Florida notwithstandingthe fact that the lending community was the poorer incapital of the two. From this illustration it is clear thatthe mere amount of capital value is not only a misleadingbut a very inadequate criterion of the rate of interest . 20

Apologists for the common idea that abundance orscarcity of capital lowers or raises interest might be in-clined to argue that it is not the total capital, but onlythe loanable capital which should be included, and thatthe Nevada community had more loanable capital thanthe Florida community. But the phrase loanable capitalis merely another cloak to cover the fact that it is not the

“See The Nature of Capital and Income, Chapter XIV.

® One of the few defects in Rae’s analysis of interest, or at any rateof his statement of it, is his emphasis on the accumulation of capital.Since this accumulation is merely in anticipation of future income, theemphasis belongs on the latter.

[ 93 ]