THE THEORY OF INTEREST

He will then be willing, even at a very low rate of interest,to invest, out of his present assured income, somethingto eke out with certainty the uncertain income of thefuture. The effect 0 / risk in this case, therefore, is tolower the rate of interest on safe loans, though at thesame time, as already explained, it will raise the rateof interest on unsafe loans. Consequently, in times ofgreat social unrest and danger, making the future risky,we witness the anomalous combination of high rateswhere inadequate security is given coexistent with lowrates on investments regarded as perfectly safe. Whenan investor cannot find many investments into which hemay put his money without risk of losing it, he will paya high price—i.e., accept a low rate of return—for the fewwhich are open to him. It has been noted in times ofrevolution that some capitalists have preferred to foregothe chance of all interest and merely to hoard their capitalin money form, even paying for storage charges, a pay-ment which amounts to a negative rate of interest.During the World War some investors in the warringcountries sought safekeeping for their funds in neutralcountries.

§7. Securities Classified as to Risk

When risk thus operates to lower the rate of intereston safe investments and to raise the rate on unsafe invest-ments, there immediately arises a tendency to differen-tiate two classes of securities and two classes of investors—precarious securities and adventurous investors on theone hand, and safe securities and conservative investorson the other. Some risk is inevitable in every business,but is regarded by most people as a burden; hence thefew who are able and willing to assume this burden tend

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