THE THEORY OF INTEREST

postpone much of our present income by preserving thegoods which yield it, the real rate of interest can scarcelyget below zero. 8

Our conclusion is that negative interest is theoreticallypossible, though in practice the necessary conditionsnever occur.

§10. Does Interest Stimulate Saving?

Just as the map helps visualize the theoretical possi-bility, yet practical improbability, of negative interest,so also it helps us to see clearly the answer to the muchdebated question whether saving is stimulated by raisingthe rate of interest.

If the reader will draw on the map any desired familyof Willingness lines, place the individual at any desiredincome situation (or draw an Opportunity line to indi-cate all possible positions), and then incline a ruler at45° and rotate it about that point (or roll it around thatline) he will note that the points of tangency of the rulerwith the several Willingness lines will themselves con-stitute a curve. The savings (or lendings) are evidentlyrepresented by the horizontal displacement of Q to theleft of P. Opportunity and Willingness lines may easilybe so constructed that, as the ruler turns clockwise in-terest rises and the amount saved and lent out of thisyear’s income will first increase and then decrease.

§11. Relation to Supply and Demand Curves

In §17 of Chapter X it was shown how supply and de-mand curves can be derived from the M line and the W

’It is true that unstable money sometimes drives the real rate belowzero unintentionally. (See Chapters II and XIX.) But the money ratecannot get below zero so long as the standard is, like gold, capable ofbeing stored substantially without cost. (Chapter II.)

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