SOME ILLUSTRATIVE FACTS

dent tendency to invest a large first cost in order toreduce future running expenses.

§7. Rising Income Means High Interest Rates

Thus, in America and in Europe, we see exemplifiedon a very large scale the truth of the theory that a risingincome stream raises and a falling income stream de-presses the rate of interest, or that these conformationsof the income stream work out their effects in otherequivalent forms.

A similar causation may be seen in particular localitiesin the United States , especially where changes have beenrapid, as in mining communities. In California in thetwo decades between 1850 and 1870 following the dis-covery of gold, the income stream of that state was in-creasing at a prodigious rate, while the state was isolatedfrom the world, railroad connection with the East nothaving been completed until 1869. During this period ofisolation and ascending income, “. . . opportunities forinvestment were innumerable. Hence the rates of interestwere abnormally high. The current rates in the ‘earlydays’ were quoted at iy 2 to 2 per cent a month. . . .The thrifty Michael Reese is said to have half repentedof a generous gift to the University of California withthe exclamation, ‘Ah, but I lose the interest,’ a verynatural regret when interest was 24 per cent perannum.” 17 After railway connection in 1869, Easternloans began to flow in. The decade, 1870-1880, was one oftransition during which the rates stimulated borrowingfrom the outside, which brought about lower interest

” Plehn, Carl C. Notes Concerning the Rates of Interest in California. Quarterly Publications of the American Statistical Association, Septem-ber, 1899, pp. 351-352.

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