The Theory of Interest
By Irving Fisher
THE tremendous expansion of credit during and since the World War to finance military operations as well as post-war reparations, reconstruction, and the rebuilding of industry and trade has brought the problems of capitalism and the nature and origin of interest home afresh to the minds of business men as well as to economists. This book is addressed, therefore, to financial and industrial leaders, as well as to professors and students of economics.Inflation during and since the War caused prices to soar and real interest rates to sag in Germany and other nations far below zero thus impoverishing millions of investors. In all countries gilt-edge securities with fixed return became highly speculative, because of the effect of monetary fluctuations on real interest rates. After the War the impatience of whole peoples to anticipate future income by borrowing to spend, coupled with the opportunity to get large returns from investments, raised interest rates and kept them high. Increased national income has made the United States a lender nation. At home, real incomes have grown amazingly because of the new scientific, industrial, and agricultural revolutions. Interest rates have declined somewhat since 1920, but are still high because the returns upon investments remain high. Impatience to spend has been exemplified by the organization of consumers’ credit in the form of finance companies specially organized to accommodate and stimulate installment selling and to standardize and stabilize consumption…. [From the Preface]
First Pub. Date
1930
Publisher
New York: The Macmillan Co.
Pub. Date
1930
Comments
1st edition.
Copyright
The text of this edition is in the public domain.
- Dedication
- Errata
- Preface
- Suggestions to Readers
- Part I, Chapter 1
- Part I, Chapter 2
- Part I, Chapter 3
- Part II, Chapter 4
- Part II, Chapter 5
- Part II, Chapter 6
- Part II, Chapter 7
- Part II, Chapter 8
- Part II, Chapter 9
- Part III, Chapter 10
- Part III, Chapter 11
- Part III, Chapter 12
- Part III, Chapter 13
- Part III, Chapter 14
- Part IV, Chapter 15
- Part IV, Chapter 16
- Part IV, Chapter 17
- Part IV, Chapter 18
- Part IV, Chapter 19
- Part IV, Chapter 20
- Part IV, Chapter 21
- Appendix to Chapter I
- Appendix to Chapter X
- Appendix to Chapter XII
- Appendix to Chapter XIII
- Appendix to Chapter XIX
- Appendix to Chapter XX
- Appendix to Chapter XX
§ 1 (to Ch. I, § 1)
Quotations from Professor Canning’s book
APPENDIX TO CHAPTER I
THE importance to the accountant of a clear and consistent concept of income and of capital is emphasized by Professor John B. Canning in his book,
The Economics of Accountancy; A Critical Analysis of Accounting Theory.
It may not be amiss at this point to put forward a comparative appraisal of the accountant’s views and those of Fisher. And it may be convenient to make that appraisal upon the basis adopted for comparison, viz., scope of subject matter contemplated, mode of analysis pursued, and point of view taken.
With respect to the first there can be no possible doubt that Fisher’s work is immensely superior. How much of his views will ultimately prevail among economists and among accountants no one need consider. Only a guess could be made. What the event will ultimately prove, too, might as readily be a fact about the two professions as a fact about Fisher’s theory. But as a general, comprehensive treatment of the theory of income, there is nothing to compare favorably with it in either literature. (p. 172.)
In a late article Fisher says: “I believe that the concept of income is, without exception, the most vital central concept in economic science and that on fully grasping its nature and interrelations with other concepts largely depends the full fruition both of economic theory and of its applications to taxation and statistics.”
*1 If he had written instead that
income is, without exception, the simplest and most fundamental concept of economic science, that only by means of this concept can other economic concepts ever be fully developed and understood, and that upon beginning with this concept depends the full
fruition of economic theory in economic statistics, it would have been an equally true and a more significant statement. (p. 175.)
The present writer believes that had Fisher written
Income and Capital, beginning with a chapter on the topic of psychic income and ending with a chapter on wealth considered as a kind of embodiment of services directly or indirectly to become income, his work would not only have been more useful to the thoughtful reading public at large, but also and most particularly, to accountants and economists.
There is very real occasion for regret that the professional accountants have found so little occasion to work in the subject of final objective income. It can hardly be doubted that, in their enterprise (income accounts) they, at times, lose sight of the fact that such statistics are wanted primarily for the ordering of the mode of living of the persons interested. For example, it is usually pressure upon shareholders for the wherewithal to meet living expenses that excites the clamor for larger dividends. Full statement of the earning prospects that condition the upbuilding of surplus would, at least, prevent their urging dividend payments contrary to their own best interests. Full statement, too, even though no dividends are forth-coming, may put the shareholders in a favorable position—through selling part of their holdings or borrowing upon them—to maintain their customary scale of living. By keeping more constantly in mind the gap between the enterprise earnings and the mode of life of the persons interested, the usefulness of their income statistics could be greatly enhanced.
From the economist’s point of view, and for the good of the public, it is of very great importance that the accountants should make their income statistics as full and as complete as the conditions of their professional practice will permit. (pp. 176 and 177.)
Appendix to Chapter 12