THE THEORY OF INTEREST

necessity of excavations and tunnels; our earliest build-ings were rude and unsubstantial. Everything was done,not in a permanent manner with reference to the remotefuture, but in order to save a large first cost.

During the last generation these conditions have beenchanged. The rates of interest in America are, in general,lower than formerly, and lower than in other countries,in many of which interest rates have risen. 16 We haveceased to be a borrowing nation. We bought back manyof our securities from abroad, and after the World Warbegan to buy foreign securities. This was accomplishedthrough the excess of exports of our abundant productsover imports. We are now lending billions to Europe.Europe has become a borrower, the chief reason beingthat in her recovery from the War her income stream isrising. During that recovery from the impaired incomewrought by the War, Europe in some places offers biggerreturns over costs than America. That fact, combinedwith Europe’ s poverty, makes for high interest.

The interest rate has fallen in the United States since1920. This agrees with, or at least is consistent with, thetheory that raising the level of national income tends,other things equal, to lower the rate of interest.

Again, the character of the instruments which havebeen now for some time in process of construction inthe United States is of the most substantial kind. Steelrails have long since taken the place of iron rails; rail-ways have been straightened by expensive tunnels, bybridges, and by excavations; dwellings and other build-ings have been made more substantial; first macadamizedand later cement roads have rapidly supplanted the olddirt roads; and in every direction there has been an evi-10 See Appendix to Chapter XIX, § 1.

[386]