THE THEORY OF INTEREST

steam locomotive for hauling vehicles on rails enormously-increased movements of goods and men, while at the sametime the range and diversity of opportunities to investwere extended. Today advance in technical knowledgehas multiplied investment opportunities a thousandfoldin the transportation field alone. There is the possibilityof street transit by surface, elevated, or subway lines. Onland, men and goods are moved by steam and electriclocomotives, trolleys, busses, automobiles or motorcycles.On the sea, sailing ships have been superseded by steamships, and the old fashioned marine engine is now givingway to the steam turbine, Diesel engine and the electricmotor. Man ’s ancient dream of flying through the airhas at last been realized.

At the early stage of these space-abridging inventionssociety temporarily sacrifices some of its income for thesake of the greater returns to be expected later. For twogenerations railway construction drained off labor andcaused investors to skimp. In these, as in all pioneeringdays, interest was high. In such periods people live ongreat expectations.

§2. Invention Causes Dispersion of Interest Rates

Besides tending to raise the rate of interest, inventionand discovery tend to widen the gap between the interestrates on the safest securities and the rates of return overcost to those who first take advantage of the investmentopportunities offered by the new devices.

Early investors make sacrifices and take great risksin the expectation of ample rewards in the shape ofenhanced income. When the rewards for their sacrificesare realized these investors often reinvest their largerincomes for the sake of yet greater and more remote re-

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