§1. Interest Rates and Values of Goods
Having completed the exposition of the theory of thecausation and determination of the rate of interest whichis most acceptable to me, it now remains to show howthis theory fits into a complete system of economic theoryand what results must flow from its acceptance.
Interest plays a central role in the theory of valueand prices and in the theory of distribution. The rateof interest is fundamental and indispensable in the deter-mination of the value (or prices) of wealth, property,and services.
As was shown in Chapter I, the price of any goodis equal to the discounted value of its expected futureservice, including disservices as negative services. Ifthe value of these services remains the same, a rise orfall in the rate of interest will consequently cause a fallor rise respectively in the value of all the wealth or prop-erty. The extent of this fall or rise will be the greater thefurther into the future the services of wealth extend.Thus, land values from which services are expected toaccrue uniformly and indefinitely will be practicallydoubled if the rate of interest is halved, or halved if therate of interest is doubled. The value of dwellings andother goods of definitely limited durability will fall lessthan half if interest rates double, and will rise to less than
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