INVESTMENT OPPORTUNITY PRINCIPLES

identical, and to that extent at least there is truth in thethesis that the rate of interest is the rate of growth. This,however, is not the average rate of growth but the rate ofgrowth at the time of cutting. This is the element oftruth in the organic productivity theory of Henry George and Alexander Del Mar. These writers based their theor-ies of interest on the productivity of those particularkinds of capital which reproduce themselves, and reachedthe conclusion that, in the last analysis, the rate of in-terest consists in the “average rate of growth of animalsand plants.” 6

Evidently the theory would be substantially correctif “average” were replaced by “marginal.” The exampleof cutting the forest illustrates the simplest theoreticalcase of marginal productivity as a true basis of the rateof interest.

But that this element of truth is insufficient of itself toafford a complete determination of the rate of interest isevident when we consider that the point at which theforest is to be cut itself depends, among other causes,upon the rate of interest! If the interest rate rises, thediscount curves employed become steeper and the pointof tangency T moves toward the left, that is, the forestwill be cut earlier.

In no case, of course, is the time of cutting the time ofmaximum stumpage. To wait for that time would eat uptoo much interest. The theories of Del Mar and HenryGeorge thus constitute a special case under the oppor-tunity principles.

'Del Mar, Alexander. Science of Money. New York, Macmillan &Co., 1896; George, Henry. Progress and Poverty. New York , SterlingPublishing Co., 1879. For a general criticism of this theory see Lowry,The Basis of Interest, American Academy of Political and Social Science,March, 1893, pp. 53-76.

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