THEORIES OF INTEREST.

Manawatu Herald, Volume XLII, Issue 2194, 26 October 1920, Page 4

THEORIES OF INTEREST.

At last Thursday’s meeting of the W.E.A. Mr Aryton continued his discussion of the subject of Interest. Interest, he repeated, together with rent, profit; and wages, makes the four means ,by which the products of huinnn labour arc distributed. Interest is the price paid for the use of capital, and under modern conditions capital exists largely in the form 1 of credit. A man in business pays rent for the land he uses, wages for labour, interest for capital, and what he draws himself is profit. Yet capital earns no interest, for it produces nothing, and accordingly a better definition of capital is that it is an aid to production in the hands of labour. ,

Capital in the form of credit is a draft on Society, which pledges itself as a security for credits made to carry on production. Yet interest is paid to individual members of this credit giving society. But since society creates and maintains the credit, it should receive the interest for it, which would thus benefit Pie whole community instead of only a few.

It is desirable that the rate of interest should tall and that wages should rise, because interest is paid to few and wages to many. Increase of the latter therefore secures a wider distribution of the national income. Interest makes machinery costly, buildings prohibitive, and is an obstacle in the way of industrial and social progress. It is a charge upon industry, a levy upon labour. Falling intei’est is desirable from the point of view of production, just as rising wages are desirable from the aspect of distribution. If interest declines the cost of capital and therefore of production, is lowered.

The nmount of capital available is not affected by the rule of interest. it is itlu’iiys growing, and with the increased stability of.' governments the security for capital improves.

The rate of interest has varied at different times in the world’s history, and in ancient limes it was less than it is now. Some economists consider that a condition will ultimately be reached where no interest at all will be paid for capital, but only the cost of handling- it. At one time capitalists, paid for the protection of their money, instead ot receiving interest for it, us at present.

Ij, is sometimes said that if no interest is paid capital will not he forthcoming, but this is doubtful,' because some people have the habit of saving, and we habitually produce more than we can consume, and these habits will not be readily abandoned even if interest is reduced to a minimum. Some forms of wealth are consumable, and cannot be kept indefinitely; others are imconsumable, and cannot be rcadilv destroyed.

LEGITIMACY OF INTEREST. For many centuries tlio morality of interest was questioned by the Greek philosophers and the Hebrew prophets. The lender undergoes no privation by lending. But modern ethics regards interest as legitimate. Jeremy Bentham pointed out that though money cannot reproduce itself, it can purchase she.ep, which do increase. A lender sacrifices his present enjoyment of his capital, and for this sacrifice or abstinence lie is paid by interest. Bui abstim ence is a negative thing, and cannot produce something which is positive, Modern economists claim that there is a. difference between the present and future use of one’s capital, and that interest is .the payment for that difference. The legitimacy of interest has also been supported by the productivity theory that capital gives to labour, in the form of improved appliances, a means of increasing production, and provides the upkeep and maintenance of these appliances. The “use theory” jus lilies interest on the ground that capital maintains the labourer in the necessaries of life until his work is sufficiently advanced to become productive. The German economists regard the owners of land, of capital, and of labour as coming into fruitful contact, where each receives Ids reward —rent for the first, interest for the second, and wages for the third. In 1859 the king of political economists, Karl. Marx, severely criticised these arguments. He condemned rent, interest and profits as exploitation, appropriation from labour, and unpaid labour. They carry within them the seeds of their own destruction, and evolution will render useless the landlord, the capitalist and the intrapreneur. Criticism is also being led ngainsjr private ownership of land and capital. If production s a socal func-~ tion, and land, labour and capital are necessary for production, there should be no private rights to land, labour or capital. If you recognise the right of private ownership of capital, interest is a legitimate payment, but if you challenge the legitimacy of such private ownership you have no argument in favour of interest. Why do some people have capital and the great mass of people none ? Is it because those who have it have denied themselves to acquire it ? The bulk of the capital in modern ndustry s not the result of saving;, it is obtained from the labour of others, not the labour of those who possess it. Moreover, much of the credit capital is manufactured by the banks, and we have learned the art of printing piles of paper notes, a quicker method than saving. Thus we simply will thd creation of capital and it is accomplished. - At next Thursday’s lecture Mr Ayrton will deal with the subject of “Profits.”