[476] Current text-books, following the Austrian doctrine, define production as the creation of "utilities." This is incorrect. Production is the creation of values. Cf. Social Value, pp. 119 and 189.
[477] This is the view of H. J. Davenport (Economics of Enterprise, pp. 301-302).
[478] Kemmerer has shown this to be true of bank reserves. As we shall see, the reserve function is merely a special case of the "bearer of options" function. For Kemmerer's discussion of business distrust, see Money and Credit Instruments, pp. 124-126, and 144.
[479] "In New York, for instance, loans by banks 'on call' are subject to repayment within an hour or two after notice is given that repayment is desired." Conant, Principles of Money and Banking, vol. II, p. 56. In general, the banks are content if the loan is repaid by 3 o'clock on the day it is called.
[480] E. g., Cairnes, J. E., Leading Principles of Political Economy.
[481] One "pure rate" is a myth, but the notion has some significance, as setting off a body of causes distinct from the money-market factors under consideration. Cf. supra, the ch. on "The Capitalization Theory."
[482] See von Mises, "The Foreign Exchange Policy of the Austro-Hungarian Bank," British Economic Journal, 1909, pp. 208-209. An able Boston broker, in Feb. 1917, calls attention to the growing difficulty of placing long-time bonds, without very high yield, in view of the scarcity of real capital, despite the exceedingly low "money-rates." I venture to predict an increasing "spread" between "money-rates" and the yield on long-time investments, the longer the War lasts. The view of Davenport and Schumpeter (Annalist, Feb. 28, 1916, and Theorie der wirtschaftlichen Entwicklung), which would deny the validity of the distinction between money-rates and interest rates, and would make the money-market phenomena the primary cause of all interest phenomena, seems to me indefensible, alike in theory and in fact.
[483] Cf. the analysis of bank-loans in the United States, infra.
[484] Mitchell, Business Cycles, p. 146.
[485] Journal of Political Economy, XVI, May, 1908, pp. 273-298.