Principles of Economics

Principles of Economics

Principles of Economics

Principles of Economics

Excerpt

Accumulation of present means needs an inducement.--§ 2. The gradations in the disposition to save. Cases where the inducement needs to be slight.--§ 3. Cases where a return is sought. Possibility that a lowered return will sometimes induce larger savings. More often lowered return checks saving. The conception of marginal savers.--§ 4. Diagrams expressing the equilibrium of supply and demand. Saver's surplus.--§ 5. The steadiness of the rate of interest in modern times and its significance.-- § 6. The race between accumulation and improvement.

§ 1. WE turn now to the conditions of supply for capital and to the equilibrium of supply and demand. The rate of interest, like the value of a commodity, is settled at any given period chiefly by demand. In the long run the variations in supply must have their effects also. What is the situation of those persons who have a surplus of present means--the lenders?

If the accumulation of a surplus were in no way irksome the supply of present means or savings would increase rapidly and indefinitely under the inducement of a reward in the way of interest. So long as borrowers were willing to pay a premium--to return to lenders more than had been supplied by the lenders-- these latter would accumulate more and more, and their increasing savings, put at the disposal of producers, would allow greater and greater advances to laborers. Assuming the arts to remain the same and no new ways to be found for increasing the productiveness of labor by more elaborate implements, assuming too no increase in the supply of labor--the stage would soon be reached when the additional advances to laborers would bring no addition to the output. The marginal productivity of capital would then be nil and interest on capital would disappear. If this stage is not, in fact, reached, the reason must be either that demand is steadily increase ing (the demand curve is always shifting to the right) or that . . .

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