Members of the Upper Classes not Secure against the Action of the Malthusian Law if a Great Lower Class is Subject to It.—It is clear that if the workers are to be protected from the depressing effect which follows a too rapid increase of population, the Malthusian law in its drastic form must not operate in the case of the lowest of the three classes, so long as that is a numerous class. A restrained growth in the case of the upper two classes would not suffice to protect them if the lowest class greatly outnumbered them, and if it also showed a rapid increase in number whenever the pay of its members rose. The young workers belonging to this class would find their way in sufficient numbers into the second class to reduce the wages of its members to a level that would approximate the standard of the lowest class. Under proper conditions this does not happen; for the drastic action of the Malthusian law does not take place in the case of the third class as a whole, but only in the case of a small stratum within it.
Countries similarly exposed to Dangers from Other Countries.—Something of this kind is true of a number of countries which are in close communication with each other. If a rise of pay gave a great impetus to growth of population in Europe, and if this carried the pay down to its original level or a lower one, emigration would be quickened; and although the natural growth in America might be slower, the American worker might not be adequately protected. The influx of foreigners might more than offset the slowness of the natural growth of population in America itself. The most important illustration of this principle is afforded by the new connection which America is forming with the Asiatic nations across the Pacific.
CHAPTER XX
THE LAW OF ACCUMULATION OF CAPITAL
Adam Smith and many others have noticed that the growth of capital varies with the intelligence and the foresight of a population. It should therefore increase in rapidity as intelligence increases. A high valuation of the future is a mark of intelligence, and there is no reason why an entirely rational being should value a benefit accruing to himself in the future any less than he does a benefit accruing at once. Perfectly rational estimates of present and future, if there are no influences affecting the choice except these mere differences in time, mean that the two stand at par. It was once supposed that the disposition to save from one's present income varies directly as the rate of interest of the capital which is thus accrued, and in the main this is still regarded as a nearly self-evident proposition. Abstinence imposes a present cost on anybody that practices it. Whosoever saves a dollar misses the gratification which that dollar might bring. He may regard that sacrifice as fixed. It causes him to go without his marginal gratification, whatever that may be. If interest for a year amounts to twenty-five cents, the man has at the end of the year one dollar and twenty-five cents, with which to do whatever he may choose. He may spend it, if he will, and get all the gratification that a dollar and a quarter can bring. If interest stands at five per cent per annum, his abstinence will bring him only one dollar and five cents a year, and that, or whatever he can get by means of it, is a smaller benefit than the one he could get for one dollar and a quarter. If it is barely worth while to go without something now in order to have a dollar and five cents in the future, it is more than worth while to do it in order to have a dollar and a quarter at the same future date. If a man is induced to save only a dollar, for the sake of having a dollar and five cents at the end of the year, why should he not save two dollars, in order to have two dollars and a half at that time? Why should not the amount of his present privation increase, when the surplus of benefit he can gain by it at a future date grows greater? Such is the reasoning, and it seems entirely plausible, if we assume that what the man loses is the gratification he might have by spending his dollar, and that what he gains is the benefit of spending it and its accumulation of interest at the end of the year. The assumption is that the man proposes at a certain future date to spend the principal or the capital which he acquires by saving in the present, together with whatever it may have earned as interest; that he measures the personal benefit which he can get by this spending, and finds the larger benefit better worth a fixed sacrifice in the present than a small one.
The Actual Purpose of Abstinence.—Most capital is saved with no expectation of ever spending the principal. The motive is a perpetual income, which the capital will earn. What the man appraises in his own mind is not the personal benefit he can get by spending a dollar and five cents at the end of the year; it is the benefit that will come from spending five cents at the end of the first year, another five cents at the end of a second, and a more or less similar amount at the end of every year that shall follow. It is a perpetual income, and as the man's life is limited, the greater part of it must accrue to others than himself. The satisfaction which he will get from it near the close of his own life comes altogether from the prospect of passing the principal unimpaired to others and in assuring to them and to their successors the perpetual income which the foundation yields.
Even on this basis it might be supposed that a large perpetual income would offer a greater inducement to save than a small one, and therefore that the amount of saving would be greater when the rate of interest was higher. This would be true if the importance of the perpetual income could be estimated in this simple way by the mere amount of it.
Conditions affecting the Importance of a Future Income.—The importance of a future income may be large because of the prospective helplessness or poverty of the one who expects to enjoy it. A workman may save at a great present cost to himself in order to provide for old age or sickness, in which case the income from the savings, and often the savings themselves, would be the means of averting a great calamity. To make one's self secure against privation in the future is worth more than to add to one's comforts in the present. If a certain minimum amount were needed to avert starvation at the end of a man's life, he should secure that amount at all hazards, however much that may trench on his present comforts. Now, as the amount which he can have at the end of his life depends largely on the rate of interest which his savings will earn, during such time as they may remain in a productive shape, it will take more positive abstinence on his part to keep himself from starvation when the rate of interest is low than it will when the rate is high. If there were no interest at all, he would have to put by from his income his entire old-age fund. If the rate were a hundred per cent per annum, taking a very small part of the fund out of the income of his active years would suffice, since the fund itself would earn the remainder. Is the income which is provided for the future to be treated as a variable amount in addition to some other income, or is it to be regarded as a fixed amount, which is needed for some definite purpose? On the answer to this question depends the entire issue as to whether a low rate of interest or a high one affords the larger incentive for saving.