THE THEORY OF INTEREST

North Carolina farms in 1922 was contracted to buy land,and almost 10 per cent more to make real estate im-provements. These purchases or improvements, involvingas they do large expenditures, would be difficult or im-possible without loans. If the attempt were made toenter into them without recourse to a loan market, theywould cause large, though temporary, depressions in theincome streams of the farmers. The farmer who at-tempted to buy his farm without a loan might not beable to do so at all or at best might have to cut down hiscurrent living expenses to a minimum.

Mortgages on city lots are usually for the purpose ofimproving such properties by erecting buildings uponthem. The expense involved would, if taken out of in-come, reduce the income of the owner temporarily. Henaturally prefers to compensate for such extraordinaryinroads by a mortgage loan which defers this expenseto the future when he expects that his receipts will belarger.

We come next to the loans of business corporationsand firms, such, for instance, as railroad bonds anddebentures, the securities of street railroads, telegraph,and telephone companies, steel mills, textile factories,and other “industrials.” These loans are usually issuedfor new construction, replacement, and for improvementof plant and equipment. The borrowers in this case are,in the last analysis, the stockholders. They may be saidto contract the loan in order not to have the expenses ofthe improvement taken out of their dividends. Some-times, of course, where the earnings are large enoughthey are actually applied, in part or wholly, to themaking of improvements. Ordinarily, however, such areduction in the stockholder’s income stream is avoided

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