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unearned surplus should be made to flow into the channels of public revenue. This matter is examined more in detail in the chapters on taxation.

Bringing together the supply and demand sides of the whole matter, we find that the rate of interest tends to reach the zone where marginal productivity of capital is sufficient to induce the marginal unit of saving. This provides a theory, not of absolute equilibrium, where an exact interest rate just balances supply and demand of capital, but of the minimum and maximum range of interest rates within which interest movements and bargainings must take place. This range of rates determines what share of income must be distributed as interest, in contrast with the shares which must go to rent, wages, salaries, or profits. Marginal saving sets the minimum below which interest must not fall, if marginal savers are not to be driven out and the volume of savings reduced. Marginal productivity sets the maximum above which interest must not rise, if marginal producers are not to be driven out, and the volume of production curtailed. Between these upper and lower limits, there is room for bargaining and variation, but the limits are there and tend to restrain, at any given time, the range of bargaining within their borders.

The present chapter has dealt largely with concepts and principles. These tell us what kinds of forces influence capital and interest, but they do not tell us to what degree these forces operate. They do not measure fundamental movements. They are not quantitative. They show us what the more important problems are. They introduce and state the problems. They offer a general guide for approach to the problems. But they cannot come to concrete, quantitative answers to the problems. To achieve this end, it is necessary to give the principles a factual content, and to measure the tendencies at work. This is the purpose of the following chapter.


BÖHM-BAWERK, E. V., Capital and Interest.
COMMONS, J. R., The Legal Foundations of Capitalism, Chapter V.
FETTER, F. A., Economic Principles, Volume I, Part IV.
FISHER, I., The Nature of Capital and Income.

The Rate of Interest.
FOSTER, W. T., and CATCHINGS, W., Money, Chapter VIII.
FRIDAY, David, Profits, Wages and Prices.

System, October, 1922.
Marx, KARL, Capital.
MILL, J. S., Principles of Political Economy, Volume I, Book I, Chapters IV-XI.
MITCHELL, W. C., Business Cycles.
SOMBART, WERNER, The Quintessence of Capitalism.
WOLFE, A. B., Saver's Surplus, Quarterly Journal of Economics, Volume XXXV,

pp. 23 ff.



A factual basis for analysis of capital and interest is needed in order to determine the significance of abstract principles and to estimate the extent of actual movements and fluctuations.

The Estimated Value of the National Wealth.—The United States Census Bureau has estimated the total wealth of the United States in 1922 at $320,803,862,000. The accompanying table itemizes the main forms of wealth and offers certain comparisons with previous years.

Composition of the National Wealth.-A salient feature of our national wealth is that more than one-half of it consists of real estate. Land, improvements, and buildings total more than $176,000,000,000. Not far from one-half of this sum is the value represented by buildings, and, as previously defined, buildings come within the category of capital. In the absence of reliable information it is difficult to estimate how much of the remaining value is represented by improvement of landperhaps not more than one-third.

Economists are not agreed whether to include land unimproved as capital or not. The classical economists, for the most part, exclude land, for the reason that land is not a produced good. They start with a definition of capital as “produced goods used in the further production of wealth.” Although land is used in the further production of wealth, it is not itself a produced good. The business view of capital, on the other hand, includes land. Although land may not be a produced good, nevertheless the land must be bought with savings. The conditions and peculiarities under which land values are produced are in some ways unique, but this fact does not justify an exclusion of land values from the concept of capital. Property rights in land are of paramount importance in understanding the realistic business view of capital. These property rights involve a mass of claims to interest income. The market for land mortgages and other land credit instruments is a capital market, influencing interest rates and influenced by them, absorbing savings, and affecting in marked ways the demand for new investment.

It is important to note that increases in the value of real estate from year to year are often mainly appreciations in price rather than increases in physical supply. These appreciations of value reflect in part changes in the general price level, but more fundamentally than that, they represent a capitalization of the income from land. In this respect land capital value is arrived at by the same method as is used in determining corporate capital value. Capitalization of earning capacity, present and prospective, is the governing factor.

The proportionate part of machine capital in the national wealth is significant. The modern business order is so commonly referred to as the machine order of production that it would be natural to expect machinery to be a very large part of the capital of the nation. The machine dominates the technology of production; the machine multiplies the output of labor; the machine makes possible progress in the standard of living: what more natural, therefore, than to assume that the value of machinery bulks large in the nation's wealth? This is not only a popular assumption, but one commonly made in business circles. Nevertheless the estimate of national wealth shows that such an assumption is erroneous. It shows that manufacturing machinery, tools, and implements represent less than 5 per cent of the total value of national wealth. The supply of capital is not, therefore, the supply of manufacturing machinery primarily. For every dollar of capital going into manufacturing machinery, there are twenty dollars of capital going into other forms. Demand for capital is not mainly a demand for disposal or use of machinery, but for disposal or use of the other forms of capital. The burden of interest is not the burden of the machine, but is the burden of the many other forms of property. This is the age of the machine if we think of the marvels of invention and the powers of production. But if we think of the comparative values of the different forms of capital, the value of machine capital is strikingly small. The machine technology which dominates and guides the more than 90 per cent of the national capital in its other forms is the product of this small fraction of total capital, which machine capital constitutes. From a physical and technological viewpoint, machinery is the chief form of capital; from a pecuniary viewpoint, it is a minor form.

A similar condition appears in agricultural production. From the fact that America has attained supremacy in the use of machinery, one might infer that machinery constitutes the main form of farm capital. There is no denial of our supremacy, but it is necessary to ascertain more definitely the importance of machinery in determining that supremacy. Farm machinery is less than 5 per cent of the value of all farm capital. Land and buildings are the main forms of capital, measured in value. The farmer's main interest charge is not on account of tractors, reapers, mowers, plows, or other tools, but on account of land and buildings. In the money economy of modern agriculture, machinery has comparatively slight pecuniary worth. Physically and technologically, of course, it is all important.

To study the relative position of machine capital from another angle, we may observe that transportation capital is almost double in value the combined total of agricultural and factory machinery. Railroads, motor transport, street railways, shipping and canal facilities

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