interest, as are other services which are not final but in-termediate. It is a great mistake to treat the subject ofwages, as many authors do, exclusively from the em-ployer’s standpoint. The purpose here is not to undertaketo outline a complete theory of wages, but merely toshow why a complete wage theory must take cognizanceof interest and must explain how the interest rate af- jfects some wage rates and not others. ^ ,
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§4. Interest and Functional Distribution
In the theory of distribution interest must be assigneda quite different and much more important role thaneconomists thus far have given to it. In classical eco-nomics the nature of interest and its place in distributionwere not clearly understood. Distribution has been erro-neously defined as the division of the income of societyinto “interest, rent, wages, and profits.” Rent and interestare merely two ways of measuring the same income;rent, as the yield per acre or other physical unit, and in-terest as the same yield expressed as a per cent of capitalvalue. The value of the capital is derived from the in- if < lcome which it yields by capitalizing it (at the prevailingrate of interest. yTo reverse this process by multiplyingthe capital value by the rate of interest gives the originalincome, as long as the capital value remains stationary.
It is not really a complex product of two factors, but, onthe contrary, is the single original factor, namely, income,from which we started. As explained in previous chapters,it is this income which affords the basis for the determi-nation (of the rate of interest, and through the rate of uinterest,\>f capital value.
The final enjoyable income of society is the ultimateand basicPfact from which all values are derived and
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