OBJECTIONS CONSIDERED

in my books, the main purpose of which was to studycapitalizations of income. I believe that the position oncost which was taken by Professor Davenport 20 is in gen-eral the correct one. What I attempted to point out wasthat those double-faced events, which I have called inter-actions, and which always have a double entry, a positiveand negative entry, in social bookkeeping, are not ulti-mately cost any more than they are ultimately income.I also tried to emphasize that cost enters into capitaliza-tion on equal terms with income, when the cost is future.Past cost does not affect present valuations except in-directly, as it affects future expected income and cost.

No one would maintain that obsolete machinery, evenin good condition, could be appraised on the basis of itscost. The only cases in which cost (with interest) is equalto value is where this value is also equal to the estimateof worth on the basis of future expectations; when, inother words, cost is superfluous as a determinant of value.That cost does influence value by limiting supply, therebyaffecting the quantity and value of future services, can-not be questioned. It is natural that business men shouldnot follow this roundabout relation, but connect directlycost with value. This, however, is no reason for economiststo fail to analyze the relation in all its complications.

§4. Impatience as Determinant of the Interest Rate

Certain characteristics of The Rate of Interest led tothe unfortunate deduction on the part of many readers 21

30 Davenport, Value and Distribution. 0

”Cf. Seager and Flux, cited above, and particularly Fetter, InterestTheories Old and New, American Economic Review, Vol. IV, No. 1,March, 1914, pp. 69-72. ^ ^ ^ CU- •. •