CHAPTER IX
THE LAW OF INTEREST
The product of the final unit of labor—an amount which in practice is measured without any tracing of the previous growth of the working force—sets the standard of the rate of wages. We have now to see that the rate of interest has a similar basis; and yet it is worth while to build up, wholly in imagination, a fund of capital, just as we have made up the force of laborers, increment by increment. This will have the incidental effect of illustrating another way in which wages may be determined.
Interest as a Residual Amount.—The area BCD in our former figure represents the difference between the total product of an industry and the wages paid to laborers. If there is no net profit accruing to the entrepreneur, this area must represent interest. It is what is left for the capitalist on the supposition that he and the laborer together get all that there is. If the goods sell for what they cost, this must be the fact, and the amount represented by BCD has thus to go to capital, since, by a rule of exclusion, it cannot go to the entrepreneur nor to the laborer. The mill and its contents earn for their operator nothing but simple interest on the money they have cost. Paying the laborers discharges the first claim on the product, and there then remains only enough of the product to pay the remaining claim, that of capital.
The question still remains to be answered, how the capitalist, if he is a different person from the entrepreneur, or operator of the mill, can make this functionary pay over to him all that he has in his hands after paying the wages of labor.
The Importance of the Residuum.—The above reasoning does not satisfactorily show what influence the capitalist can use to make the entrepreneur pay over to him the entire amount of the residuum. It shows that after paying wages the entrepreneur will have a certain amount left, but it is not thus far clear how the capitalist can get it from him. The fact that the laborers get only the amount represented by ABDE and that the whole amount is ACDE does, however, at least show that the entrepreneur has the amount BCD left in his hands, and that he is able to pay this amount to the capitalist if by any appeal to competition the capitalist is able to make him do it.
Interest not determined Residually.—The fact is that the interest on capital is fixed exactly as are the wages of labor.
