The Place of Abstinence in the Theory of Interest

RECENT discussions have reduced the theory of value to an equilibrium between marginal cost, on the one hand, and marginal utility, on the other. Nothing is more fundamental in economic science than that the two elements of cost and utility are both necessary to the existence of value. So much has uniformly been held since the beginnings of Political Economy. The special service of the marginal utility theory has been to point out the way in which these two factors co-operate to fix value. By reducing to a common subjective basis those two unlike things which older economists had tried to balance against each other,-namely, demand and supply,this new theory has done much to give harmony and logical consistency to economic science. Value, however, is not the only economic phenomenon to which the time-honored law of demand and supply has been applied. Interest and wages are so intimately connected with the conception of value that they are of necessity affected by the same principles which determine value. To these questions the law of demand and supply has been applied as rigorously as to the question of value. Nothing would be more readily admitted by all economists than that, if capital increases and the demand for capital decreases, the rate of interest will fall, and vice versa. It is not so generally admitted in the case of interest, however, that the demand and supply are themselves regulated by the same principles which regulate them in the case of value. According to the new theory of value, if the desire for a commodity remains the same, but the production of it, through mechanical improvements or for