Interest on the Consumption Loan. House Rent The natural principles hitherto laid down for estimating capital value and interest refer only to production. It must now be asked whether there is also a natural interest which corresponds to the interest given on a loan for consumption purposes, or interest derived from letting of dwelling-houses and the like.(1*)The motives of a debtor who borrows with the view of spending the loan on himself are different from those of an undertaker who borrows to increase his business capital. The undertaker hopes to obtain both repayment of capital and interest out of the return on the borrowed sum. The mere debtor cannot hope for this, but must trust that it will be possible for him to repay his debt of capital and interest out of some other income. He borrows because he needs goods now, and has not got them, while he expects in the future to have them and not to need them to the same degree -- at least he deludes himself with some such hope. Thus in a certain sense interest on production and interest on consumption have a common source. Both of them relate to a difference in the valuation of present and of future goods, only that the causes which produce this difference are distinct. In the case of the productive outlay of capital it is the productivity of capital which causes the difference between present and future; in the case of the consumption loan, it is accidental and personal circumstances, -- accidental accumulation of present wants and expenditure, accidental disturbance of income, and so forth. One who finds himself in a situation of urgent necessity is acting quite rationally when he promises -- at some future time when he hopes to be more favourably situated -- to pay to the person who assists him by an advance of money out of his present difficulty, not only the amount advanced, but an extra, an interest. A sum of 05 at the end of a year may be worth less to him than ?00 is at the present moment; he might even promise ?50, ?00, or more, and yet not be acting irrationally. But if he is to find a person willing to lend him the money, it is essential that every one should not be in the same circumstances of present need and future affluence as himself. It is essential that there should be people who, at the moment, have means which they can do without.
And thus it follows that, in an entirely organic economy, such as would exist in the communistic state, the necessary conditions for consumption interest are wanting, inasmuch as all the citizens together would form only one economic subject, and would participate continually, either in the same condition of want, or in the same improved condition of economic well-being.
