THE THEORY OF INTEREST

toward which all economic action is bent. All of thisincome is derived from capital wealth, if land and manare included in that term, or if not, from capital and man,or capital, land, and man, according to the terminologyadopted. This income may all be capitalized, and henceall income (excluding capital gain) may be viewed asinterest upon the capital value thus found.

2 Viewed as above outlined interest is not a part, but the• whole, of income (except for capital gain). It includeswhat is called rent and profits and even wages, for the: income of the workman may be capitalized quite as trulyas the income of land or machinery. Thus, instead ofhaving interest, rent, wages, and profits as mutually ex-2 elusive portions of social income, interest may be re-■ garded as including all four. If we prefer to excludeprofits, the reason is because of the element of risk andnot because profits are not discountable just as truly asrent and wages. The error of the classical economistsand of their modern followers in regarding interest, rent,wages and profits as separate but coordinate incomes ispartly due to the failure to perceive that, whereas allincome is produced from capital wealth, capital valuecan emerge only from man’s psychic evaluation and cap-italization of that income in advance of its occurrence.

Another oversight closely associated with the laststated fallacy is that in which rent and wages are con-ceived as determined independently of the rate of inter-est, whereas we have just seen that the rate of interestenters as a vital element into the determination of both.The great defect in the theories propounded by the clas-sical economists lay in their inability to conceive of a gen-eral equilibrium and the mutual dependence of sacrificeand enjoyment.

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