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Frank A. Fetter [March

either assumed to be fixed or are left quite unexplained), putting
the price of more labor and materials into them and thus bringing
their price into conformity with other agents of the same cost.
The citadel where the productivity theorist feels his position to be
impregnable is just here, in the thought that the amount and the
value of “capital” (produced agents) is “brought into conformity
with the expense of producing them,” thus regulating the interest
rate. Seager is on familiar ground when he says:
Since there is nothing in the assumption that the productivity of all
instruments is doubled that involves any serious change in the expense
&gt;£ producing the instruments. ®
We must dissent. "The doubling of the productivity of all agents
alike would have very diverse effects upon the prices of the various
enjoyable goods, and these prices would be reflected in the valuation
 process to the prices of the different natural sources and of
all other agents, thus altering greatly the whole scale of costs in
“producing” more agents.
But is this not a recognition that technical productivity has
some influence upon the comparison of present and future gratifications,
 and hence upon the rate of interest? Surely, some influence
 it has, but the causal order of explanation is very different
from that of the productivity theory. Technical productivity is
one of the facts, physical, moral, intellectual, which go to make up
the whole economic situation in which time-preference is exereised.
That this, however, is not going over to the productivity theory
of interest is shown by the fact that it points to an opposite conclusion
 as regards the resulting rate. "The greater provision for
present desires thus made possible leads us to expect a reduction
of the preference for present goods and a lowering of their valuation
 in terms of future goods. "This (other things being equal)
would be reflected in a lower rate of time discount and a lower, not
a higher, rate of interest, as the productivity theorist believes.”
May we not then conclude that the cost-of-production-of-capital
explanation of interest is a partial glimpse of an intermediate and
subordinate process of the adjustment of prices, in part a mistaking
 of effect for cause? It assumes a dual theory of investment
prices; some prices are explained as due to demand and others as
Jlue to cost. "The prices of the factors (materials, tools, labor)

®% AMERICAN Ecowomic Review, Dec,, 1912, p. 847.
”On this Fisber has taken a position in accordance with the capitalization
;heory. See American EcowomIc Revızw, Sept., 1913, p. 614.