OBJECTIONS CONSIDERED

better but still imperfect analogy, precisely as, in treat-ing supply and demand, we first assume a fixed supplybefore introducing the supply schedule or supply curve.This assumption gives place in the second approximationand the third approximation to the more complicatedconditions of the actual world. My method of expositionis here, as usual, to take one step at a time, which meansto introduce one set of variables at a time. All otherthings, for the time being, are assumed to remain equal.I realize that this is not the only method and that it maynot be the best one, but it is at least a legitimate method.

On the other hand, it does not seem to me that thetheory of interest is called upon to launch itself upon alengthy discussion of the productive process, division oflabor, utilization of land, capital, and scientific man-agement. The problem is confined to discover how pro-duction is related to the rate of interest.

It should not, however, be assumed from what has beensaid that I regard all productivity theories as sound.Mention was made in Chapter III of the “naive” produc-tivity theories which hold that interest exists simply be-cause nature, land and capital are productive.

§6. Technical Superiority of Present Goods

Bohm-Bawerk is among those who sensed the inade-quacy of time preference or impatience as the sole deter-minant of the rate of interest. Yet he calls his theory theagio theory of interest, since he finds the essence of therate of interest in the agio, or premium, on present goodswhen exchanged for future goods.

Bohm-Bawerk presented the agio theory, or what ishere called the impatience or time preference theory,clearly and forcibly, and disentangled it from the crude

[473 ]