THE THEORY OF INTEREST

ing from a reduction in the rate of interest, as an increasefrom $1 to $1.15 in one industry and from 95 cents to96 cents in another, could not remain permanently. Labor! will tend to shift from the lower paid to the higher paidoccupations until equality of wages for workers of thesame skill is re-established. In the end, therefore, thechange in the rate of interest from 5 per cent to 4 per centwould effect a redistribution in the values of intermediateitems of income and in final items of income.

Evidently then, the effect of a change in the rate ofinterest on the value of interactions will naturally be themore pronounced in a country where lengthy processesare usually employed than in one where the shorter onesare common. If, for instance, laborers in a given countryare engaged largely in building elaborate works, such asthe Panama Canal , or in digging tunnels and constructingother great engineering works, or in planting forests andotherwise investing for the sake of remote returns, a fallin the rate of interest will produce a considerable risein wages, whereas, in a country where such lengthy proc-esses are unknown and workmen are chiefly employed intilling the ground and performing personal services, achange in the rate of interest will hardly affect wagesor the values of other preparatory services at all.

What has been said, however, applies only to wagesfrom the standpoint of the employer. The rate of wagesis dependent upon supply as well as upon demand, thatis, upon the .willingness of the workman to offer his ser-vices, as well as upon the desire of the employer to securethem. From the standpoint of the laborer, wages consti-tute an incentive to exertion or labor. This exertion is afinal disservice, or negative item of income, and its valua-tion by the laborer is not directly affected by the rate of

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