SOME ILLUSTRATIVE FACTS

more complex, owing, first, to the element of uncertaintywhich war introduces until peace is declared, and sec-ondly, to the fact that wars are likely to be moreprotracted than most other misfortunes. The effect, ac-cording to previous explanations, should be that at thebeginning of the war the rates of interest on risky loanswould be high. This would be especially true of the shortterm loans which do not outlast war. On the other hand,the rate of interest on safe loans should be lowered forshort term loans, and raised for long term loans. Underthe conditions of a war in its early stages, a short termloan relates to a descent in the income curve. It is repay-able at a time when income is expected to be less thanwhen the loan is contracted. The descent in the incomecurve, or the element of uncertainty, tends, as has beenseen, to lower the rate of interest on safe loans. On theother hand, for long term loans intended to outlast thewar, the rate of interest is likely to be high, for the incomestream at the time of repayment may be expected toexceed the income stream at the time of contract.

At the close of war, after peace is declared and theelement of uncertainty introduced by it has disappeared,the rate of interest even on short term loans will, con-trary to the common view, be high, for then the countryis, as it were, beginning anew, and the same causesoperate to make interest high as apply in the case of allnew countries.

When the effects of war include the issue of depreci-ated paper money, the rate of interest is affected in asomewhat more complex manner, being then subject tothe influence of depreciation, according to the principlesexplained in Chapter II and statistically treated inChapter XIX.

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