1914] Interest Theories, Old and New 79

takes his standpoint in the money market and supposes an existing
rate of interest to which rates of time-preference of individuals
are later brought into conformity. His treatment throughout is
of the actuarial, mathematical type, concerned with the explaining
and equalizing of incomes which are assumed to be present, I
feel as strongly as does Professor Seager the neglect, in this treatment,
 of the element of productivity in accounting for the existence
of the incomes.“®” From my point of view the dificulty appears to
inhere in Fisher’s general conception of the problem.® I differ
from the productivity theorist, however, in looking upon the interest
 problem as that of explaining not the existence nor yet the
magnitude of those incomes, but the rate of their valuation to the
valuation of the capital sum (principal) to which the contract rate
(percentage) refers.
I share with Seager the opinion that there is no “sovereign virtue
 in mathematical modes of thought” which safeguards the mathematical
 economist from error, Indeed, there seem to be characteristic
 mathematical illusions.
I share Seager’s doubt of the aptness of the proposition that
impatience is “a fundamental attribute of human nature” or is
3 AMERICAN Ecowomic Review, Dec., 1912, pp. 836-837.
My purpose, in large part, in calling attention to my mode of approach
to the interest problem as outlined above, is to show that the psychological
theory, in its original form, is not open to the criticism which Seager forcibly
directs against Fisher, “that he dissociates his discussion completely from any
account of the production of wealth.” To be sure, Fisher’s reply begins with
a categorical denial, “I did not dissociate” (AmErıcan Economic Revızw,
Sept., 1913), but he immediately admits that in his “first approximation” the
income streams were “temporarily assumed.” And while in his larger theoretical
 book, he believes that “this assumption gives place to the more complicated
 conditions of the actual world,” when he comes to the second and third
approximations, he confesses that those complications were, “for the most part,
omitted (as too dificult and controversial)” from the elementary book.
Seager’s comment (AMmzEricaN Economic Review, Sept,, 1913, p. 618) is pertinent:
 “A methodology that causes an author to drop out an essential link
when he tries to restate his theory in elementary form seems to me to be
almost self-condemned.” At this point may be recalled my own critieism of
Fisher’s treatment of capital in his Capital and Income. Reviewing this in
the Journal of Political Economy, March, 1907, vol. 15, P- 147, I spoke of a
“certain isolation in Fisher’s capital theory. He began the analysis and reconstruction
 of the capital concept as if it were a task apart from the theory of
distribution as a whole. . .. The capital theory presented has therefore a certain
character of intellectual aloofness that leaves it out of touch with the larger
theory of distribution, of which it should be but one part.” The same eriticism
Applies in general to The Rate of Interest, published a year later.