THE THEORY OF INTEREST

loan is productive in so far as without it this extra optionwhich is productive would not be chosen.

We have just seen that the loan phenomena can beresolved into two separate steps. Yet since it may oftenhappen, as shown in Chapter VI, that the first step(choice of options) would not be taken unless the secondstep (loan) were already in contemplation, or even fullycontracted, it is true that in a sense the choice of theloan includes the choice between the options. In thissense, and in this sense alone, is the loan productive. Itis productive in that it gives to the merchant a productiveinvestment opportunity. But it is better, or at any rateadmissible, to say that it is this investment opportunitywhich is productive rather than the loan which makesit possible.

In practical life, however, the investment and the loanare not usually thought of as separate operations.Rather are they thought of as parts of the same opera-tions. The investment, especially if a large one, wouldnot, and often could not, be made unless the resultantdistortion of the income stream is at once and by pre-arrangement, remedied by a loan. The loan is in factoften contracted for before any committal to the invest-ment, and were it not employed, or something like it,the distortion of the income stream needed to make theinvestment possible would often reduce it to zero orbelow.

The point here is that if we do try to separate theroles of the loan and the investment we cannot say thatthe loan by itself, without the investment, yields a busi-ness profit, but we can say that the investment by itselfdoes. Adopting the latter mode of thought, we are freeto think of a business loan as having, by itself, just the

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