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| 400 | “scientia„ |
quoted at 1 1/2 to 2 per cent a month. « The thrifty Michael Reese is said to have half repented of a generous gift to the University of California, with the exclamation : « Ah, but I lose the interest » — a very natural regret when interest was 24 per cent per annum ». After railway connection in 1860, Eastern loans began to flow in. The decade 1870-1880 was one of transition during which the phenomenon of high interest was gradually replaced by the phenomenon of borrowing from outside. The residents of California were thus able to change the time-shape of their income-streams. The rate of interest consequently dropped from 11 per cent to 6 per cent.
The same phenomena of enormous interest rates were also exemplified in Colorado and the Klondike. There were many instances in both these places during the transition period from poverty to affluence, when loans were contracted i at over 50 per cent per annum, and the borrowers regarded themselves as lucky to get rates so « low. »
We have seen that the rate of interest is not a mere technical phenomenon, restricted to Wall Street and other « money markets, » but that it permeates all economic relation. It is the link which binds man to the future and by which he makes all his far-reaching decisions. It enters into the price of securities, land, and capital goods generally, as well as into rent and wages.
The rate of interest also plays a central role in the theory of distribution. The true problem of distribution is that of determining the amounts of capital and income possessed by different individuals in society. Individuals of the spendthrift type, if in possession of land and other durable instruments, will either sell or mortgage them in order to secure the means for obtaining enjoyable services more rapidly. The effect will be, for society as a whole, that those individuals who have an abnormally low appreciation of the future and its needs will gradually part with the more durable instruments, and that these will tend to gravitate into the hands of those who have the opposite trait. By this transfer and inequality in the distribution of capital is gradually effected, an this inequality, once achieved, tends to perpetuate itself. Hence, in some countries the rich and poor come to be widely and permanently separated, the former constituting a hereditary aristocracy and the latter a helpless and degraded peasantry.
