68 



IV. G. Langzvorthy Taylor 



A psycho- 

 logical stand- 

 ard is of 

 social and 

 ethical impor- 

 tance. 



Practically, 

 anticipated 

 change in 

 value of prin- 

 cipal is com- 

 pensated either 

 through inter- 

 est or through 

 prices. 



tune to recall the distinction between the materialistic and the 

 idealistic standards : the former seek a mechanism whereby equal 

 commodities, not in value, but in their material form, may be 

 returned to the creditor; the latter would vindicate an integrity 

 of valuation, and, while 'less materialistic, are really more ob- 

 jective, for the reason that the topic under consideration is 

 essentially not material quantities, but mental, namely, values. 

 "Objective" means what is: in other words, the psychological 

 standard must, if the reasoning be correct, come closer to a state- 

 ment of actual facts, for the end sought is essentially mental, the 

 satisfaction of wants. 



§ 5. Fisher proved that contracting parties could theoretically 

 always adjust the rate of interest so as to compensate for fluctua- 

 tions in the value in the commodity in which they were interested 

 as consumers, dealers, or producers, and thus make an arrange- 

 ment whereby both or all would be satisfied that the amount paid 

 back was equal to the debt contracted. The analysis, however, 

 only went to the point of equalizing the differences between 

 capitals, including all possible expected fluctuations of capital 

 values.^^ But it had been shown by Bohm-Bawerk^* that interest 

 is equal to the difference between the present and expected 

 values of capital. 



If interest, then, evens the difference between present and 

 future values, and also between the valuations of different con- 

 crete capitals, what claim remains for further compensation to 

 debtor or creditor? What injustice can be done to them that 

 has not already been guarded against in the market for goods and 

 for capital? Interest is, then, the difference between the present 

 and the future valuation of capital. If utility of the principal 

 suffers modification through the vicissitudes or ravages of time, 

 that divergence, also, is compensated by a corresponding one in 

 the rate of interest. It is, therefore, on this theory not necessary 

 that the level of prices should be changed artificially, since such 

 a change would interfere with the equalization already privately 



^^Appreciation and Interest. 

 ^* Positive Theory of Capital. 



182 



