[58] This doctrine as applied to rates on call loans appears in Seligman's Principles of Economics, 1912 ed., p. 395. The peculiarities of call loans have also been discussed by C. A. Conant, Principles of Money and Banking, I, p. 171. Conant there refers to a discussion by Joseph F. Johnson, in Pol. Sci. Quarterly, Sept. 1900, p. 500. There are some very interesting distinctions between the "hire price" and the "purchase price" of money developed by J. A. Hobson, in his Gold, Prices and Wages, pp. 153 et. seq.
[59] One "pure rate" of interest, for loans of all periods over, say, three years, is doubtless, a myth, or better, a methodological device for simplifying thinking in connection with the theory of interest, and the capitalization theory. It is not necessary for our purposes, however, to give detailed analysis to the notion. We shall discuss the capitalization theory as we find it, assuming that, as a matter of fact, the difference between loans of 20 years and loans of 35 years, or in perpetuity, of equal quality in other respects, may be abstracted from, with safety.
[60] The price-level is a weighted average. These elements dominate it. Cf. our discussion, in the chapter on the "Volume of Money and the Volume of Trade," infra, of the elements entering into trade. We shall make use of the capitalization theory at various points in our discussion of general prices. Cf. the chapter on "The Passiveness of Prices," where it is shown that the capitalization theory and the quantity theory are irreconcilable.
[61] There is an extensive body of controversial literature connected with the capitalization theory, which it is unnecessary, for present purposes, to consider. One interesting line of doctrine is that developed by DR Scott (Jour. of Pol. Econ., Mar. 1910) and H. J. Davenport (Yale Review, Aug. 1910), in which ordinary formulations are criticised as assuming a "social rate" of interest, and in which the effort is made to work the thing out on the basis of extreme individualization, each man having a rate of discount of his own. I have accepted the doctrine in the general form in which it has been developed by Böhm-Bawerk (in criticism of Turgot and Henry George in his Capital and Interest), by Fetter, in his Principles of Economics, and by Fisher in his Rate of Interest, abstracting from points on which these writers disagree. My criticism of their doctrines, were it necessary here to develop it, would rest on the ground that their treatment of the general interest problem is too individualistic, and I should side with them as against Scott and Davenport. But these matters are aside from our present problem.
In our chapter on "Marginal Utility" we shall meet the capitalization theory again, as applied to the value of money by David Kinley. We shall also take it up in the chapters on "Dodo Bones," and "The Functions of Money."
[62] Social Value, chs. 3-7. The point is discussed infra in the present chapter.
[63] Fisher, I, Purchasing Power of Money, p. 32.
[64] Edition of 1903.
[65] Cf. the chapter on "Dodo Bones," infra.
[66] Cf. Menger's art. "Geld," Conrad's Handwörterbuch, 328, 3rd ed., vol iv, p. 566.