THE THEORY OF INTEREST

misfortune. Investigations of pawnbrokers and small loanconditions among the poor 26 show that the chief causesfor borrowing are a death or birth in the family, or aprotracted illness, the expense of which even whenamounting to only $10 or $20 would, without the loan,make serious inroads on the daily necessities.

We may see the operation of the same principle on alarger scale in the examples of the San Francisco earth-quake, the earthquake which wrecked Yokohama andTokyo, the plague which destroyed whole communities inRussia, and the famines of China. Had it not been forthe succor rendered by more fortunate communities andcountries, the income stream of some of the strickencommunities and provinces in Russia and China wouldhave sunk so low that scarcely any would have been ableto survive. In addition to the aid of tens of millions ofdollars in gifts, large loans were made which enabled theafflicted communities to build themselves anew. Whetherthese loans were used to produce sustenance, which isdirect income, or to offset the cost of rebuilding and re-placing destroyed capital goods, which is outgo, the effectwas the same; they were for the purpose of tiding overa temporary decline, or loss, in the income stream. Thepermanent effect of these catastrophes on the rate ofinterest was slight because of the opportunity to borrowheavily from outside. Had these opportunities not ex-isted, the depression in the income stream could not havebeen mitigated, and the rate of interest would inevitablyhave risen to a level comparable with that which pre-vailed in primitive times or during a gold rush.

In much the same way the income stream of a nationis affected by war. The effects in this case, however, areM See U. S. Bureau of Labor Bulletin, No. 64, May, 1906, pp. 622 5.

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