THE THEORY OF INTEREST

of decreasing returns. And if we keep pursuing thesedecreasing returns far enough there will always come apoint where additional investment would be worse thanuseless or where the rate of return over cost is less thannothing. Even in such cases of extraordinary returns asthe example of the Bell Telephone Company, to havetried to push the development faster than new construc-tion could be built or than the public, even with everydevice of the advertiser, could absorb, would have beensheer waste. 7

Thus the charts depict regions in which the 0 curveof each individual is less steep than 45° and regions inwhich his W curves are likewise less steep than 45°. Butthat fact does not itself prove that the resultant marketrate of interest may ever actually be zero. For the flatterparts of the W curves are to the southeast, as shown inCharts 31 and 34, while the flatter parts of the 0 curveare to the northwest, as shown in Chart 35. If this rela-tive position of the flatter W and 0 lines were peculiaronly to a few individuals, negative interest might wellexist. The P of such an individual might be in the north-western part of the map and the Q in the southeastern,the Market line PQ sloping less steeply than 45° andbeing tangent at P to the 0 line and at Q to a W line.He would thus be a borrower, and there would be plentyof lenders.

But if, as is the truth, practically everybody else has

’ Explanations of the law of diminishing returns sometimes miss thispoint by ignoring the time element. This element is always essentialand especially in interest theory. Enlarging a factory may in the futurelower costs and so in time increase the rate of return obtained or at-tainable, but we are here concerned with a hypothetical series of dosesof costs or investments all relating to the same period of time such asthe present year and with the return over these costs, say next year.

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