69 AGRICULTURAL ECONOMICS 



Under such conditions the gain, or premium, or interest, which the 

 owners of capital will secure, will be determined by the least produc- 

 tive use of capital; or, to be accurate in language, by the addition to 

 the ultimate product of labor which results from the least effective 

 phase of the roundabout or capital-using process. Those who use 

 capital in ways more effective than the least cannot retain the superior 

 gain for themselves. Since all who have capital at command can 

 turn to these more effective ways, competition will prevent any one 

 set of persons from securing especially high gains from them. It is 

 the productivity of the last or marginal instalment of surplus or 

 capital (last in the order of productivity) that determines the rate 

 of gain for all capital. 



Bohm-Bawerk and some recent American economists have devel- 

 oped the theory of interest in a somewhat different manner, calling 

 attention to the indefinite increase of the output per unit of labor by 

 resort to more and more capitalistic, and roundabout processes, an 

 increase, however, which does not take place continuously at the 

 same pace. This decline in the rate of increase of production, or 

 diminishing return to capital, may be likened to the obstacle encoun- 

 tered in pulling a stout rubber band: it can always be stretched 

 a bit more, but each additional application of force means a lessened 

 effect. 



In this view, it will be seen, differences in productivity and mar- 

 ginal productivity appear not only on taking a cross-section of industry 

 at a given moment, but in the development of industry over the 

 course of time. The tendency to diminishing gain in efficiency may 

 indeed be counteracted by inventions and improvements. But in the 

 absence of such progress, the marginal increase of gain tends to sink 

 and so, too, the rate of return on capital; and it sinks gradually and 

 with some degree of regularity. Since the Industrial Revolution, the 

 progress in the arts has been such as to support the proposition that 

 the increase of savings and of capital has brought and will bring 

 greater efficiency of labor without visible limits. How long it will 

 continue cannot be predicted. 



However that may be, there seems to be substantial agreement 

 among modern economists concerning the main conclusion stated 

 above that, at any given period, the rate of return on capital depends 

 on the gain in productiveness from the least effective part of the 

 capital. Whether or no it is believed that there is a separate produc- 



