20 FOREST FINANCE 



IV. — Interest on capital consisting of accumulated labor has a very large 

 "(Tb)"- This is proven by the following: — 



1. It can be outranked and reduced in value by other and better labor- 

 accumulations (e. g., sulphite fiber process superseding soda fiber 

 process; Southern cotton factories outranking Northern cotton fac- 

 tories; steamships superseding sailing craft). 



2. The real necessities of life are more a soil product than a labor pro- 

 duct. In the case of unnecessary articles, fashions and inventions 

 cause continuous fluctuations of the remunerativeness of the in- 

 vestments producing such unnecessary articles. 



3. If a production, basing largely on accumulated labor, is found to be 

 remunerative, it is at once overdone; and competition kills the yields 

 (e. g., bicycle manufacturing). 



4. Labor-made capital (machinery) is usually consumed in the course 

 of the production. 



V. — It may be said that no man who wishes to be on the safe side, on an aver- 

 age, should annually consume over 2% on his investment; or that no man 

 should rate the true earning power of his investment at a figure exceed- 

 ing 2%. 



The financial genius, of course, can do better and can credit himself with 

 a large "(Ifc)"; he foresees the development of the future correctly; at an 

 outlay of $1,000, for instance, he creates or acquires a capital producing 

 $100 of true net "(Ifa)", which is worth $6,000. Thus, he owns five times 

 as much as before at the end of the production. 



Theoretically, the genius obtains wealth by buying productive capital 

 actually under-rated by the majority of the owners, and by selling productive 

 capital actually over-rated by others. The blunderers foresee the coming 

 events wrongly; they sell on a rising market, and they buy on a falling market. 

 During the year, the investors change their opinion frequently, relative 

 to the outlook of the future; hence continuous fluctuations on exchange. The 

 ratings placed by two men on the same investment coincide in rare cases only; 

 hence few transactions on exchange, a trade being made only when two men 

 happen to agree. 



VI. — Additional factors influencing the rate of interest: — 



1. Unhandy credit systems; 



2. Partial or slow courts; 



3. Danger of foolish legislation; 



4. Amount of indestructible assets. 



The factors 1, 2 and 3 increase, and the factor 4 decreases the rate of 

 interest. 



The rate of interest charged for loans and bonds increases whenever the 

 industries prosper. The available money is then withdrawn from loans and 

 put into industrial engagements. 



VII. — Limits of Interest. 



1. The lowest limit is the figure at which the owner prefers to hide or 

 consume his belongings. 



