Introduction We have now to retrace our steps. Having made clear the principles according to which the return, jointly obtained, may be imputed to the separate productive factors, we have now to return to the question as to the value of these factors. The general law we are already acquainted with: the value of the product determines the value of the production good. The point which we must now take up is the application of this proposition to the special circumstances of land, capital, and labour.
In this by far the greatest difficulties meet us in the case of capital. It seems as if our explanation of its value came into direct collision with the facts of experience. Assume that a capital, employed for one year and thereby completely used up, yields, at the end of the year, a return of the value of 105;experience tells us that the value of the capital will not be estimated at 105, but at a somewhat less amount according to the current rate of interest. At a 5% rate, e.g., the capital will be estimated at 100. The remainder of the return will be regarded as net return of interest. How does this go with our explanation? On what ground is this deduction made? Ought not rather the full value of the gross return to go into the capital value without any deduction whatever? But if that were so, how should we explain the contradiction of experience which interest presents?
How is the interest to be explained? Or does natural valuation exclude interest? Is it, perhaps, merely a phenomenon of present-day exchange and price, which would not re-emerge in the communistic state?
One of the most conclusive and brilliant among Bohm-Bawerk's critical examinations is that directed towards the attempts to deduce interest from the productivity of capital. Bohm-Bawerk himself in fact arrives at the conclusion that the attempt is hopeless. To quote his own words: "It was not simply an unfortunate chance that no one found the Open Sesame which had the power to discover the mysterious origination of interest in the productivity of capital. It was rather that on the road to the truth a wrong turning had been taken. From the first it was a hopeless endeavour to explain interest wholly and entirely from a productive power of capital. It would be different if there were a power that could make value grow directly as wheat grows from the field. But there is no such power. What the productive power can do is only to create a quantity of products, and perhaps at the same time to create a quantity of value, but never to create surplus value. Interest is a surplus, a remainder left when product of capital is the minuend and value of consumed capital is the subtrahend. The productive power of capital may find its result in increasing the minuend. But so far as that goes it cannot increase the minuend without at the same tine increasing the subtrahend in the same proportion. For the productive power is undeniably the ground and measure of the value of the capital in which it resides. If with a particular form of capital one can produce nothing, that form of capital is worth nothing. If one can produce little with it, it is worth little; if one can produce much with it, it is worth much, and so on; -- always increasing in value as the value that can be produced by its help increases, i.e. as the value of its product increases. And so, however great the productive power of capital may be, and however greatly it may increase the minuend, yet so far as it does so, the subtrahend is increased in the same proportion, and there is no remainder, no surplus of value" (Capital and Interest, translated by William Smart, page 179).
When we turn to land we find also a striking contrast between the apparent demands of our theory and experience. Land yields returns that stretch away into the farthest future. The value of land, then, should surely be not merely twenty or thirty times the annual rent, as experience tells us it is, but rather an indefinite and incalculable number of times the annual rent;perhaps it should be estimated as an infinite amount (see also on this point Capital and Interest, page 67). But the same line of argument may be applied to capital. Capital also, when well employed, promises to yield its net return on into the indefinite future, so perhaps its value also ought to be estimated as an infinite amount.
It will be seen that the difficulties which meet us are not trifling. If, nevertheless, I believe that they can be overcome, it is because I trust to the support given by the results of our investigation into the imputation of return. None of the writers who tried to derive interest from the productivity of capital had this support, and even in Bohm-Bawerk's critique it is not foreseen. Have we not in fact found a productive power, which, although not capable, as Bohm-Bawerk claims, of creating "more value," can and does create what amounts to the same thing, "more return"; in other words, a surplus?
We shall begin with the most difficult, the theory of the value of capital. After what has been said it is clear that it cannot be taken up without taking up the theory of interest.
Almost everything in this book will find its complement in the discussion upon costs which is to follow.
