THE THEORY OF INTEREST

governed by factors quite different from those determin-ing the value of reproducible agents whose productiondoes involve costs of production.

In brief, the contention is that the discount or capital-ization principle of valuation upon which my theory restsis applicable only to land, since land value is not affectedby cost of production. “If land, the limited gift ofnature,” one critic writes, “were truly representative ofcapital, then Fisher ’s reasoning would be unassailable.” 16

But since land, it is implied, is not representative ofcapital in that it does not involve a cost of production, thevaluation process which applies to land does not apply tothose “produced means to further production” which doincur costs in their production. To a consideration of therelation of cost of production to capital value, therefore,we now turn.

§3. Cost of Production as a Determinant of Capital Value

The criticism that my views as to the relation of costof production and capital value are invalid because of theuse of land as typical of capital has been advanced byseveral writers. 17 In its most concrete form, it applies tothe example which I presented of the case where anorchard was held to be worth $100,000 because this sumrepresented the discounted value of the expected incomefrom the orchard of $5,000 per annum. But even if wechange the orchard to machines, houses, tools, ships (thatis, “produced means to further production”) the principlethat the value of anything is the discounted value of its

M Seager, cited above, p. 844.

17 Seager, Brown, and Flux cited above; also Loria, Irving Fisher ’sRate of Interest , Journal of Political Economy, Vol. XVI, Oct., 1908,pp. 331-332.

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