DISTRIBUTION OF AGRICULTURAL INCOME 305 



This interest would pay his taxes. If, on the other hand, he 

 had to borrow money to pay for his farm, he would need to 

 borrow $10,000 less than would have been necessary if there 

 had been no tax. He would save the interest on this $10,000, 

 and this saving of interest would just equal the tax which 

 he would have to pay. This farmer would thus be just as well 

 off if the rent had always been taxed, as he would if it had 

 never been taxed at all. Instead of paying the previous owner 

 a large sum of money for something which he did not produce, 

 this farmer would be paying the interest on that sum to the gov- 

 ernment in the form of a tax ; and this tax would pay, or help to 

 pay, the necessary expenses of the government and thus relieve 

 it of the necessity of taxing things which have been produced 

 by labor, which is the same as taxing labor. 



III. INTEREST 



One of the most difficult and elusive problems in the whole 

 field of economics is that of interest. Interest is the income 

 derived from the ownership and use of capital. The problem is 

 to explain just how that income arises and how it is determined. 

 This problem is simple enough when we consider the simplest 

 possible case, namely, that of a man who makes a tool for him- 

 self and then uses it in production. The increased production 

 which results from the use of that tool might then be regarded 

 as interest, though it would not ordinarily be distinguished from 

 wages. The increased production resulting from the use of the 

 tool, however, needs to be clearly understood. The time and 

 labor used in making the tool might have been used in the pro- 

 duction of other goods. After the tool is made and put to use, 

 it presumably increases the quantity of other goods produced. 

 If the quantity of this increase is no greater than the quantity 

 wh ich might have been produced by the time and labor spent in 



