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Frank A. Fetter [March

character of the gross income “profits,” one might be tempted to
exclaim: If the enterpriser must pay as interest the whole amount
involved in time-discount, he never would have a motive to borrow.
It is just here that appears so Plainly the middleman’s character
of the productive borrower. "The rate of interest is a market price
at which (security, ete., equalized) the individual borrows; but
those with superior knowledge and superior foresight are able to
buy-in one economic group and to sell their products in another,
to buy “underestimated” goods and to find a favorable market for
highly esteemed products. They are merchants, buying when they
can in a cheaper and selling in a dearer capitalization market,
acting as the equalizers of-rates and prices. It is the mercantile
function everywhere to do this. So we must dissent again when
Seager says :®
And it is this demand for capital growing out of the important role
capital plays as a factor in production, that is the positive, active in-Auence
 determining interest, in the same sense that utility may be said
to be the positive, active influence determining value.
Rather, this demand for capital determines interest in the same
sense that the merchant’s demand determines the wholesale price of
merchandise, he merely judging and transmitting to the wholesaler
and manufacturer the ultimate consumer’s demand for various
goods. In this case, the middleman’s demand for capital (that is,
for loans) is a reflection of the time-valuation of consumers as
smbodied in the prices prevailing in the markets for goods.
Professor Seager seems so near at times to abandoning the costof-production
 theory of prices with which the Productivity theory
of interest is related, and has contributed such valuable and needed
zriticism to the present discussion, that it is to be hoped that he
may yet bring his powerful aid to the capitalization camp.

VI. The capital concept in the interest theory.
The difficulty of seeing the capitalization problem in a broad
way, as something touching all sources and groups of income, is,
however, insurmountable so long as one adheres to the old concept
of capital Seager uses capital” “in the sense of the produced
means of further production,” and distinguishes land and capital
as two groups of concrete objects, one of which owes its value to

® See above, pp. 77, 83-84,
® AMERICAN Ecoxomic Revızw, Dec., 1912, p. 848,
7 Tdem, D. 844.