Institute of Public Finance
No. 69, Section 2, Chienkow North Rd.
Taipei, Taiwan, R.O.C.
Fax (886) 2-5013012
Phone (pub. fin. institute) (886) 2-5027015 ext. 103
Home: (886) 2-5170259
Email: gunning@stsvr.showtower.com.tw
"[T]he arctic regions and the tropical deserts do not offer favorable opportunities
for...wealth-producing activities."(7)
"The ruling forces of civilized life are the intellectual forces. The moral code of eighteen hundred
years ago left, indeed, not much to be added. Laws, governments, institutions, science, art,
invention, and discovery, -- these are the facts which measure the distance between civilization
and savagery."(9)
Security, property rights (i.e., institutions or actions that "settle the connection between industry
and reward) and freedom of choice and from exploitation, enhance productive forces."(9) "Both
slavery and feudalism suffered from this defect."(10)
"Institutions...are a working consensus of human thought or habit, a generally established attitude
of mind and a generally adopted custom of action, -- as, for example, private property,
inheritance, government, taxation, competition, credit. [Looked at from the] social point of view,
[they are] qualities and attributes of the human factor in production...[L]ooked at from the
competitive and distributive point of view, their chief significance is in affecting the terms of the
division of the aggregate product."(11)
"[B]y far [man's] greater progress has been worked out on the line of adapting self to environment rather than environment to self and...the most and the best of these adaptations of man to his environment have been intellectual adaptations."(13) "...conforming of himself and of his methods to the situation which he has to face...changes in the human factor in the problem (14) [and] it has been, on the whole, an intellectual rather than a physical adaptation.(15)"
"It is evident that, with the passing centuries, civilization is not advancing its frontiers further into the tropics; rather it is progressively retreating, making good this loss by new conquests further toward the poles. Precisely as progress is too difficult a problem in the frigid zones for any race yet fully to have solved it, so the problem of mere existence in the tropics is so over-easy of solution as to have degraded man, through stagnation and ignorance, into an incapacity for civilization."(16)
^
"[R]usefulness and ruthfulness...in an industrial society occasion its crimes of violence, its jingo
wars, its poisoned foods, its poisoned poisons...The Napoleon of current finance -- we need to be
rid of him...What was once predation for group welfare is now become predation upon the
group."(20-21)
"The competitive order is a pecuniary order."(21)
"[M]ore and more, as society has advanced from a society of isolated production through a barter
economy to a money economy, it is now moving over into a credit economy..."(22
"If we defined political economy as 'an inquiry into the causes of the wealth of nations'(Adam
Smith), we should have to study politics and chemistry, among other things." (23-24)
"Price is a particular instance of value." ["The value of any specific thing reports its exchange
relation to any good, money, or other."](24)
Economics is "[t]he science that treats phenomena from the standpoint of price...[t]he problem of market price...is the central and unifying problem of present-day economics. Price extends its sway to the utmost limits of whatever is property"(25)
"[T]he economist's business -- as economist -- is not the formulation of moral standards or the making of moral appraisals."(27)
^
"[M]uch that belongs to any human economic system [including socialism, which has a theoretical economics] must be common to all systems that are human." These include, for example, "the fundamental fact of human need and desire...the dependence of aggregate consumption on aggregate production...and the twofold dependence of aggregate production upon the efficiency of man and upon the quantity and quality of his instrumental equipment."(31)
"The theory of price is...the core of all economic theory...[because] gain is sought in terms of price."(31)
^
"In the money economy the facts [goods exchanging for each other] remain essentially the same, but become more manageable."(39)
^
He goes on in this chapter to draw demand and supply curve (emphasizing that supply curves are
really reservation price curves) and to attribute the marginal concepts implicit in the curves to the
"Austrian school of economic doctrine."(53)
He says that the problem raised by equilibrium analysis is: "What are the causal forces in the
market adjustment."(54)
^
Second, his example of a typical cost account includes taxes on land and the "value of
entrepreneur's own time and supervision," possibly calculated in terms of the utility of a
non-market alternative. "A cost calculation that is adequate and exhaustive must reduce to the
price denominator all of the different resistances which bear on the case."(70) These include pain
costs, disrepute costs and danger costs.
"[I]t is evident...not only that all outlays are elements of cost, but also that personal preferences,
repugnancies, considerations of climate, neighborhood, home ties, national prejudice,
wholesomeness, cleanliness, good repute, are all elements in cost to the extent that they impose
expense to overcome them -- to the extent, that is, that they restrict supply and so increase the
price of the remaining supply."(82)
He emphasizes that the cost account is forward-looking and intended to enable the producer to make a profit estimate.
An interesting point is that in his examples of producer, he includes the safe-cracker.
Third, he presents the definition of the entrepreneur: "The entrepreneur is the independent,
unemployed manager; the one who carries the risks and claims the gains of the
enterprise...Compensation for the entrepreneur is profit."(67)
Fourth, he presents the view that "[i]n the study of the market process, the economist is interested
in those forces at work tending to establish an equilibrium of price under given conditions."(76)
Finally, he repeats a view about marginalism. "There is, in fact, no such thing as a marginal instrument excepting in the sense that it is marginal relatively to an entrepreneur."(81)
^
"All talk, then, of the fixation of price by either or both of the margins (buyer or seller) is
nonsense...At the most, the market price is simply commensurate with the marginal offer or with
the marginal selling price."(94-95)
He deals with Bohm's horse trade (without mentioning Bohm), pointing out that among the many
horse traders in a market, there is no sufficient reason to suppose that any pair will be "at or near
the margin of indifference."(97)
In his summary of the chapter he says that an individual's money demand for a good only shows
that the marginal utilities from competing goods are approximately equal.(104)
"...Nor does the fact that two individuals are marginal at the same purchase price imply that the
marginal utilities respectively involved are equal, but only that the ratios are the same between the
utility in question and the utility foregone. And finally: utility being purely a relation to an
individual, and men being different -- their desires different and incommensurable, and their
money resources different -- there is no possibility of finding, either in the demand price of any
individual or in the market, any expression or measure of utility or of marginal utility.(104)
^
"Man as consumer is the end of the economic process...But he is not merely the end; as producer
he is also the means."(111)
"[Given the demand for a product] [t]he causal sequence on the supply side of the problem runs
from the relative scarcity of the factor to the relative scarcity of its product, thence to the
relatively high price of the product, thence to the relatively high remuneration of the factor...But
the hire of any factor as cost gets its immediate explanation not directly from the scarcity of the
product but, as an entrepreneur computation, from the price of the product which price is in turn
due to scarcity.(111)
In short, the entrepreneur perceives the demand for the product and the complementary factors
that can be used to produce it. He then makes a computation, the result of which is a recognition
of the scarcity of the factor. Knowing the scarcity of the factor, he raises the price of the product.
Realizing that he can obtain a sufficiently high factor price, he proceeds to bid a high price for the
factor.
The reader who might be waiting to hear that Davenport traces all prices to utility will be
disappointed. Prices cannot emerge except through entrepreneurship. And while the entrepreneur
must account for utility as it is perceived in his estimates of the demands of consumers, the
entrepreneur must also account for his costs. Some of these, maybe most in a given situation, are
simply the prices he must pay for factors that can be used elsewhere. But while these prices reflect
utilities in some measure, they do not exactly equal marginal utilities. And only one bidder for a
factors can be a marginal bidder. Because the prices of the factors, the entrepreneur in question,
as well as the other bidders for a factor may have to make a premium payment because of the
special disutility or other negative aspects of the work to an employee. Finally, the entrepreneur
himself may get special comfort or discomfort from one or all of his duties work. Because the
function of the entrepreneur is to account for all these elements in light of his knowledge of how
to organize them in order to make a profit, he thinks in terms of productive ability and productive
equipment.
"It thus appears that costs to the entrepreneur are merely the guise in which, in an entrepreneur
economy, the underlying and controlling situation of human needs on the side of demand, and of
productive ability, and productive equipment on the side of supply, present themselves to the
entrepreneur and bear upon him in his process of placing a particular product upon the market.
Costs are merely one point or aspect -- but the central point or aspect -- in the process of
production and distribution in the competitive regime.(118)"
^
"Not only must the result have utility, it must also be scarce."(121)
"The test of productivity is not in the materiality of the product."(121)When the classical
economists made a distinction between productive and non-productive, what they really were
aiming for was a distinction between "accumulatable and non-accumulatable."(123) But this
distinction lacks meaning "from the point of view of the modern competitive analysis."(123)
"The mental power of the physician, his knowledge, however, is not wealth; it is the source of his
ability to do a useful thing, to speak a word or write a prescription which shall be of advantage to
another human being. This knowledge is part of the physician's equipment for the production of
utility. When this equipment shall come to service the result will be a good. As equipment,
however, it is not utility or good, but physician."(125)
"Artistic merit" or "moral quality" do not measure whether something is production.(126)
"[P]arasitism is not a competitive category but an ethical appraisal."(127)
"[T]he test of productivity is satisfied if either a reservation price or a demand price attaches to
the good produced."(128)
By taking reservation price as the reference, "we are able to regard all goods produced in society
as goods actually upon the market." In this context, "[i]t often clarifies the argument to regard
all employers of labor, middlemen or other, and all self-employed laborers, whether or no they
sell their product, as entrepreneurs."(128)****
"Finery to deck prostitutes, burglars' jimmies, saloon appliances, etc. are all products, i.e., all
productive."(130) [Note that "productive" means have the nature of being a product.]
If we claim that thieves are not productive, then we must also deny that many commodities that
sell and bear rents are also not products, including the coils that help distill whiskey, the tatters of
the beggar, the retorts of the adulterating druggist, the jimmy of the burglar and the brig of the
pirate.(130-131)
Franchises and good will are products.(131)
He defines commodities, services, wealth, property, and capital.(132)
"[I]ncomes which with passing time accrue to the individual from his possessions are called now
(1) rent, and now (2) interest, accordingly as the income refers (1) to the aspect of its sources as
more possessions or (2) to the capital aspect of its source."(132) "With money, obviously, only
the term interest is appropriate." "[I]nterest is sometimes inaccurately called the rent of
money."(133)
Costs are rarely if ever entirely reducible to four classes.(133)
Good summary on p. 135, and also 134.
"Productivity must, in fact, be interpreted purely as a competitive category in the price regime. As
competitive, the point of view from which to regard it must be the individual point of view, with
private gain the sole and ultimate test, and with price as the standard."(135)
^
P. 143-144 discusses the relationship between entrepreneurship, opportunity costs, and the
reservation demand.
^
The entrepreneur finds it useful to "place himself in the possession of various sorts of tools,
machinery, and lands." For what purpose might we want to divide these equipment goods "into
two great classes: land and labor?"(160)
The earlier untenable view put land and capital into separate categories. The later view -- the only
tenable one -- conceives of capital "as including all durable and objective sources of valuable
private income..." including land.(161)
"Rent is therefore one manifestation of interest, and whatever item of property, land or other,
earns it, is thereby capital."(162)
"Capital and interest are correlative terms." Capital includes "good will, patents, trade marks,
franchises, monopolies."(162)
Description of the classical doctrine -- p. 163-164.
But what does it matter? He points out the distinction between capital and land based on origins
has philosophical significance but has no significance for "the problems of market value and price
and for the analysis of the competitive, distributive process."(167) His point seems to be that we
cannot track down the origins but even if we could, they would be irrelevant to entrepreneurial
decision-making in today's economic process.
He systematically refutes Bohm Bawerk's six reasons why land and capital should be regarded
separately.(p. 168-172)
"The test of capital is, then, in the rendering of income with passing time. Any durable objective
source of valuable private income is to be recognized as capital."(172, italics added)
"The test of capital is...not the fact that it is an intermediate in some mechanical process" or "in
the wholesomeness of the consumption, or in some other possible social service" or "in the
materiality of the property."(173)
"Wherever discount is, capital is."(Heading, 173)
"[T]he capital category must obviously be extended so far as to comprise all durable items of
property -- all things, that manifest the phenomenon of interest -- or, to put it still more
accurately, all things to which the principle of time perspective applies in the process of arriving
at a present worth. Capital includes, that is to say, all possessions that furnish to their possessor
an income with passing time..."(173-174, italics added)
Footnote quote from Henri Bergson on the meaning of time.(174)
"The very fact of postponement proves that the present worth of the postponed use outranks in
estimation the present use." This is even true for decaying apples and melting ice.(175)
"We may conclude that...the factors of production are not three or four, but legion..."(176)
"The invested capital fund is therefore capital. Every source of income in which any part of this
fund is invested is capital. Every outlay in production is a cost. Every cost is to its recipient a
distributive share. Rent and interest are equally incomes from capital, are, as costs of production,
indistinguishable in their relation to price, and are distributive shares of the same rank and by the
same title."(176)
^
The extensive and intensive margins of land (182)
Critique of Ricardo's theory of land rent based on the idea that the same principles apply to all factors of production.
The "premium upon specialized skill" cannot "fall out of cost." If it could, "all competitive
computations of cost become sheer nonsense."(189)
Yet Mill wrote such nonsense, although Jevons correctly criticized him and Simon Patten
probably made the statement most clearly.(189)
In this chapter productive factors are "agents."(190)
"Cost...is purely and entrepreneur reckoning...But [the entrepreneur] cannot know, and he need
not care, what hires the agents or instruments might demand in some other employment. He is
not, as entrepreneur -- but only as economist -- concerned with the ultimate causes of his
costs.(191)
"Cost to the individual entrepreneur...assumes prices upon instrumental facts as a step toward
explaining price."(192)
"The entrepreneur's analysis takes as definitive and ultimate the actually existing total situation,
inclusive of human needs and productive powers and of all the existing supplies and existing
limitations of equipment and opportunity and institutions, -- and all or this irrespective of how far
the situation is due to an original bounty or to an original inadequacy, and irrespective of whether
human activity has in the past added or subtracted relevant elements, aspects, or facts."(192)
^
"...transportation has fostered the giant industry as over against many small competing industrial
units.(202)"
"[For the next few hundred years it is] certain that urban rents will sharply rise."(204)
It is not certain that "down-town goods are always the cheaper."(205)
"[D]ifferences in prices do not, on the whole, seem to be explicable by differences in rent, but
rather to be mostly due to other causes peculiar to the respective cases under examination."(206)
"The ultimate cause of high city rents" is the scarcity of sites.(207)
In this chapter, "rent" refers specifically to the price of urban land. In the rest of the book "rent"
typically has a broader meaning.
^
The problem of the present chapter: "The capitalization doctrine purports to explain market price
through an appeal to the future earnings of production goods and to the future uses of
consumption goods. It is a forward-looking explanation. Cost of production, on the other hand,
explains price by appealing to the past of the good..."(211)
"Cost affects price by affecting rent...Neither cost nor capitalization alone suffices for the
explanation of any durable good." They both must be used.
(212) [The paragraph that contains this statement seems utterly incomprehensible.] [The problem
may be due to his use of the term "rent."]
A doubling of the number of laborers causes wages to fall as a share of the aggregate product for
two reasons:(1) smaller per capital product (apparently due to decreasing returns) and (2) rising
rents to landlords. The Black Death caused the opposite effect.(215-216) His point is that labor is
only one of the factors of production.
[Note: The result is partly due to Davenport's decision to regard knowledge not as a productive
factor (which must be a possession, as he sees it) but as part of the human being himself (the
possessor).(see p. 211n)]
The reason for this logically correct but dubious example is apparently to support the following:
"The process of the determination of rents and of wages is intelligible only when viewed as part
and parcel of the distributive analysis under which these remunerations are fixed."(216)
Once again Davenport refers to the competitive bidding of entrepreneurs and to how only to the
marginal entrepreneur is it true that "the advantage of having the good may not be greater than
the price." But even for him, "To add the blade, and to get the harvest, affords no sufficient basis
for ascribing the whole harvest to the blade."(217)
Summary: Cost by itself can only explain the supply price of immediate consumption goods. For
durable consumption goods and equipment, cost must be supplemented by capitalization.
Capitalization thus is the process through which future facts are accounted for by entrepreneurs.
[A derivative point is that appraisal of factors used to produce durable consumption goods and
equipment entails capitalization.](217-218)
^
"If an object will give x of pleasure now, and precisely the same x of pleasure in the future -- will
men prefer it now or later? and how far?
and when and why?"(220)
"[W]inter ice and summer ice are not one good, but two."(220)
"For anything that we know, the balance with the average of men may be in favor of the future
and its needs as against the present and its needs."
"What we do know, however, seem to know, is that, when rendered over into the denominator of
price, a future desirable fact commonly suffers in worth as against a present fact objectively the
same."(221)
"Each individual has his own peculiar limitations upon his total immediate fund for investment, --
his own peculiar stress of present need, his own peculiar prospects of future plenty or of future
lack. But each arrives at his total present bid for the series of payments, the annuity under
consideration."(223)
For govt bonds, corporate bonds, and stocks, the "objective fact of money income to be received
is the same for all of these investments...there is no room for individual estimates or
interpretations...Not so, however, with respect to the income of...[a] dwelling house, a horse, a
picture, a piano, a farm...All sorts of influences [effect] the money rentals attributed by different
men to the same objective rent-bearing fact." He proceeds to present a list of these.(223-224)
This doctrine diverges from the currently held doctrine, which maintains that there is "a
marketrental and a market rate of discount."(225) The doctrine promoted here maintains (1)
"that...different earning powers the different individuals...most motivate the respective individual
price offers; and (2) that...the different rates of discount of the different individuals -- if any rates
there are -- by which the respective earning powers are discounted in the different individual price
offers."(226)
The current doctrine "adopts the attitude of the broker or speculator."(227)
"Accurately, we do not want things because they have utility, but their utility is merely this very
fact that we want them. To say that the utility is the cause of the want...is essentially
repetitive..."(229)
"The importance of the remoteness is merely in its effect upon the relative strength of the
opposing present wants for alternative things."(230)
See the example of the individual faced with the problem of renting a piano-- p. 231.
"[A]ll durable goods are subject to the capitalization process and are therefore capital."(233)
"[T]he capitalization process has...to do neither with the market rentals upon durable goods nor
with the market rates of interest upon different classes of loanable funds, but only with the way in
which the possessors of the goods arrive at their reservation prices, and the bidders at their offer
prices."(233)
Analysis of the capitalization process shows that "the phenomena of interest and of discount are
essentially one phenomenon differing only in the standpoint of time from which the fact of
increment is viewed."(232) It also leads Davenport to make a precise definition of capital. "[T]he
present money worth of any future income or of any series of incomes constitutes capital."(223)
Next it leads him to the following approach to capital: "[I]nterest (or discount), capital, and
capitalization [are] correlative terms, and the phenomena indicated by them interdependent
phenomena."(233)
A point which is relevant to Davenport's explanation of the trade cycle concerns his note that
because "the doctrine of capitalization...bases itself upon the individual processes lying behind the
reservation prices of the sellers and the bidding prices of the buyers...[t]he analysis must therefore
be psychological rather than logical in emphasis..."(233-234)
"[I]ndividual capitalizing processes underlie both the demand and the supply schedules of the
market process..."(233)
"Capital...does not embrace all goods commanding a price, -- ice cream for example..."(234)
^
"A money economy means merely that some one particular commodity has been specialized to the
intermediate function and is generally accepted in that function."(237)
"But if the payment be not immediate...[w]hat standard will serve...?...That commodity is
money.(238)"
The creditor cannot ask for an equal value, he can only ask for a price. "The market knows, it is
clear, no other value equality than this...Equality in value is an empty phrase."(241) He goes on
demonstrate that such equality does not exist over time and space. "Money has no one value, but
only values."(242)
A measure must be quantitative. "Neither value nor price is a magnitude or a quantity, but only a
ratio.(243)
What can we mean when we refer to a stable standard of deferred payments? The problem, it will
be recalled is "mainly one of achieving justice between debtors and creditors."(245)
A perfect money would not be speculative at all, for either creditor or debtor.(246) [D. does not
discuss speculative markets and the prospect for hedging.]
[A] loan is, in essence, a long-time barter.(246)
"An appreciating money is an injustice to the debtor...It is only the existence of the credit relations
that makes the stability of the standard seriously important."(246-246)
The only acceptable standard is utility, or purchasing power. "Inasmuch, however, as utility is the
test, each commodity must be taken in the due proportion presented by the relative consumption
in terms of price."(248-9) Regarding the idea that a uniform standard of deferred payments might
avoid monetary fluctuations, he points out that utility is the only standard but because of
individual differences, the standard can apply "only impersonally and in a large and general way to
all contracts of deferred payments."(248). He goes on to discuss a "standard based, not upon any
one commodity, and not equally upon all commodities entering into general consumption, but
upon all commodities taken in proportion to their importance in the average individual budget or
expenditure." He concludes with a quotation from his 1896 book: "It may be doubted whether the
method will ever come into general use or would prove entirely practicable if adopted; but the
principle on which it proceeds has been accepted by most economists as indicating an
approximately ideal standard."(249)
Next he presents an excellent criticism of Fisher's solution to the index number problem in
Purchasing Power of Money, 1911, p. 213 for wanting to include production goods in the bundle.
^
"To declare the value ratio of cloth to wheat...is merely to deduce from the actual price relations
what these non-monetary relations would be if only they actually were; or it is a computation
declaring the different and ultimate barter relations which the use of the intermediate
permits."(255)
"...The intermediate may be a storehouse of purchasing power. The second half of the barter may
be deferred."(256)
What is money? Redeemability is not the test because it is possible to have a totally fiat money.
Though, "doubtless, all money is credit...[because] the receiver accepts it as a demand against the
market."(257)
"'Real' money, then, the standard money, the money of ultimate redemption, is that money -- gold
coin, for example -- which has the power of fulfillment and discharge of any and every credit
obligation."(257)
"It appears, then, that whether a given medium is money for the purposes of any particular
discussion must depend upon its relation in the case to some other form of medium...It is, then,
mostly an arbitrary matter whether credit be called money for any purpose"(258)
The qualities of money (259)
Annual product (for money) must be small in proportion to existing supply.(259)
Because more than 90% of large transactions and more than 50% of smaller ones are carried out
in the form of credit, we must study banking.(260)
"Banks are, in truth, mostly intermediaries between debtors and creditors -- but not in the sense of
borrowing funds from one class of customers in order to lend them to another class, but rather in
the sense of creating for their borrowing customers funds which may be used by these borrowers
as present purchasing power"(263)
"It is, therefore, a sheer blunder to infer that a bank is rich or strong because of its great total of
deposits or to regard deposits in banking institutions as making part of the aggregate
wealth"(264)
"Essentially, therefore, the business of a bank is a form of suretyship -- the guaranteeing of its
borrowers' solvency -- an underwriting of the credit of its customers."(264)
What are the costs of producing credit? (a) the cost of maintaining reserves and (b) the costs of
administration.(265-266)
The advantage from exchange can be divided into two parts: the advantage from selling and the
advantage of buying.(267-268)
Sellers surpluses are relatively greater. This means that (1) the utility to the seller of X expected
from the purchase of some future item, which may be uncertain, minus the opportunity cost of
selling X is greater than (2) the utility received by the buyer of X minus the utility of his best
alternative.(268-9)
The chief pressure in the demand for money comes from the advantages of using it to acquire
goods.(269)
So if we want to understand the demand for bank credit, we must ask why people are willing to
produce goods and exchange them for bank credit.
The demand for money is elastic in the sense that indefinite increases in its volume can be
absorbed through a general rise in price. But the demand for money is inelastic in the sense that
there is no upper limit to the values of money that a change in the supply of the media may
cause.(269-273)
Now we consider credit money. How credit money is created: someone comes to the bank and
asks for it. "How much of this new medium will be provided? So much as the borrowers will pay
the bank for issuing, as equated against the rising terms at which the banks, in view of the
increasing cost of issue to them, are disposed to issue."(276)
Types of security: property, prospects of property or income, and general faith in the customer's
paying power.(276)
"After the money is created, we can say that the borrower's resources are a guaranty fund, a
margin, a reserve, upon his operations."(277)
"...excepting that, in the case of an additional money of a cheaper material, all the outflow is
confined to the dearer money, the cheaper continuing in the money function."(279)
Currency experiments and national bimetallism are futile.(280)
Without credit, expanding businesses would reduce prices and profits would tend to vanish. [this
is apparently because of the downward inflexibility of wages] But this advantage accrues only at
the "risk of enormous dangers."(282) Namely the commercial crisis(282)
"England succeeds in managing a much larger per capita volume of business than does France,
and with a much lower per capita supply of bullion currency. But periodically England suffers
acutely from the commercial crisis, while France is relatively exempt. The losses probably
outweigh the gains."(284)
Some people think that "enlarging the currency basis" (adding more gold or silver) can bring a
country out of a recession. They do not realize that "it is the shape of the pyramid, and not the
size of it, which is matter of concern." He is speaking about the "volume of credit relatively to
money."(284) [Note that this repeats the discussion of money in Davenport's 1896 book, p. 278]
"Nor is there any great hope that these credit methods will cease because of their dangers."(284)
How to stop the depression: In England, the government "promises the later legalization of such
illegal issues of notes as the (Central) Bank may find necessary." In America this is not possible
because of fixed reserve requirements.(285-6)
He describes deposit banking.
"[I]t is a practical certainty that, in a system of separate and uncoordinated banking enterprises,
the banks will themselves make immeasurably more serious whatever serious things may
happen."(287)
"There are...two serious defects in the organization of American banking, (1) the double-counting
of reserves and (2) the many-reserve system, -- an evil seemingly on the verge of receiving its
long-deferred remedy."(288) That is the Federal Reserve System. The latter defect is more
serious; the former merely aggravates the situation.
During normal times, banks freely give up their reserves to other banks in the system of
discounting notes of other banks. The discount rate operates to facilitate this. But during a
recession, banks aim to keep their reserves and to bolster them by selling off assets, like
securities.(290)
Without criticizing the banks, the fact remains that they have ceased to perform "their function of
maintaining credit."(291)
Insofar as business credit is concerned, businesses at the higher stages of production are
substituting their credit for the banks.' But this financial strain ultimately translates itself into
changes in production and consumption.(292) To which we now turn.
First he considers production.
"Restriction of production is mostly due to a disastrous redistribution in society of the function --
or the burden -- of supplying credit...the stringency period is merely a period of the redistribution
of the function of carrying credit."(293)
The firms at the higher stages of production are not fitted to carry out this task. They "have no
devices or adjustments appropriate to the problem."(295)
"By one device or another the banks should be held to the responsibilities of their function -- the
supplying at all times, and especially in times of stress, of all that credit in guarantee of which any
applicant is able to offer the adequate security and for which he stands ready to pay the ruling
rates of interest."(295)
Post-Panic Depression [This repeats a discussion in his 1896 book, p. 362-365), but it is more
sophisticated. It adds liquidity preference and "perspective."]
"...[B]ecause higher prices for intermediate goods are derived from the higher prices of their
products, the rise in the price of the intermediate good follows more or less belatedly after the rise
in the consumption goods."(296) There are "years of wide margins..."
"[R]ising prices increase both the ability to borrow and the disposition of banks to lend."(297)
But there comes and end: because of transactions demand -- the need for pocket money.
Reserves have been falling relative to liabilities; but eventually they begin to fall absolutely. So
banks begin to expand credit less rapidly.
The credit crunch ultimately filters down to consumers as retailers begin to extend less credit to
them. The retailers are also not suited to performing the credit function.(298) Whether the crunch
on consumers or on producers is most important cannot be safely determined.
But there is a still stronger influence restricting production: wages lag behind prices. Because of
this, "[t]his analysis points to the large advantages in the commodity standard of payments."(300)
He now asks whether this factor persists into the long period of post-panic depression. In the long period, we might imagine that credit has disappeared from the scene. We are back to using gold. The problem here is that money's function as a "storehouse of value" acquires overwhelming importance relative to its function as a medium of exchange.
"The rural laborer is wanting work and the city dweller is wanting food, and both are wanting
clothes. And still there is no work."(301) The problem is that, while money is primarily a medium
of exchange, "supply creates its own demand." But this process depends on money. If no one is
willing to exchange money for the product that someone supplies, Say's law cannot
function.(300-302) What...if the possessors of goods really do not want to barter for other goods,
but only to get hold of money and, for the time being, stop there? What if for a while the
intermediate [money] is...held as provision against the pressure of creditors, or for the purpose of
later speculative purchases, or for some other end remote enough so that the money has lost
temporarily its function of serving as intermediate in the exchange of present products against
other present products? Foreseen future needs are outranking in the present estimate the actual
present needs...Falling prices necessarily result."(302-303) Falling prices don't change matters,
since the problem is the "current psychological attitude."(303) When will the money emerge from
its hiding? Only when expectations change-- "this retired purchasing power will some day come
to realize that prices must finally turn toward rise."(303)
Why won't investment solve the problem? There is "no occasion to build more factories or to
borrow for more equipment." Thus "savings will not capitalize into forms of intermediate social
wealth..." The problem is caused by the "restriction of the disposition to consume."(305)
Saving, Luxury, Charity, and Waste
"If then individual saving is to be justified in its social aspects, it must be by the fact that savings
are directed to the increasing or social equipment, and that there are room and need for the
expanding supply."(307) No one knows how great a need there is for such equipment. Also
saving cannot go for more gambling dens, brothels, or police slush funds.(306)
Do consumption standards commonly keep pace with productive power so that, commonly, no
surplus productive equipment comes to exist?..."[T]here is no theoretical necessity for
this..."(308)
"[T]he limits of rational savings are, then, set by the prospective elasticity of consumption."(308)
Giving money to the poor probably stimulates consumption -- a case for public works. But the argument is "doubtful enough."
Saving that goes into consumption loans (i.e., loans to buy first-order goods) and fiscal deficits
are to be condemned.(309-310)
The real problem with the quantity theory is that the ratio of gold to credit doesn't stay the same.
He concludes: "There is, then, no fixed and regular ratio between the volume of gold in the
aggregate and the volume of gold in circulation as money, either directly or as reserves for
credit...[H]owever...[i]n the long run and in the broad average, the volume of credit depends on
the volume of money -- reflects it -- shadows it. But it is in the very long run."(317)
The problems of the quantity theory are evident during crises. "The truth is, however, that other
and important causal forces are at work in time of panic."(318)
During the panic, "[h]olders of goods fear financial pressure or a further fall in the prices of
goods, and so push to sell; holders of money may be apprehensive of possible demands of
creditors, or may be looking for further advantage as purchasers with further putting off of
buying; or they may have become convinced of the wisdom of a final withdrawal from all this
up-and-down of things with its menace of loss, and so are waiting to lend out their funds in some
safe and long-time placement -- or are going to do some one or other unfixed thing a year hence,
when they shall have recovered from their fright."(318-319)
There are changes in price levels that "are solely explicable as changes in the attitude of the
holders of goods toward purchasing power and of the holders of purchasing power toward
goods."(319)
The long depression after the panic affords another illustration of the "psychology peculiar to
monetary affairs."(319) "It remains difficult to find a market for products, simply because each
producer is attempting a feat which must in the average be an impossibility -- the selling of goods
to others without a corresponding buying from others.(319)
^
"The difficulty with the concept of social capital is really the same as with the concept of social productivity..." He speaks of burglars' jimmies. "Thus the justification for employing [these terms] is found only as providing a vague or negative background against which to outline the precise and actual concepts of the present competitive order."(334)
end footnote
We measure wealth with money. Therefore pills are wealth while medical wisdom, which may
replace pills, is not wealth. It is part of the organism. But "[t]he distinction is a nice one and not
altogether satisfactory."(335)
Gold money is both private capital and social capital. Credit insofar as it serves as a medium of
exchange is also capital. It is also "the most important ingredient in the aggregate fund of
suspended purchasing power and in the supply of currency for loan."(335)
"Private capital, that form of capital with which actual business is concerned, includes, as we have
seen, all forms of durable private wealth -- all such property of any individual as requires an
appreciable period of time for the rendering of its services, -- all possessions any of the incomes of
which are so far remote in time that some of these suffer in present price estimation by the very
fact of this remoteness, -- all wealth the present worth of which involves the application of the
principle of time discount, -- all wealth remunerated according to the dollar-time unit. Private
capital is merely those private possessions which are bases of private income. This capital is
productive, truly, -- acquisitive, gainful, -- but not necessarily so in the social sense of
contributing to the general welfare or of increasing the aggregate of incomes, but only of
increasing the owner's income."(335)
Crusoe capital, collectivist society capital, and competitive capital.(336-342)
We must understand "in what private capital actually consists" in order to understand the
relationship between (1) "the supply of loan fund and the quantity of private capital in general"
and (2) between "the supply of loan fund and the income upon private capital in general."(336)
"In the modern society, "some part of the activities of society and some part of the increase in
social equipment are controlled by the state or the government; but just so far the society is not
competitive in character, but collective."(337)
"[I]ndividual "abstinence," in the present industrial organization, is a condition precedent to social
saving, and therefore to the possibility of social capitalization; but it is not social saving, nor is it
social capitalization."(339) For social capitalization to occur the money must be lent to an
entrepreneur who produces a higher-order good ("social equipment or durable goods").(338-339)
All this implies that "the amount of social wealth or social capital in society is no test or measure
of the supply of loan fund excepting in the degree that the individual holdings of social wealth
may affect the resources of individual lenders or the credit of individual borrowers."(339)
He presents and example to illustrate his distinction between social capital and the loan fund. 999
farmers have ordinary farm equipment and 1 farmer has 999,000 head of cattle. Now an
entrepreneur wants to construct a railroad but there is no capital available for the purpose(339)
(There is also no money.) The capital becomes available in the following way. The owner of the
cows exchanges them with the farmers for promissory notes. Then he discounts them at the bank.
In discounting the notes, the bank creates capital based on the farmers' promises. It would also be
possible for the capital be created by basing it on "contracts or due bills or acceptances or orders
dischargeable on demand in labor or in produce..."(340) He concludes: "[T]here need be neither
social capital nor social wealth in existence to which the loan fund capital traces its existence or
upon which it is based or into which it has as yet flowed."(340-1) And: "There exist...rights of
direction over the application of labor and commodities. Every credit represents such a right. The
loan market consists of these rights and nothing else."(341)
There is a theoretical limit to the existence of such rights, since some of them must be used to
produce consumption goods.(341)
"The creation of social capital is ordinarily conditioned on the transfer, in the form of loans, of
these rights of direction to projectors of enterprises. It is only the loan fund that commonly is
lent."(342)
"It may now be taken as established...that the 'capital' that is borrowed in the loan market is
suspended purchasing power in the form of money or of credit substitutes for money...and that
capital in the credit relation is something quite different from social equipment or even individual
wealth in general."(343)
We should use the term loan fund to refer to the "actual thing that is borrowed."(343) "The
abundance of loan funds is determined more by the degree of complexity in credit relations than
by the existing quantity either of social or of private wealth."(344)
He goes on to argue that the loan fund theory is not new but that what will be new are the uses he
later will make of it. He finds evidence in the writings of Ricardo, Bagehot, and Cairnes.
(344-346)
He shows why entrepreneurs borrow money instead of rent factors. He considers the possibility
that there is a lack of coincidence of demands. The owner of the factor may not want to lend it or
to wait to receive his rent.(346-347) But more important is the fact that the promise of the
borrower is less acceptable than the promises of an intermediary-guarantor.(347)
Although some of the money borrowed by enterprisers to produce higher order goods comes
directly from investors (capitalist-savers), most is created by banks. Most people save in the
commercial banks, saving banks, and insurance companies. The interest rate at any particular
moment thus depends on the banks, although banks "do sometimes expand and sometimes
contract the volume of circulating media."(347-9)
"The supply of this loan fund form of capital is thus more largely a question of the organization of
banking and of the degree of banking activity than a question of the wealth of society."(348)
In the case of an increase in gold, there are "(1) easier loans, and lower discount rates, followed by (2) rising prices and stimulated demand from borrowers, necessitating (3) a recovery in discount rates possibly extending even beyond the original level, and resulting finally in (4) the old level of interest at a higher level of prices."(349-350) But in the case of credit, the whole process begins when the people are unhappy with their amount of current funds and offer notes in order to acquire current purchasing power. Banks will only discount those notes at a higher rate of interest. [Thus, one might say that there is either (1) a change in time preference causing consumer-savers to demand more money to purchase near future goods or (2) a change in the perception of profit opportunities causing entrepreneurs to want to borrow more money now to take advantage of time specific opportunities (such as a technological breakthrough that makes the delay of current consumption a worthwhile endeavor while entrepreneurs replace what has become less efficient methods of production with the more efficient). But D. does not go into detail and concludes that his analysis may be faulty.]
Next on the relation between banking and long-time levels of interest, he begins by pointing out that (long-time?) credit comes into being when a person decides that instead of borrowing from someone else, he will borrow against his own property or reputation. When the bank accepts his promise, it basically becomes a guarantor of his promise. The bank gives him more favorable terms than a prospective borrower. The bank incidentally transfers future paying power into present paying power through the reserve system, although it does not actually expect to pay. [This last point seems faulty since it assumes that the bank necessarilygives the borrower new money instead of taking the money away from some other borrower. It would not be faulty only if the bank believed that the level of creditworthiness of the community had risen.] "In substance, then, the discount charge of the bank is an insurance premium for the danger of loss which it accepts in substituting itself as debtor in place of the borrower and in undertaking, if necessary to pay on demand in his stead."(351) "It being, then, established that the discount rates of banks are a compound of (1) risk charges against possible bad loans (specific mortality hazards), (2) overhead and general charges for the risks of stress or crises (conflagration or epidemic hazards), (3) charges for the cost of maintaining reserves and for the general expenses of administration (expense loading) -- it should follow that banking can have no very important bearing on the long-time level of interest rates."(352) The banks are intermediaries providing suretyship -- the underwriting of credit. However, there is a small effect due to the fact that by virtue of their suretyship, the costs of carrying of the credit risks are lower.(352)
end footnote
He summarizes the chapter in one long sentence beginning on p. 350. An interesting point is that
he says "the supply of loan fund is merely the supply of present purchasing power available for
lending; that this loan fund is therefore made up exclusively of rights of purchase -- rights of
control or direction of men and of wealth...that the loan fund, as made up of income-earning
possessions, is capital, but a peculiar kind of capital, one among many varieties, and entirely
distinct from durable production or durable consumption goods or from the raw materials of
industry -- a kind of capital also that has no direct dependence on the supply of production goods
or of other concrete wealth in society, or even any necessary relationship to any of them..."(351)
^
People are willing to pay interest because people want earlier rather than later purchasing power
for (1) buying producer goods, franchises or patents, (2) speculation, (3) buying durable
consumption goods, (4) immediate consumption goods, and (5) to pay debts.(356)
Where do the funds come from: (1) savers and (2) banks, as shown in chapter 18.
The abstinence theory. If abstinence only means that people have a choice between immediate
consumption and saving, it is a truism. Otherwise it is false.(357-358)
Both abstinence as an explanation for saving and labor as an explanation for the origin of capital
value "are equally inadequate doctrines."(358)
Just as there is much capital that was not created by labor and that never could have been destroyed by waste or consumption, so there are savings created by banks "as a derivative of future paying power."(359) [This means, for example, that if I have land that has market value because of the high demand for it as a location to do business, banks may create money by accepting the land as collateral in a loan of new money.]
He asks: "Might not the present premium against future need be all the greater if the earning
power of a given fund were less?(361) He goes on to say that to isolate the problem, we must
make "a more or less heroic assumption." He uses a model of perishable goods and only labor as a
factor of production. He proves that perspective is insufficient to guarantee that there would be a
premium for present goods over future goods. He "proves" this by showing that there might be a
negative premium. "...there might even be money..." [His proof is correct but not sufficiently
insightful about labor contracts. Suppose that there was negative time preference for goods. Then
given neutral time preference for labor, entrepreneurs would reduce their demand for current
labor relative to future labor. In addition, they would increase their demand for contracts to
receive future goods. Thus, the prices of both contracts for futures goods and future labor would
be bid up. Given the neutral preference for labor, the quantity of current labor would fall below
the quantity of future labor supplied. Although his proof is incomplete, his point seems
correct.](361)
He dismisses the notion of abstinence (of a virtuous kind) being the source of the loan fund other
than in the sense that when people do not consume they cause the loan fund to be greater. There
must always be abstinence in the sense that the choice lies between "postponed services and
present services.(363)
"The doctrine which asserts merely that the growth of the loan fund is dependent in partupon the
disposition of possessors of resources to retain them for future needs rather than to spend them
for immediate needs is true -- to the extent of being a truism."(362)
Saving is affected by prospective changes in income, needs, and earning power.(364-365)
At the margin, someone like Rockefeller, who has no debts and all the immediate consumption
goods he wants, has a choice between consuming and setting aside, but besides setting aside, he
has three other lines open to him "(1) durable goods, (2) gain-rendering goods, and (3) loans to
other men..."(366)
The aggregate loan supply depends on the abstinence of savers, as just described, and upon the
"supply of immediate funds derivative from the future paying power which the bankers, through
their guarantee function, are making effective as present paying power. This limit is a cost limit --
the indemnity necessary to enlist the activity of bankers..." These supplies depend upon the
compensations which are offered.(366-7)
What is the effect of the productivity of wealth in time (i.e., increasing technical possibilities of
roundabout production)? Although the expectation of future wealth raises the willingness to
consume now, the greater effect is on the willingness to forego consumption to take advantage of
future wealth. In fact, this is the only possible way to benefit from the increase in wealth
productivity through time; since "the increment can only be had on terms restricting somewhat the
present consumption."(368) [D. seems to have in mind here a comparison between a case where
there is no productivity of wealth in time and a case in which such productivity suddenly appears.
The interesting issue raised in this analysis is how to conceptualize Bohm Bawerk's notion of the
increasing physical productivity of roundabout production methods and, more importantly, how
to construct a realistic image of economic interaction into which this conceptualization can be
placed.] (368-369)
He aims to show why "interest is not mere perspective," as Fisher apparently believes. In his
example, he assumes that all present needs have been fully satisfied but that there is still "a clear
appreciation of tomorrow's needs."(369-370). Then he goes on to argue that if there was a
doubling of future productivity per day, it would cause the rate of interest to change. He seems to
mean that all individuals are in present future equilibrium, not that they are satiated. The doubling
of future productivity causes vigorous bidding for the money needed to bid for the factors that are
needed to generate tomorrow's higher amount of goods. [But this approach seems to assume
either that the satisfaction of partly unsatisfied future needs cannot be substituted for the fully
satisfied present needs (yet after the increase in future productivity this becomes possible) or that
while present needs are fully satisfied, future needs are somehow not fully satisfied.]
1. Interest is one sort of reward for waiting. He equates this with interest as a reward for lending money. It is obviously this.
2. Interest is the reward for waiting in general. If this is true, then interest must be equally a reward for allowing someone to use one's land ("rent") and one's machines.
3. Interest is the reward for the abstinence represented in the existence of non-land wealth. This makes an invalid distinction between land wealth and non-land wealth. Only machine rent is allowed to be called interest. And what about patent rights and goodwill? Also what about the landowner who sells on time. This view is really based on the labor theory of value and is subject to the same criticism. He quotes Taussig, Bullock, and Hadley as examples of modern economists who make the error of making interest a reward for the rental of goods that can be reduce (somehow) to the pains of labor. He goes on to say that Senior assumed that labor pain units were homogenous, that abstinence pain units were homogenous, and that labor pain units and abstinence pain units can be reduced to a common denominator.
4. Interest is a reward fixed and determined by the degree of pain or abstinence in the marginal waiting and proportional to it. Nothing new
5. Interest is a reward morally justified by waiting. He will show that it is improper to say that any kind of income is morally justified. Moral justification must be found elsewhere.(376)
end footnote
He recognizes that it is not real productivity that is relevant for economic analysis but value
productivity. However, the two usually go together.(371-372) To prove this, he constructs a very
unusual model of an increase in physical productivity. It is one in which he holds the general price
level constant, yet increases the physical productivity of producing one kind of good. The only
way that this could happen is if there is an increase in (presumably bank) money. Under these
conditions consider the price of the good whose productivity has increased. Suppose that
producer receives the same price/unit. Then he must have earned a profit. There must also have
been an increase in value productivity. But suppose that he does not earn a profit. Then the prices
of other goods must have risen more than proportionately. He concludes "Failure of price gain to
attend a gain in concrete product is thereby proved to be exceptional, and basis is established for
the payment of interest in every case that is not exceptional. Therefore, funds must bear interest.
Investment will seek the field in which gain is possible and will avoid that relative overproduction
which in the exceptional case would mean a loss."(376)
His conclusion is not that an increase in the productivity of X raises the long term rate of interest.
It is only that so long as there are profitable investments of this kind, which there must be in a
market economy, there will be a rate of interest.(376-377)
"[P]recisely the same analysis holds for the relation of durable goods to the rate of interest."(377)
He goes on to ask whether the "mere existence of rent-bearing properties...[is] sufficient to
guarantee an interest rate."(377)
Next, he assumes that all consumer goods are perishable but that land still commands rent,
presumably because it is the source of perishable goods. He concludes that "any kind of valuable
durable goods is sufficient to support an interest rate."(379)
And, finally, the last step -- "The disappearance of interest in a competitive society is impossible
so long as gainful adventure is open; and gainful adventure must always be possible so long as
there is equipment to be hired or any sort of opportunity to be exploited. This is a necessary
inference from the sole fact of buyers' and renters' surpluses."(379)
He goes on to extend the field of gainful adventure to advertising, buying franchises, monopoly,
counterfeiting and blackmailing.(380)
[The footnote seems to be an important contribution to the methodology of price theory. It relates to the method of imaginary constructions and raises the issue of the role of the logical theory of price. A paper should be written about this issue in conjunction with Young's QJE article.]
end footnote
In the case of interest, "[t]he consumption demands of borrowers make up part of the aggregate
borrowing demand, and by this very fact rank with reference to the lenders as uses future for
them."(385)
"[A]ll attempts to explain the rate of interest as the point of equation between the pains or
sacrifices of lenders and the pleasures or benefits or gains of borrowers, or to explain the rate of
interest as a rate of preference for early enjoyable income over late enjoyable income, must rest
ultimately on the assumption that, for the purposes of the problem, society may rightly be
regarded as an individual and organic thing." The reason is that gains, advantages, pains and
pleasures cannot be homogenized for different individuals.(385-386)
"[N]o adjustment can possibly be reached expressing any general or aggregate rate of preference for present goods, or present goods, or present money, as over against some corresponding quantity of item or thing in the future"(386) because:
(1) we cannot compare the satisfactions or gains of different individuals and
(2) the concept of social productivity is vacuous. "Anything is productive to the borrower which
makes for any increment of price to him."(387)
end footnote
^
^
Doctrine of unproductive labor
Economists of the latter day reject materiality but modern economists do not. The doctrine comes
from mercantilism (acquiring international purchasing power), through physiocracy (farm labor is
productive), to the modern view (materiality), was perhaps influenced by English law (real
property vs. personal property). The result is the "classic habit of confining the field of economics
to the study of wealth as material goods." But it is up to the economists of the of these latter days
to "analysis the spiritual setting of these doctrines."(510)
To do this, D. traces the history of faith. Having faith that even evil is good, we readily accepted the invisible hand idea. And subsequently, regardless of their inconsistency, economists accepted natural law. And laissez faire.
"The economists of the first half of the nineteenth century were engaged in the study of societies
emerging from centuries of kingship, of government by classes, of stupid and unjust legislation. It
was clear enough that the progress of society lay in the breaking down of legal
barriers(513)...Nothing remained but to enlighten people of their freedom.(514)
Modern doctrines about how cooperation through the market yields a distribution in which
individuals receive an income equal to the shares of the jointly produced product for which they
are held responsible for having produced.(514)
But now we must "subject these doctrines to the test of the pitiless facts."(515) D. does this by
referring to the meaning of capital. The test of whether a thing is capital is not (1) that it is
machines and tools, (2) that it is material(515), (3) that it yields a wholesome product or one that
yields a social service (516) In fact, whiskey is a good and the kettle in which it is brewed, and the
gambling house, and the burglar's jimmy, and the tools of the lobbyists, panders, and
abortionists.(517)
But now for a new point of view.
"It is, indeed, superlatively important, here and everywhere, to recognize that a complete
acceptance of this private and acquisitive point of view is the only procedure possible, in the
analysis and classification of the phenomena of a society organized upon lines of individual
activity for private gain."(517)
"Economists would do well forthwith to recognize that rights of patent and royalty are capital;
that rights of tribute through franchise privileges are capital; that police permits to rob passers-by
after midnight are capital; that legislative authority to rob importers, both early and late, is capital;
that royal patents for tax-farming the peasantry are capital; and that generally every property basis
of private acquisition is by that very fact capital."(519) He goes on to do some armchair
empiricism in an effort to "prove" that "two thirds of the durable private bases of income in the
United States are nothing else than this capitalization of privilege or of predation."(519)
Roughly "f]ive ninths of the durable wealth reported by the census is made up of privately
appropriated social wealth."(521) His purpose, he says, is not to show that the single tax program
is inadequate or to promote socialism but "simply to point out the significance of the unearned
increment of land or of privilege in it bearing upon the present distribution of wealth and
poverty."(522-523)
The present quest is to get to the heart of the growing poverty of some part of our present
population -- to point out, for example, why the wage earning classes of our cities are finding it
increasingly difficult to get meat to eat, and why, with the more unskilled of these, the Italians, for
example, it is no longer possible for the wife and the wage-earning girls and the children to have
any meat at all.(523)
Economics must cease to be a system of apologetics, the creed of the reactionary, a defense of
privilege, a social soothing syrup, a smug pronouncement of the righteousness of whatever is --
with the still more disastrous corollary of the unrighteousness of whatever is not...We economists
must, then, come to recognize that we have not rightly analyzed the notion of capital and have
wrongly interpreted the question-begging term productive in economic affairs. We have assumed
that private gain and social welfare are approximately interchangeable concepts.(p. 528-529)
Professor of Economics
Institute of Public Finance
No. 69, Section 2, Chienkow North Rd.
Taipei, Taiwan, R.O.C.
Fax (886) 2-5013012
Phone (pub. fin. institute) (886) 2-5027015 ext. 103
Home: (886) 2-5170259
Email: gunning@stsvr.showtower.com.tw