Suppose, for instance, that villagers have to get timber for building their cottages from the forests; the more distant these are, the smaller will be the return of future comfort got by each day's work in fetching the wood, the less will be their future gain from the wealth accumulated probably by each day's work: and this smallness of the return of future pleasure, to be got at a given present sacrifice, will tend to prevent them from increasing the size of their cottages; and will perhaps diminish on the whole the amount of labour they spend in getting timber.
But this rule is not without exception.For, if custom has made them familiar with cottages of only one fashion, the further they are from the woods, and the smaller the usance to be got from the produce of one day's work, the more days' work will they give.
And similarly if a person expects, not to use his wealth himself, but to let it out on interest, the higher the rate of interest the higher his reward for saving.If the rate of interest on sound investments is 4 per cent., and he gives up ?00 worth of enjoyment now, he may expect an annuity of ? worth of enjoyment: but he can expect only ? worth, if the rate is 3per cent.And a fall in the rate of interest will generally lower the margin at which a person finds it just not worth while to give up present pleasures for the sake of those future pleasures that are to be secured by saving some of his means.It will therefore generally cause people to consume a little more now, and to make less provision for future enjoyment.But this rule is not without exception.
Sir Josiah Child remarked more than two centuries ago, that in countries in which the rate of interest is high, merchants "when they have gotten great wealth, leave trading" and lend out their money at interest, "the gain thereof being so easy, certain and great; whereas in other countries where interest is at a lower rate, they continue merchants from generation to generation, and enrich themselves and the state." And it is as true now, as it was then, that many men retire from business when they are yet almost in the prime of life, and when their knowledge of men and things might enable them to conduct their business more efficiently than ever.Again, as Sargant has pointed out, if a man has decided to go on working and saving till he has provided a certain income for his old age, or for his family after his death, he will find that he has to save more if the rate of interest is low than if it is high.Suppose, for instance, that he wishes to provide an income of ?00 a year on which he may retire from business, or to insure ?00 a year for his wife and children after his death: if then then the current rate of interest is 5 per cent., he need only put by ?,000, or insure his life for ?,000; but if it is 4 per cent., he must save ?0,000, or insure his life for ?0,000.
It is then possible that a continued fall in the rate of interest may be accompanied by a continued increase in the yearly additions to the world's capital.But none the less is it true that a fall in the distant benefits to be got by a given amount of working and waiting for the future does tend on the whole to diminish the provision which people make for the future; or in more modern phrase, that a fall in the rate of interest tends to check the accumulation of wealth.For though with man's growing command over the resources of nature, he may continue to save much even with a low rate of interest; yet while human nature remains as it is every fall in that rate is likely to cause many more people to save less than to save more than they would otherwise have done.(13*)10.The causes which govern the accumulation of wealth and its relation to the rate of interest have so many points of contact with various parts.of economic science, that the study of them cannot easily be brought together in one part of our inquiry.And although in the present Book we are concerned mainly with the side of supply; it has seemed necessary to indicate provisionally here something of the general relations between the demand for and the supply of capital.And we have seen that: --The accumulation of wealth is governed by a great variety of causes: by custom, by habits of self-control and realizing the future, and above all by the power of family affection.Security is a necessary condition for it, and the progress of knowledge and intelligence furthers it in many ways.
A rise in the rate of interest offered for capital, i.e.in the demand price for saving, tends to increase the volume of saving.For in spite of the fact that a few people who have determined to secure an income of a certain fixed amount for themselves or their family will save less with a high rate of interest than with a low rate, it is a nearly universal rule that a rise in the rate increases the desire to save; and it often increases the power to save, or rather it is often an indication of an increased efficiency of our productive resources: but the older economists went too far in suggesting that a rise of interest (or of profits) at the expense of wages always increased the power of saving: they forgot that from the national point of view the investment of wealth in the child of the working man is as productive as its investment in horses or machinery.
It must however be recollected that the annual investment of wealth is a small part of the already existing stock, and that therefore the stock would not be increased perceptibly in any one year by even a considerable increase in the annual rate of saving.
