THE THEORY OF INTEREST

This grows out of the common tendency to account forall economic values in terms of cost. When we cannot find'Z the cost, we invent jt. We feel sure interest must be fullyaccounted for in terms of cost. When we find inadequatethe cost of producing capital or the cost of managing itor of organizing it or of investing it, we fall back onwaiting, abstinence, or labor of saving.

It is true that these words are used by some writers tomean nothing more than what I have included in thephrase impatience or time preference. In these cases thequestion is merely one of terminology. In a large numberof instances, however, the abstinence or waiting theoryseems to me to differ from the impatience theory not onlyin words but in essence. In this the assumption is madethat abstinence or waiting exists as an independent itemin the cost of production, to be added to the other costsand to be treated in all ways like them.

If abstinence or waiting or labor of saving is in anysense a cost, it is certainly a cost in a very different sensefrom all other items which have previously been consid-ered as costs. An illustration will make clear the differencebetween true costs and the purely fictitious or inventedcost of waiting. According to the theory that waiting isa cost, if planting a sapling costs $1 worth of labor, andin 25 years, without further expenditure of labor, or anyother cost whatever (except waiting) this sapling becomesworth $3, this $3 is a mere equivalent for the entire costof producing the tree. The items in this cost are, it isclaimed, $1 worth of labor and $2 worth of waiting.

According to the theory of the present book, however,X the cost of producing the tree is the $1 worth of labor,and nothing more. The value of the tree, $3, exceeds thatcost by a surplus of $2, the existence of which as interest

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