INTEREST.

Manawatu Herald, Volume XLII, Issue 2192, 21 October 1920, Page 4

INTEREST.

Al ast Thursday’s meeting of the W.K.A, Mr Ayrton lectured on the subject of interest. Interest, ho said, is usually believed to come in as a residual claim, after payment of rent and wages. Economists, on the other hand, regard wages as the residual claim after rent and interest. As rent is payment for the use of and, so interest is payment for the use of capital; profit is payment for superintendence or organisation, and wages is payment for the use of labour. Interest is the oldest form of payment knojvn, and was originally called usury, though that term is now limited to extortionate interest. Interest has also been called the reward of waiting, or of abstinence. We defer, the immediate enjoyment of the capital, and seek for future satisfaction in an investment. .Saving and thrift is a present sacrifice for a future enjoyment. But a more important aspect under modern industry is that there is always

a market for capital. /With the increasing growth of industry and human wants the market is never overburdened with capital. The invention of machinery provides increased opportunities for the investment of capital, and as-there is no limit to human wants, and new Helds of industry are always being opened up, there is an opening for all available capital. ■ - Net interest is distinguished from gross .interest in that the latter includes allowance for insurance? cost of collecting, risk of loss of the principal. Also, ns in the case of pawnbrokers, the troubles and in-, conveniences of carrying on business and personal and trade risks generally. In early times hard conditions were imposed on borrowers, and lenders accordingly were- viewed with disfavour. These lenders were the eapilalists. The Jews became the. greatest financial agents. The Romans made slaves of the-borrow-ers who could not repay. Tn the middle period the borrowers were knights and princes, who became heavily involved for personal and military expenditure at'-high rates of interest. Up to 100 years ago in England people who could not pay their debts wore subjected to long terms of imprisonment.

I’p to the dawn of the industrial era loans were mainly for consumption. ' Until then people were not accustomed to pay rent for the use of land, which was usually regarded as belonging to the occupier. Recognition of rent as payable for the, use of land led to the admission of interest for the use of capital. With this came the change in borrowers —instead of (he aristocracy borrowing for extravagance or the poor for living, we now have the business man, Ihe speculator, hanks, municipal corporations, and governmcnls as (he larges I borrowers, no! for consumption, Iml for product!i on. Tiie commercial magnate pays interest for capital jusl as he pays wages for labour. Thus interest becomes ihe capitalists’ share in industry, jusi as wages is the labourer's share. .Capital does nuk necessarily mean money, it. includes any fixed product of labour used in production, Some lenders of capital are disposed lo share risks for larger results. This is speculative capital, sometimes called predatory capital. In such cases the return is not properly an ini crest, tail a dividend.

Modern business borrowing is effected by credit, ll is not always money that is borrowed, lent, or repaid, but credit effected by accounting’ without the handling of money. The rate of interest i- affected by the conditions of the loan and the, nature of the security, and the consequent risk- taken by the lender.

The lecturer concluded his address by showing that if society could create the capital necessary for the purposes of production there would be a considerable 1 advantage. Instead of enormous amounts of interest going to a limited number of persons, all the benetits resulting from collective enterprise in controlling financial arrangements and providing capital for. production would flow to the persons panic!*, paling in the provision and maintenance of the social credit. At next Thursday's meeting, Mr Ayrton will further develop Ibis idea, which he considers will contribute to the solution of the modern industrial problem.