THE THEORY OF INTEREST

and exploitation, during which society is sacrificing orinvesting present income, or, as it is inaccurately called,investing capital. Society, instead of confining its produc-tive energies to the old channels and obtaining a rela-tively immediate return in enjoyable income, as by pro-ducing food products, clothing, etc., directs its labors togreat engineering enterprises, such as constructing tun-nels, railroads, highways, subways, waterworks, irrigationsystems, mining and manufacturing plants. These instru-ments cannot begin to contribute a return in enjoyableincome for many years. In contemplation, future incomeduring this period is relatively plentiful, and in conse-quence of these great expectations, the rate of interestwill be high.

Later, however, there will come a time when, so far atleast as the effect of that particular invention is con-cerned, the income stream ceases to ascend, when mostof the necessary investment has been completed, whenlittle further exploitation is possible or advisable, andwhen it is only necessary to keep up the newly con-structed capital at a constant level. When this period isreached, the after effect of the invention will be felt. Thenet effect on society will then have been to put the in-come stream on to a higher plateau, not to boost it up-hill any more. But such a mere increase in the size of theincome stream, while its shape remains constant, tends,as we have seen, not to increase, but somewhat to de-crease the rate of time preference. Therefore, the aftereffect of all inventions and discoveries is not towardincreasing but toward decreasing the rate of interest.

Thus, though the railway inventions led to a half cen-tury of investment in railways, during which the incomestream of society rapidly increased, today the limit of

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