THE THEORY OF INTEREST

of that volume that I regarded impatience as the sole andcomplete determinant of the rate of interest. While I havetried in this book to forestall similar misinterpretationsof my theory, and while it does not seem possible to methat any reader could now charge me with being(a pureimpatience theorist}) it will serve a useful purpose to con-sider the various factors involved in this question.

We may draw upon Professor Fetter’s writings for aclear statement of the issue between the productivitytheory and the time preference theory of interest. Hestates positively that time preference is the sole cause ofinterest, although he assumes that physical productivityis essential to the emergence of value productivity . 22 Hedeclares that his theory was new in assigning priorityto capitalization over contract interest and in giving a“unified psychological explanation of all the phenomenaof the surplus that emerges when undervalued expectedincomes approach maturity, the surplus all being derivedfrom the value of enjoyable (direct) goods, not by twoseparate theories, for consumption and production goodsrespectively.” 23 [Italics mine.]

I have no criticism to make of this statement of theoperation and effect of time preference so far as it goes.It seems to me to coincide sufficiently with the treatmentwhich I have presented under the first approximation.There incomes were assumed to exist and to be rigidlyfixed in amount and in time without our bothering toask how they were produced. Nature offered no options y .to substitute one income stream for another. One couldmodify his income stream only by borrowing or lending.

“Fetter, Interest Theories Old and New, American Economic Re-view, March, 1914, pp. 74, 76, 77.

‘Ibid., p. 77.

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