THE THEORY OF INTEREST

Interest and all but the very last chapters of his Ele-mentary Principles (chapters which come after his dis-cussion of the interest problem), the reader might easilyget the impression that becoming rich is a purely psycho-logical process. It seems to be assumed that incomestreams, like mountain brooks, gush spontaneously fromnature’s hillsides and that the determination of the rateof interest depends entirely upon the mental reactions ofthose who are so fortunate as to receive them. . . . Thewhole productive process, without which men would haveno income streams to manipulate, is ignored, or, as theauthor would probably say, taken for granted.” 28

My views are quite contrary to those here set forth.As I wrote in 1913: 27

“What Professor Seager calls the ‘productivity’ or ‘technique’element, so far from being lacking in my theory, is one of its cardinalfeatures and the one the treatment of which I flattered myself wasmost original! The fact is that my chief reason in writing the Rate ofInterest at all arose from the belief that Bohm-Bawerk and othershad failed to discover the true way in which the ‘technique of pro-duction’ enters into the determination of the rate of interest. Be-lieving the ‘technical’ link in previous explanations unsound, andrealizing as keenly as Professor Seager does the absolute necessity ofsuch a link, I set myself the task of finding it. In the desirabilityof this I emphatically agree with Bohm-Bawerk .”

I do not assume, except temporarily in the first ap-proximation, that “income streams, like mountain brooks,gush spontaneously from nature’s hillsides”, and this istemporarily assumed, precisely as physicists temporarilyassume a vacuum in studying falling bodies, or, to take a

38 Seager, The Impatience Theory of Interest, American EconomicReview, Vol. II, No. 4, December, 1912, pp. 835-837.

31 The Impatience Theory of Interest. American Economic Review,Vol. Ill, No. 3, September, 1913, p. 610.

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