The prevailing or standard rate in any community can usually be stated with a sufficient approach to precision to be satisfactory for all practical purposes. In all the Eastern States it is now about five per cent.; in the Middle West it is somewhere between five and six per cent.; on the Pacific coast it is between six and seven per cent. The supreme court of Minnesota decided in 1896 that, in view of the actual rates of interest then obtaining, five per cent. on the reproduction cost of railroads was a fairly liberal return, and could be adopted by the state authorities in fixing charges for carrying freight and passengers.[111] A few years later the Michigan tax commission allowed the railroads four per cent. on the reproduction cost of their property, on the ground that investments which yielded that rate in addition to the usual tax of one per cent. (or five per cent. before the deduction of the tax) stood at par on the stock market.[112] In other words, the prevailing rate was five per cent. At the beginning of the year 1907, the railroad commission of Wisconsin fixed six per cent. as the return to which the stockholders of railroads were entitled, because this was about the return which investors generally were able to get on that kind of security. In the view of the Commission, the current rate of interest on railroad bonds, and similar investments, was about five per cent.[113] The significance of these decisions by the public authorities of three states is found not so much in the particular rates which they sanctioned as in the fact that they were able to determine a standard or prevailing rate. Therefore a standard rate exists. At the same time it is interesting to note that in all three states the rate of industrial interest was declared to be about the same, that is, five per cent. Perhaps it is safe to say that, throughout the greater part of the industrial field of America, five or six per cent. is the prevailing rate of interest.
What causes the rate to be five per cent., or six per cent., or any other per cent.? Briefly stated, it is the interplay of supply and demand. Since interest is a price paid for the use of a thing, i.e., capital, its rate or level is determined by the same general forces that govern the price of wheat, or shoes, or hats, or any other commodity that is bought and sold in the market. The rate is five or six per cent. because at that rate the amount of money offered by lenders equals the amount demanded by borrowers. Should the amount offered at that rate increase without a corresponding increase in the amount demanded, the rate would fall, just as it would rise under opposite conditions.
Supply and demand, however, are merely the immediate forces. They are themselves the outcome or resultant of factors more remote. On the side of supply, the principal remote forces which regulate the rate of interest are: the industrial resources of the community, and the relative strength of its habits of saving and spending. On the side of demand, the chief ultimate factors are: the productivity of capital-instruments, the comparative intensity of the social desires of investing and lending, and the supplies of land, business ability and labour. Each of these factors exercises upon the rate of interest an influence of its own, and each of them may be assisted or counteracted by one or more of the others. Precisely what rate will result from any given condition of the factors, cannot be stated beforehand, for the factors cannot be measured in such a way as to provide a basis for this kind of forecast. All that can be said is that, when changes occur on the side of either demand or supply, there will be a corresponding change in the rate of interest, provided that no neutralising change takes place on the other side.
CHAPTER X
THE ALLEGED RIGHT OF LABOUR TO THE ENTIRE PRODUCT OF INDUSTRY
In a preceding chapter we saw that Marxian Socialism is logically debarred from passing moral judgment upon any social institution or practice.[114] If social institutions are produced necessarily by socio-economic forces they are neither morally good nor morally bad. They are quite as unmoral as rain and snow, verdure and decay, tadpoles and elephants. Consistent Socialists cannot, therefore, censure on purely ethical grounds the system of private capital and interest.
This logical requirement of the theory of economic determinism is exemplified in much of the rigidly scientific discussions of Socialists. Marx maintained that the value of commodities is all determined and created by labour, and that interest is the surplus which the labourer produces above the cost of his keep; nevertheless Marx did not formally assert that the labourer has a moral right to the whole product, nor that interest is theft. He set forth his theories of value and surplus value as positive explanations of economic facts, not as an ethical evaluation of human actions. His object was to show the causes and nature of value, wages, and interest, not to estimate the moral claims of the agents of production, or the morality of the distributive process. In his formal discussion of the theory of value and of surplus value, Marx said nothing that implied a belief in genuine moral responsibility, or that contradicted the principles of philosophical materialism and economic determinism. It is, therefore, quite erroneous to infer that, since the Marxian theory attributes all value and products to the action of labour, Marxian Socialists must condemn the interest-taker as a robber.
Neither Marx nor any other Socialist authority, however, has always held consistently to this purely positive method of economic exposition. When they declare that the labourer is "exploited," that surplus value is "filched" from him, that the capitalist is a "parasite," etc., they are expressing and conveying distinct moral judgments. In their more popular writings Socialist authors do not seriously attempt to observe the logical requirements of their necessitarian philosophy. They assume the same ethical postulates, and give expression to the same ethical intuitions as the man who believes in the human soul and free will.[115] And the great majority of their followers likewise regard the question of distribution as a moral question, as a question of justice. In their view the labourer not only creates all value, but has a just claim to the whole product.