22 FOREST VALUATION 



borrowed funds but on the total invested capital, in the same 

 category as other expenses, that is, as a part of the so-called 

 carrying charges of the business. 



The interest to which the owner is entitled cannot be entered 

 in proprietary accounts as an actual charge or cost similar to 

 interest on borrowed funds. His share of interest is never 

 actually expended, and the idea of cost exists merely by impli- 

 cation. But in a cost account, which is intended to present 

 definitely the relation between total cost of production and 

 resulting income, interest may be calculated and entered as a 

 part of the total cost. 



37. Interest as Income. Whether or not interest is re- 

 garded as a cost, it always represents income on the capital 

 investment, and in this respect differs from other costs. All 

 other items of expense, such as taxes, wages and cost of supplies, 

 while met eventually from income, go to persons or enterprises 

 other than the capitalists who finance the venture. And just 

 as the creditors of the business, during the formative period, 

 are paid in advance by the capitalist, who receives returns 

 finally from income, so the capitalist who only loans money and 

 does not assume the risks of ownership may receive his interest 

 in advance of income, provided it falls due and is paid by the 

 proprietor. But this cost to the latter is ultimately returned to 

 him from income, which must also pay him returns on his own 

 investment. In case the income is continuous and is accounted 

 for annually, both borrowed and invested capital receive income 

 directly from the net returns. 



38. The "Rate of Interest." Interest has been denned as 

 the price of time differences in the enjoyment of income (14). 

 Since the use or borrowing of capital is the means of anticipating 

 income (12), and the value of both capital and interest is ex- 

 pressed in money, it follows that interest is the price of the use 

 of money. 



This price for money loans is termed the "rate of interest." 

 As money is more desirable than other forms of capital because 

 of its universal acceptability as a medium of exchange, and as the 

 risk in money lending is normally less ( 36) than in business, 



