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IN VIEW of England's recent action in regard to the silver of India it is interesting to recall the suggestions submitted in 1887 by Professor Léon Walras, of Lausanne, at a meeting of the British Association for the Advancement of Science. In his "Theory of Money" Professor Walras maintains that, while gold ought to be coined without limitation, silver should be used as a means of maintaining the necessary equilibrium in prices, as a billon régulateur, to be augmented or diminished as the case may demand. In regard to England he writes in this work : "She is beginning at last to understand that the increasing appreciation of gold, joined to the constant depreciation of silver, is ruining her industry and disturbing the economic relations between India and herself. Let her, therefore, introduce this system of a billon régulateur, and this being done, all the great monetary powers will follow the same road, so far as it is necessary to maintain prices, toward bimetallism." In the paper read before the British Association Professor Walras suggested that the free coinage of silver in India be suspended and a ratio established between the silver rupee and the sovereign, and that a certain quantity of silver should be transferred from India to England as a billon régulateur, and that gold be introduced into India to be used as money in conjunction with the silver now reduced to a simple means of regulating prices. England has seemingly begun the carrying out of this program which Professor Walras derived from the principles of pure political economy, and this may well be regarded as a striking proof of the importance of a method which he has given so much of his life to elaborate.

THE AMERICAN PHILOSOPHICAL SOCIETY announces that the Henry M. Phillips Prize Essay Fund will award the sum of $500 for the best essay on "The Common Law of England;" second, on "The Theory of the State;" and third, on "Roman Law and English Law Compared." All essays must be handed in by January 1, 1895. The fund, which amounts to $5000, was presented to the society by Miss Emily Phillips as a memorial to her brother, the late Henry M. Phillips.

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Adam Smith and his contemporaries analyzed the price of commodities into three component parts-wages, profits and rent. Neither of the last two terms was used exactly as we use them to-day. Rent, in its modern sense, is the payment for land as distinct from improvement; profit, in its modern sense, is the return for managing ability as distinct from capital. But, to Smith's mind, rent was the payment for the land and the permanent improvements which it carried with it; profits, the return for the managing ability of the employer and the capital which he employed. Both rent and profits, as Smith understood them, included a large measure of what modern writers would call interest. Rent was substantially a return on long-time investments when made with foresight; profits, a return on short-time investments, when managed with ability.

Among the many changes made by Ricardo in the form of Economic Science, none was more important or characteristic than his recognition* of interest as distinct from rent.

Even more clear in fact than in expression.

Ricardo was a banker, familiar with the conception of market rates of interest, and the effect of those rates on the profit or loss in financial transactions. He saw that the real profit of an enterprise was not the total return above current expenses, but the excess of such return above current rates of interest on the capital employed. The real ground-rent of a piece of improved land was not the total amount paid for such land by the occupier, but the excess of this amount above the interest on the capital invested.

Had Ricardo and his followers contented themselves with pointing out a new component in the price of commodities there would have been an unmixed gain in clearness of analysis. But they did not stop here. They treated interest as representing the capitalists' just share in the distribution of wealth; and they supported this idea of justice by arguments so inconsistent or superficial as to furnish every opportunity for the attacks of the socialists. They have represented interest as a reward of abstinence; in the face of the fact that those whose interest accounts are largest have generally had to practice the least abstinence. They have represented it as due to the inherent productivity of capital, in spite of the fact that large accumulations of capital present opportunities for waste and loss quite as conspicuous as those for efficiency and profit. The masterly analysis of BöhmBawerk has submitted these theories to a criticism at once so searching and so just that it is unnecessary to do more than refer the reader to what he has written.

And yet, with all respect to the eminent author just named, we may be pardoned for saying that his method appears in some respects unsatisfactory. He often seems to treat simultaneously two sets of enquiries which are best handled separately. The causes which have produced the system of interest are radically different from those which determine the rate of interest. The tendency of political economists with few exceptions has been to confuse the two, and to try to take one step where two are absolutely necessary. The system

of interest is an institution recognized by society because of its advantages to society. The rate of interest is the result of a set of estimates and valuations on the part of individuals living under the institution and accustomed to the system. The excellence or permanence of the institution does not necessarily depend on the correctness of the estimates of individuals.

Unless this distinction is borne in mind every effort to give precision to our ideas of interest is liable to make the confusion worse. For instance: we are told that interest is justified by the productivity of capital. Now in a rough way, this has a large element of truth. If capital is saved and utilized, society gets more goods for its labor; and it is compelled to offer incentives, of which the system of interest is a most powerful one, to cause capital to be thus saved and utilized. But the modern economist is more precise. He tells us that interest cannot be offered merely because the output is increased; it may be that the price will fall so fast that the larger output will command a smaller aggregate return, and then no interest can be paid. To enable a man to offer interest, he says, the new investment must increase profits as well as products. This may be true economically; it is untrue sociologically. It may be that a man cannot afford to do it; it remains certain that he frequently does it. A great deal of interest is offered and paid on investments which do not increase profits. Such payments are not collected from the consumer; they do not go to increase the share of capitalists as a class; but they are none the less an important part of the actual interest transactions.

It is the aim of this paper to show that the justification of interest, as an institution, is not to be sought either in the interest productivity of capital, or in the difference of value between present and future goods; but in the fact that it furnishes a means of natural selection of employers whereby the productive forces of the community are better utilized than by any other method hitherto devised. This view of

interest differs from those which have been previously held in the same way that the theory of civil liberty of the nineteenth century differs from that of the eighteenth. We no longer seek to deduce liberty from the nature of man, nor do we deny that liberty involves frequent and flagrant errors; but we have found that the modern system of civil liberty is the best available means of combining progress with conservatism, and that its very errors form a means of eliminating the bad and may thus indirectly serve as a gain to society. Let us in like manner cease to deduce interest from the nature of capital; let us cease to insist on a connection between the institution of interest and the correctness of judgment of those who offer it; let us look at its history as a means of combining industrial progress with industrial conservatism; as a means of elimination of the industrially unfit from any position of leadership which they may have attained; as a system which makes the wrong judgments as well as the right judgments of individuals ultimately serve as a means to the advance of society.

We can without much difficulty trace three stages in the development of modern industrial law; the first, where a man was allowed property as a stimulus to labor and save; the second, where he was allowed profits as a stimulus to exercise skill and foresight in management; and the third, historically almost coincident with the second, where he was allowed to offer interest to induce others to give him the means of exercising his skill and foresight over the widest range.

Communism had tended to prevent the production and accumulation of resources without which no race can advance to the higher stages of industrial civilization. Private property, even in its ruder forms, did better. It afforded a stimulus to production; while the institution of the family enabled food consumption to be kept below the limit of food production, and allowed the accumulation of a surplus in individual hands.

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