1914] Interest Theories, Old and New 88

second aspect, entrepreneurs appear as users of capital. How much
interest they can afford to pay for such use, entrepreneurs estimate
through comparing the productive services of capital goods at current
prices with the productive services of workers, who at some points are
interchangeable with capital goods, at current rates of wages. Through
these comparisons the general rate of interest, so far as it depends upon
the demand for capital for use in production, is determined.
Space does not permit of detailed comment to show that almost
every sentence of this argument clashes with the physical productivity
 theory.
The productivity of which use is made when the explanation is
really begun is not technical or physical productivity at all, but is
the capacity which goods bought with judgment at current prices
have, in the hands of enterprisers, of yielding a net surplus, sufficient
 not only to remunerate them, but to Pay contract interest
to lenders. The amount of interest which “enterprisers estimate”
they can afford to pay (ie., the maximum amount) is the difference
 between the discounted, or present, worth of products imputable
 to these agents and their worth at the time they are expected
to mature. The prices of the agents, which are the costs, involve
(not presuppose) a rate of discount. As was said in my text:*
When the agent is bought outright, the very concluding of the bargain
 fixes a relation between the expected value of the income and’ the
value of the capital invested. In other words, the exchange of durable
agents virtually wraps up in them a net income which it is expected
will unfold year by year when rents mature and are secured.
Undoubtedly, at this point is the crucial test of the competing
theories, Is it productivity of agents that makes business men
willing to borrow and pay interest? Could they afford to pay
interest varying with the time element, if the value of the productivity,
 however large or small, were not discounted in the price
&gt;f the agents they borrow (or buy with horrowed money)? I think
not. Seager says:”
It is their [the business men’s] demand for the savings of others for
ase in business enterprises that causes the balance always to be on the
side of a positive rate of interest.
But this demand cannot reasonably begin unless there is already
a balance on the side of a discount of values of the future uses of
agents. Viewed from the standpoint of the capitalization theory,
‘he causal order is the reverse of that of the produetivity theory.

" The Principles of Economics, 1904, pP. 127,
23 AMERICAN ECoxwoMic Rezvızw, Dee., 1912, p. 838.