THE THEORY OF INTEREST

and incorrect notions with which it had previously beenassociated. It was only when he attempted to explain theemergence of this agio by means of his special feature of“technical superiority of present over future goods” that,in my opinion, he erred greatly.

Bohm-Bawerk distinguishes two questions: (1) Whydoes interest exist? and (2) What determines any par-ticular rate of interest?

In answer to the first question, he states virtually thatthis world is so constituted that most of us prefer presentgoods to future goods of like kind and number. This pref-erence is due, according to Bohm-Bawerk , to three cir-cumstances: (1) the “perspective underestimate” of thefuture, by which is meant the fact that future goods areless clearly perceived, and therefore less resolutely strivenfor, than those more immediately at hand; (2) the rela-tive inadequacy (as a rule) of the provision for presentwants as compared with the provision for future wants,or, in other words, the relative scarcity of present goodscompared with future goods; (3) the “technical superior-ity” of present over future goods, or the fact, as Bohm-Bawerk conceives it, that the roundabout or capitalisticprocesses of production are more remunerative than thosewhich yield immediate returns.

The first two of these three circumstances are un-doubtedly pertinent, and are incorporated, under a some-what different form, in this book. It is the third circum-stance—the so-called technical superiority of present overfuture goods—which, as I shall try to show, containsfundamental errors.

My criticism of this third thesis, however, does not, assome have implied, consist in denying the existence orimportance of the “technical” element in interest but in

[474]