1914] Interest Theories, Old and New 77

pear as an arithmetic rate. "The primitive economy in its choice
of enJoyable goods of different epochs of maturity, in its wars for
the possession of hunting grounds and pastures, in its slow aceumulation
 of a store of valuable durable tools, weapons, houses,
boats, ornaments, flocks and herds, first appropriated from nature,
and then carefully guarded and added to by patient effort—in all
this and in much else the primitive economy, even though it were
quite patriarchal and communistic, without money, without formal
'rade, without definite arithmetic calculations, was nevertheless
sapitalizing, and therefore embodying in its economic environment
a rate of premium and discount as between present and future.
This, then, is the essence of the capitalization theory of interest
as nearly as we can put it in a proposition: The rate of interest
(contractual) is the reflection, in a market price on money loans,
of a rate of capitalization involved in the prices of the goods in the
community. "The price of durable agents is a capitalization which
involves a discount of their future uses, and this is logically prior
to the rate of contract interest. The logical order of explanation
is from numberless separate acts of choice of goods with reference
fo time, to the value (and prices) of durable goods embodying future
 incomes, and finally to the market rate of interest.*! "This
interest theory was new in its order of development from elementary
choice; in the priority it assigned to capitalization above contract
interest; in its unified psychological explanation of all the phenomena
 of the surplus that emerges when undervalued expected incomes
approach maturity, the surplus all being derived from the value
af enjoyable (direct) goods, not by two separate theories, for
consumption and production goods respectively ; in the integration
of the interest theory with the whole theory of distribution; and
'n a number of details necessarily related to these features.

* When, however, attention is given to the details in the modern loan market
following the action of this man or that, or studying a temporary situation
such as a sudden demand for loans on the occasion of a war or in a financial
panic, we break into the explanation at a different point. The change in the
immediate status of the loan market is reflected in widening circles and for a
time affects the capitalization of much of the wealth in the economy (of the
nation or of the world). This and many other needed interpretations are
briefly indicated in my elementary text. It is fundamental to the conception
of the capitalization theory, however, that these impulses from the money
market are not, as they superficially appear, primary or causal in a theory
of interest, in the same sense as is the preference in time for enjoyable goods
and the resulting level of capitalization. See especially chs, 17-19, in my
Principles of Economics, 1904.