THE THEORY OF INTEREST

or by the more familiar phrase 'the productivity of capi-tal’. Admitting the physical-productivity of capital (andFisher does not question it), the value-productivity ofcapital or, more accurately, an increase in the total valueproduct as a consequence of the assistance which capitalrenders to production seems to me to follow as a logicallynecessary consequence. . . . Since there is nothing in theassumption that the productivity of all instruments isdoubled that involves any serious change in the expenseof producing the instruments, the productivity theoristcertainly would claim that under these conditions theremust be, if not a doubling, certainly a very substantialincrease in the rate of interest.” 18

I can perhaps do no better than to repeat in part thereply which I made to this criticism in 1914. 19 “But theincreased productivity of capital will entail a decreasedprice, or value per unit, of the products of that capital.And in addition there may be an increase in the expenseof producing the capital, if, for instance, it is reproducibleonly under the laws of diminishing returns or increasingcosts. Evidently it does not follow that the net return oncapital-value will be permanently increased. In short, theexpenses of production, on the one hand, and the price ofthe product of the capital multiplied by the increasedproduct itself, on the other hand, will tend to adjustthemselves to each other and to the rate of interest. Butthis rate of interest, according to my philosophy, insteadof being permanently raised, will be ultimately lowered,for to double the productivity of capital will mean ulti-mately a much larger income to society than before, and

“Seager, cited above, pp. 842-3, 847.

M The Impatience Theory of Interest, American. Economic Review,Vol. Ill, No. 3, September, 1913, pp. 614-615.

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