An Examination of the Nature of Capital
and the Causes of Interest
Charles F. Leonard
[A paper presented at the Henry George International
Conference,
New York City, 30 August to 5 September 1964]
This paper is intended mainly as a
re-examination and restatement of Henry George's analysis of
Interest. As such, only the organization of the paper and the
examples are my own; the ideas are those set forth in George's
work, Progress and Poverty (75th Anniversary Edition,
Robert Schalkenback Foundation; New York, 1958). The main
sections drawn upon were chapter 5 of Book I, and charters 3, 4
and 5 of Book III. At the suggestion of Professor Howard Sherman
of the Division of the Humanities of the California Institute of
Technology, I have also consulted Eric Roll's A History of
Economic Thought (2nd Edition, Prentice Hall; New York,
194E). This work was used to gain familiarity with-the
terminology and viewpoints of Karl Marx, Eugen von Bohm-Bawerk,
John Bates Clark, Alfred Marshall, Thorstein Veblen, and John
Maynard Keynes. [Charles F. Leonard]
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INTRODUCTION: PURPOSE AND METHOD
The purpose of this paper will be to exam in e two economic concepts:
Capital and Interest, It will seek to answer two general questions.
First, what is Capital arid what is its role in a modern economy?
Second, what is Interest, and how and why does it arise?
Before we begin we will describe our plan and method. In the first
part of the examination we will confine our inquiry to those economic
processes that involve only tangible, physical objects and real human
beings engaged in production. In the second part we'll extend the
inquiry to those questions about Capital and Interest that involve
money, credit, stocks, ownership of assets, and similar topics.
Throughout the examination we will define (and, for emphasis,
capitalize) each economic term that we introduce, very clearly and
concisely. We ask that the reader here think of these terms only as
they will here be defined, and not in any way in which he is otherwise
accustomed to thinking of them for other purposes.
I. CAPITAL AND INTEREST IN A PRE-MONETARY ECONOMY
In this first part of the examination we will want to see what
capital essentially is and what its primary functions are, and what
interest essentially is and how it originally arises. For these
purposes we may limit our field of inquiry to what we may refer to
hypothetically as a-pre-monetary economy. We may consider this
hypothetical pre-monetary economy to consist of four economic factors:
Land, Labor, Wealth and Capital.
Land is defined as the earth apart from man. Land includes all farm
lands, all mineral and virgin timber lands, all business and home
sites, all oceans, rivers, mountains and deserts, all wild or
free-growing plants and animals, arid all other objects that were
neither manufactured nor grown by man.
Labor is defined as the species man. Labor includes all classes of
human activity, whether mental or physical, that are engaged in for
the purpose of satisfying human desires through the exchange of goods
and services.
Wealth is defined as any material object produced from Land by Labor,
For any object to be considered an article of Wealth it must possess
two properties. It must first be a real, tangible object, made of the
earth's substance; it cannot be merely an idea or a legal relationship
evidenced on paper. It must in addition embody human Labor; it cannot
be merely virgin land or raw material as nature provided it.
' Capital is defined as any article of Wealth not in the hands of its
final consumer. Capital thus includes both those articles of Wealth
that are still being grown, manufactured or exchanged, and also those
articles of Wealth that are being used as aids in the production of
other Wealth or services. It is important to notice, that the term
Capital does not refer to a set of object distinct from the objects
referred to by the term Wealth. Rather, Capital is only a sub-category
of Wealth. Later on it will be very important to realize that no
object can be considered to be an article of Capital if it is not at
least an article of Wealth.
We may bring these definitions into sharper focus by means of a few
examples that will compare and .contrast them. Comparing Land and
Capital, we see that a farm field belongs in the category Land, while
the crop of wheat growing on the field belongs in the category
Capital; similarly, a natural river is a part of Land, while a
man-made irrigation canal is Capital. Comparing Wealth and Capital, we
see that to a jeweler diamonds constitute Capital, while for a rich
woman diamonds are simply Wealth; similarly, a machinist's lathe and a
nurseryman's cuttings are to them Capital, while a hobbyist's
workbench and a home-gardener's plants are to these men merely Wealth.
Finally we may compare Labor and Capital. Here, in contrast to the
metaphorical phrase that refers to such people as scientists, doctors,
lawyers and writers, as "social capital," we see that by our
definition all human skills can belong only in the economic category
Labor. This is so whether the skills are natural talents or whether
they were acquired by education and training. This distinction between
Labor and Capital is based not only on a definition, however, but also
on a philosophical point of view.
Capital refers in general to something passive, something that is
used by man as a means to his ends. We choose never to regard man as a
passive tool, but rather always to regard him as the active agent of
his own will. Hence, regardless of whether a man is highly skilled or
only meagerly trained, and regardless of whether he is self-employed
or is but one of many thousands of employees of a corporation, we will
always regard him here as the initiator of his own actions, and as an
end in himself, and as using Capital to achieve his ends. We will
never regard him as a means, either to some other individual's ends,
or to the ends of society.
In line with the above discussion, we may consider the purpose of
such a hypothetical economy to be the satisfaction of human desires
through human exertion. This purpose can be achieved in two ways. On
the one hand, individuals may exchange their Labor with one another
directly (that is, they may render services to one another), without
the interposition of any article of Wealth. Barbers and doctors,
lecturers and performing musicians earn their living by serving others
directly, without producing a product. Individuals may also work to
satisfy their desires by storing up their Labor in the form of
articles of Wealth, and exchanging these with other individuals for
their services or Wealth. Artisans, manufacturers, merchants and
writers of books exchange their Labor for the Labor of others through
the medium of articles of Wealth. We see immediately that Capital must
be used in all trades that produce a product. The things produced, as
long as they are still in the hands of their manufacturer or retailer,
are Capital.
On the other hand, we see that Capital may be used, as an aid to
Labor, not only in the trades that produce a product, but also in the
service trades. For example, an artist's brushes and easels and a
butcher's cleaver both aid in the production of articles of Wealth,
while a minister's pulpit and an accountant's adding machine both aid
in the furnishing of services. Yet, all of these objects are Capital.
They all have the common quality that they serve as aids to Labor in
the production or furnishing of some product or service, but are not
themselves sold or consumed for pleasure.
In the terminology of the businessman, we may call Capital that gives
rise to revenue directly, Inventory Capital; Capital that is not
itself for sale, but which is used as an aid in the production or
furnishing of some other marketable product or service, we may call
Plant & Equipment Capital.
It is important to notice that this distinction between Inventory
Capital and Plant & Equipment Capital applies at all stages of
production, however close or distant the stage is from the final
consumer. Thus, a farmer's plow, a baker's oven and a delivery-man's
truck are to each of these producers Plant and Equipment Capital,
while the wheat, flour and bread that pass in turn through the hands
of each are always Inventory Capital to each of them.
Of these two kinds of Capital, Inventory Capital alone produces
economic Interest. Plant and Equipment Capital acts in every case by
increasing the productivity of Labor, and thereby adds to the Wages,
the earnings of Labor. Inventory Capital alone is the source of the
special return, Interest. Though Interest does not arise without the
expenditure of some Labor, it is yet a distinguishable return, the
existence of which cannot be attributed to Labor directly, but only to
the use of Labor stored up and used as Inventory Capital.
We should note that Interest is but one of three portions into which
all Wealth is divided. Interest is the share earned by Inventory
Capital, Wages is the share earned by Labor, acting either alone or
with the aid of Plant and Equipment Capital. Rent is the share earned
by Land. But since Land is only a passive factor in the production of
Wealth, the return to Land, Rent, is determined solely by the premium
that any producer will pay for the right to the exclusive use of any
piece of Land.
We may also note, that while the amounts of each share are set only
at the time of the final exchange of the product for other articles of
Wealth, the continual additions to the exchange value of the product
are evident at every stage of production. Furthermore, the production
of any product will never be initiated, unless a prognosis indicates
that it will finally be possible to exchange the finished product for
other articles of Wealth.
We must now examine how Inventory Capital produces a special addition
to the amount of Wealth produced, apart from any exertion of Labor,
and apart from the productivity of any piece of Land. It does so by
means of two processes, those of growth and exchange, or the raising
of living things, and the selling of all things at times and places
where they are most desired. These two processes are the causes of
Interest. We may examine them individually.
In agriculture and in animal husbandry, the value of the Inventory
Capital constantly increases through growth by the action of nature.
Seeds germinate and grow into grain, fruit or timber, and calves and
lambs grow into cows and sheep, bearing meat, leather and wool. In-all
types of production of Wealth that are based on the increase of living
things, we may note two important economic facts.
First, both Inventory Capital and Plant and Equipment Capital can be
used in such types of production. The Inventory Capital of agriculture
includes such things as seed, grain, fruit trees, calves and breeding
stock, while its Plant and Equipment Capital includes such articles as
fences, barns, reapers, milking machines and incubators. But of these
two kinds of Capital, only the articles of Inventory Capital are
essential to the carrying on of the production. All the articles of
Plant and Equipment Capital are merely aids to production, aids to the
Labor of the farmer or breeder. Though they may greatly increase the
efficiency of. Labor, the production of Wealth could go on without
them. (Note: A breeder of farm animals obtains his Interest by selling
only a portion of his stock; he always keeps another portion of his
herd for use only as sires or cows. Nonetheless, both his calves for
sale and his breeding stock constitute Inventory Capital; the breeding
stock, just because it is not for sale, does not thereby become
Equipment Capital. We may see this by noting that a breeder could,
without too much trouble, produce calves without barns or fences, but
he could not at all produce them, by any amount of Labor, without
bulls and cows.)
Second, it is the Inventory Capital alone that increases in value
through the process of growth. Barns do not grow, and reapers,
efficient though they may be, do not multiply. But the seed and the
livestock tend constantly to increase in value. And they do this, not
solely at the hand of the farmer, but also, indeed largely, by
themselves, through the forces of nature.
The increase of Wealth that results from the growth of living things
used as Inventory Capital, is one primary cause and source of
Interest.
On the other hand, in all trade based on the carrying of goods
through time and from place to place, there occurs a completely
different cause and source of Interest. This type of production by
trade or exchange leads to an increase in the value of the commodity
by its being transported from a place where it is of low value to a
place where it is of high value, or by its being held for sale from a
time when it is in little demand to a time when it is in great demand.
The increase in value of commodities by the process of exchange cannot
be attributed to any exertion of human Labor. It can rather be
attributed solely to the uneven distribution of the earth's resources
and population, and to the changing conditions of life from day to day
or season to season.
If every service and every article of Wealth could be produced
equally easily everywhere on earth, and if one day or month was
exactly the same as any other day or month, then no gain could be
derived from the transporting of articles from place to place for
sale, or from the holding of goods idle for long periods in
anticipation of future sale. But in the world as it is, some regions
are better suited for growing bananas, some for producing steel and
automobiles, some for producing seals and furs. Similarly, by the
chance development of human societies, the inhabitants of some areas
of the world are more skilled in making watches, those of others are
more skilled in making leather goods, and those of others in making
clothes, shoes and perfume.. Again, some seasons of the year are best
adapted to the production of fruits, others to the production of
grains. But both of these articles are in demand all through the year.
On the other hand, beach cottages that bring high rents in summer are
in very low demand the other eight or nine months of the year. But
they cannot for this reason be alternately built and torn down; they
must be left as inventory all the year round.
In all the types of production of Wealth that involve the
transportation or holding of goods from places or; times where they
will bring little in exchange, to places or times where they will
bring much in exchange, the increase in exchange value can occur only
by the use of Inventory Capital, Examples of this kind of increase in
Wealth through exchange include the carrying of knives to Eskimos and
the obtaining of skins in exchange, or the carrying of chemical
fertilizers from America to Africa in exchange for native gems or
ores. In all such cases, both parties to the exchange rightly consider
themselves the gainers, even after the costs of transportation have
been paid. The general principle operating in all such exchanges is
that both articles being exchanged are more valuable at their
respective points of destination than at their points of origin. The
principle is the same whether the article is in a crude state, such as
raw oil, furs or ore, or in a highly manufactured state, such as tools
or processed chemicals. The increase of Wealth is a real one at both
ends of the exchange, just as real as is the increase of Wealth that
occurs between the planting of seed in May and the harvesting of grain
in September.
Furthermore, the increase in value of the articles exchanged is, like
the increase in value of grain and livestock, independent of the kind
or amount of Plant and Equipment Capital used in the transportation or
later merchandising of these articles. The items of Plant and
Equipment Capital used in the transportation and retailing of articles
of Wealth -- things such as ships, trucks, warehouses and department
stores -- do not cause the increase in value of the things being
exchanged, but only affect the efficiency and ease with which they may
be exchanged.
The increase in value that results from the exchange of articles --
of Inventory Capital, is the other primary cause and source of
Interest.
. We have now examined, in purely physical, non-monetary terms the
nature and functions of Capital, and the causes and sources of
Interest, Before we turn to the monetary aspects of our subjects, it
will be well to fix firmly and finally in our minds a few further
points about the purely physical economic concepts of production,
Capital and Interest.
First, we must see clearly that traders or retailers of goods for
sale, "middlemen, "are as truly "producers" of
these goods are the people who grew or manufactured them. For in all
cases, "the production of Wealth" means the delivery of a
finished article of Wealth into the hands of its final consumer, in a
condition and at a time and place at which he desires it. Hence, all
persons who contribute to this process are producers, whatever the
stage at which they participate in the process.
Second, we must see, that the production of Wealth by manufacture is
not, in itself, a primary source or cause of Interest. Rather, all the
value that is added to an article in the course of manufacture (aside
from its being transported about in this process), is value added by
Labor. All the drill presses, foundries, lathes, factories and
chemical plants that constitute so much of the Plant and Equipment
Capital of our industrial economy really are just so many aids to
human Labor, just as the first stone ax, wheel, or fire used by
primitive man were merely aids that extended the range and
effectiveness of man's use of his own mind and muscle. Just how it is
that these "sterile" articles come to command Interest in
the marketplace, we have yet to see. But before we see that, we must
see clearly the very real distinction between Plant and Equipment
Capital, which produces nothing by itself but merely allows Labor to
produce all things more easily, and Inventory Capital, which is
inherently a source of increase in Wealth through growth or exchange.
II. CAPITAL AND INTEREST IN A MONETARY ECONOMY
In this second part of the examination we must answer two questions.
First, if Inventory Capital is the only kind of Capital that produces
economic Interest directly, why do articles of Plant and Equipment
Capital still command Interest if loaned in the marketplace? Second,
how does money resemble Capital; and why does money command Interest
if loaned in the marketplace? These two central questions may be more
concisely stated in the following way: First, why are all capital
goods interchangeable? Second, why is money interchangeable with
Capital?
After we have answered these two remaining central questions about
economic and monetary Interest, we will finally be able to examine and
to understand the whole range of peripheral topics that are, after
all, the practical and important questions about Interest to the
worker, homeowner, businessman, investor or government economist.
These will be, specifically, the topics of personal credit financing
and mortgages, stocks and bonds, risk, monopoly and profits.
As we begin this part of the examination we must give a definition of
a monetary economy. This is one in which Land, Labor, Wealth and
Capital all exist and operate as in a pre-monetary economy, but in
which in addition money bank credit, tariffs, franchises, patents,
land titles, and corporations also exist and require consideration.
That is, a pre-monetary economy contained only tangible objects and
autonomous human beings, whereas a monetary economy contains also many
intangible objects and many impersonal, legal institutions.
One consequence of the admixture of tangible with intangible economic
factors in a monetary economy, is that we must now define a new common
denominator or scale by which all types of economic objects may be
measured and compared. This common denominator is value. Once we are
able to measure the value of any economic object, we will be able to
analyze all the complex legal relations referred to above very easily.
We may both define and measure the economic or exchange value of any
object very simply: it is what you can get for the object. Thus, if
wheat is the standard of value in any time and place, we may compare
the value of any two other unrelated objects, such as a horse and a
desk, in terms of the amount of wheat needed to purchase each object.
If Labor is taken as the standard of value, then any individual may
compare the exchange value of any two other objects in terms of the
amount of Labor that he must expend in order to obtain either object,
or the amount of other people's Labor he may command in exchange for
either object.
If we now restate the first question, why are all articles of Capital
interchangeable
at their value, the answer comes easily. From the above
definition of value, it is obvious first of all that all values are
interchangeable at their value. Next, it follows that all material
things of equal value, such as two different types of Capital goods of
equal purchase price, are interchangeable, Finally, it follows from
this, that in order to cause Labor to be expended in the production of
any kind of capital good, that capital good must bring a return equal
to the highest return open to any Capital. The man who thus wants to
borrow, a machine worth one hundred dollars, must pay a premium equal
to the Interest that any one hundred dollars worth of Capital could
earn in its most productive use, namely as seed or livestock or as
merchandise for trade. Restated in terms of marginal utility, an
article of Plant and Equipment Capital will be built, bought or hired
only if the saving of Labor it procures, or the increased revenue it
produces as an aid to Labor, is at least as great as the Interest that
so much worth of Inventory Capital could produce; or in more practical
terms, only if the saving or the increase in revenue it produces is at
least as great as the cost of hiring the article.
In summary of this important point, the man who stores up his Labor
as Inventory Capital receives Interest on that Capital. He will
continue so to store his Labor and receive Interest only as long as
there is an effective market demand for the thing he grows or sells.
On the other hand, the man who stores up his Labor as Plant and
Equipment Capital, must pay Interest on that Capital. He will continue
so to store his Labor and pay Interest only as long as the increased
efficiency given to his Labor by the new tool or new building is at
least great enough to offset the interest he must pay.
The second question, why is money interchangeable with Capital, may
now also be answered easily in terms of value. We have seen that all
tangible articles are interchangeable at their value. But in very few
societies are goods exchanged directly, rather all human societies
adopt some article as a medium of exchange. In pre-monetary societies
various commodities are used as the medium of exchange -- for example
wheat, salt, shells, or skins. By custom or habit, the article used as
the medium of exchange in any society comes to be the article in terms
of which the value of all other articles is measured. The medium of
exchange, in any society, becomes the standard of value of that
society; and further, the medium of exchange comes to be a symbol of
value, a store of value.
In our society, printed money is the medium of exchange. Hence, to
all persons, businesses and banks alike, money represents value, it
represents stored up Labor or Labor to be had in exchange. Hence, to
borrow money for any purpose is equivalent to borrowing money for the
purpose of purchasing Interest-producing Capital. Hence, it requires
the payment of a premium equivalent in amount to the Interest that so
much Capital could produce.
We have now completed the main part of our examination, and have
given sound theoretical bases to the economic concepts Capital and
Interest, both in terms of purely physical factors, and in terms of
money and value. We may therefore turn now to the various practical
questions associated with these subjects.
If one wants to borrow money for the purchase of an article of Wealth
to be used solely for pleasure, one must still pay a premium for the
borrowed money. To purchase a house by taking out a mortgage, to ''fly
now and pay later, "or to borrow money to purchase an automobile,
all legitimately require the payment of a premium.
The payments received by a bank or finance company for the use of
their money for such purposes, take the form of Interest. But it must
be understood, that these payments, like the charges made for the use
of Plant and Equipment Capital in production, are only secondary
effects. The demand for such payments is an evidence of the fact that
the same amount of money, if spent for Inventory Capital, could
actually produce an independent increase in value. The point is, that
Interest is not properly considered as a payment made for the use of
Capital, but rather as a gain resulting from the actual increase of
Capital, in the ways that we examined in part I.
Similarly, when a business borrows money from a bank or from its
bondholders, it must repay the bank or the bondholders a net premium
over the principal, and this premium also takes the form of Interest.
But again, neither the money borrowed nor the notes or bonds produce
Interest. Only the physical articles of Capital purchased with the
money are the source of Interest. Since Interest is a share of the
Wealth that results from production, not until there has been
production in the physical sense (either growth, manufacture or
exchange of Wealth), can there be Interest in the economic sense.
Common stocks, unlike bonds, are not 1egally considered to be loans
subject to repayment with Interest. They are rather considered as
shares of ownership in the company, and hence carry with them the
possibility both of greater rewards and of greater loss. This element
of risk, which is so large a factor in the value of common stocks,
will be considered further below. We only need observe here, that in
the economic sense, the purchase of a-share of common stock is
identical to any other loan or investment of Capital, and that the
dividends that the stock pays are likewise equivalent to Interest as
we have been considering it. As in many other cases, the law
recognizes, distinctions that economic theory takes no notice of.
Later on we will see some important economic distinctions which,
conversely, ,are overlooked in the law.
The factor of risk enters into the subjects Capital and Interest only
in a peripheral way. We hare always tacitly assumed above that every
planted seed germinates into grain, that every ship bearing cargo for
sale reaches its destined port across the sea, and that all the
produce or merchandise is sold, and at its expected price. These
assumptions are not always borne out in practice. Many businesses
simply fail, many crops get destroyed by drought, fire or flood, and
many articles of merchandise must be sold below cost or not at all.
Ships even still sink at sea. All these possible sources of loss as
well as gain in business ventures enter into the factor of risk. Some
types of business are inherently more risky than others. The effect of
greater risk in a business is to increase the average rate of Interest
paid for Capital invested in that business, so that, including both
the successful and the unsuccessful ventures, the average return
obtained is the same as the return in all other businesses. If stocks
in general pay higher nominal rates of dividends than bonds do
Interest, it is because stocks frequently pay no dividends while bonds
go on paying their smaller but more steady returns. It is instructive
to observe that the same premium for risk or danger applies to Labor
as well as to Capital. For Labor it takes the form of the bonus pay
received by front-line soldiers over the base pay received by
non-combatants, and in the higher salaries received by acrobats,
loggers and riveters on skyscrapers, as compared to those received by
dancers, carpenters and riveters in airplane factories.
The factor of monopoly must also be explained as it enters into the
economics of Capital and Interest. The common effect of all kinds of
monopolies is to restrict or prevent the free flow of Capital into
certain fields, and to create differences in the apparent rates of
Interest on Capital invested in these fields. Examples of legal
institutions that create monopolies include tariffs, high license
fees, patent rights, exclusive franchises, and land titles. In all
these cases the incomes received from money invested in these fields
are not economic Interest, but simply legalized redistributions of
Wealth. In some of these cases it is deemed advisable public policy to
grant such monopoly privileges, and so to create artificial incomes
for certain investors -- for example, so as to provide an added
incentive to invention, or in effect to subsidize a particular
industry, or to limit the number of certain businesses, such as bars,
in a community. Whether these legally created monopolies are in fact
wise or unwise public policies, it is not our purpose here to
determine; our purpose here is only to point out the way in which
these monopolies affect the economics of Capital and Interest,
We have now to consider one more topic, the relation of profits to
Interest. Before we turn to this, however, we should take notice of an
important distinction between two economic terms that we used
frequently. These terms are Wealth and Value.
Wealth, it will be recalled, consists of all real objects which are
produced by Labor, and which have the power of satisfying some human
desire. We may reasonably assume that all such articles will have some
desirability to many individuals, and hence will have an exchange
value in the marketplace. We may say that articles of Wealth both
require Labor to be produced and can bring Labor in exchange. Value,
on the other hand, means only the quality of being able to command
Labor in exchange. Value may arise from physical production, and may
reside in some article of Wealth, or it may arise from mere legal
obligation, and reside in no physical object. Many articles of Value
are thus not articles of Wealth at all; that is, they allow their
owner to receive Labor without rendering Labor in exchange. Articles
such as franchises, tariff privileges, war bonds and land titles, fit
this description. Such articles are not the creations of Labor, but of
legislatures. They require no Labor but only a law, to be produced;
yet, they will command much Labor in exchange. For our purpose, it is
important here to realize that money invested in a franchise does not
earn Interest, but a royalty; that money invested in commercial tariff
privileges or in government war bonds does not receive Interest from
production, but the proceeds of taxes on production; that money
invested in a company that buys mortgages on Land does not earn
Interest, but economic Rent. These are distinctions that are unknown
to the law but which are essential to an understanding of economic
processes.
At this point just a few words are needed about the relation of
profits to Interest The term profit is not an economic term, but a
business term. Profits are the gains of a business, the difference
between its incomes and its expenses. It should be clear by now that a
business may obtain its profits from many sources -- from the Labor of
its owner if it is a small proprietorship, from the Labor of its
managers if it is a corporation, from Interest on its Inventory
Capital, from unpredictable gains through high risk deals, from an
efficient production with its Plant and Equipment Capital, from
monopoly privileges of-various kinds, or from the ownership of Land
titles and other non-Capital assets. Returns from all of these sources
contribute to profits. Profits in general are neither moral nor
immoral. Profits are essential to the heal thy and continuous
functioning of an economy; without them no businesses could attract
the money of investors, and industry would collapse. If one would
judge the legitimacy or illegitimacy, or the good or evil social
effects, of profits, one must judge individually each of the various
individual sources that contribute to profits in general.
SUMMARY
We have now answered every question we set out to answer. We have
seen what Capital essentially is, and have examined the various
functions that Capital performs in an economy. We have discovered the
primary cause of Interest, and have found that it lies in the increase
of Wealth that results from the use of Inventory Capital in
production. And we have seen how this primary cause of Interest
necessitates the payment of a premium, that takes the form of
Interest, for the use of Plant and Equipment Capital.
We have seen why all articles of Capital are interchangeable, and why
money is interchangeable with Capital. We have seen why credit
purchases require the payment of a premium. We have seen how stock and
bond ownership, risk, and various legal monopolies enter into the
relations of Capital and Interest. We have noted the fundamental
distinction between the economic concepts of Wealth and Value. And
finally we have examined and clarified the relation of business
profits to economic Interest.
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