188 NATURE OF CAPITAL AND INCOME  [Cmar. XI 
      
  
  
ical productivity and value return, and attempts to deduce 
the rate of interest from mere physical productivity, which 
is impossible. 
§ 4 
In this book we are concerned chiefly with the fourth 
relation, value return, or the ratio of the value of income 
to the value of capital. 
The fundamental principle which applies here is that the 
value of capital at any instant is derived from the value of 
the future income which that capital is expected to yield. 
The expected services may, of course, not be the actual 
services. In our ignorance of the future we fix our present 
valuations on the basis of what we expect the future to be. 
The principle of present worth is of fundamental impor- 
tance in the theory of value and prices. It means that the 
value of any article of wealth or property is dependent alone 
on the future, not the past. The principle has been imper- 
fectly stated as follows: “The value of any article is not 
determined by its cost of production, but by its uses.” 
But the costs of production are disservices, and these, if they 
be future, enter into value on precisely the same terms as 
uses or services. They are discounted as are services. 
For instance, the value of the Panama Canal to-day is 
dependent upon the future expected services, taken in con- 
nection with the expected cost of completion. If these 
future elements be given, the value of the canal will be the 
same whether past cost was large or small, or nothing at 
all. Of course, the future expected cost for completing the 
canal is less than if some of the work had not been done 
already, so that the greater the past cost has been, the less 
the future cost will be, and hence the greater the value of 
the canal at present. 
Thus normally the value of capital will vary with the 
past cost of production. Moreover, the experience of the 
past enables us to make a better estimate as to future cost.