The Salt Lake herald. [volume] (Salt Lake City [Utah]) 1870-1909, 1890-08-22
THE RATE OF INTEREST.

OF interest has steadily fallen for the last
twenty years, and referred to the popular
notion that an abundance OF money would
he blessing to the country inasmuch as 1T
would lower the rate of interest. The
HERALD did not endorse this popular view
of the rate of interest, and said that the
rate would depend upon the accumulation
of capital. Lest there should be any mis-:
understanding of the nature of interest,
we may state again that the rate of in
terest does not depend upon the amount of
money in circulation, but upon the amount
that is offered to loan and this last amount
will depend upon the amount saved A
mere increase of money will not neces-
sarily lower the rate Of interest
But if the increase of money is a normal
one, Indicative of the increased wealth of
the community, it will in general be easier
TO borrow money than if money is scarce
Should the increase of money be due to ex
cessive issues, the real rate of interest
would remain the same, though the nomi-
mai rate might be lowered.
The fact that interest has been steadily
falling, leads the Tribune to say that
''paradoxical as it may seem, a great
abundance of money always means high
rate of interest, and a scarcity of money
means a low rate.n
1t does indeed seem paradoxical When
there is an abundance of money, it will be
difficult to borrow money, is the logic of
our cratic friend.
OF course it was driven to this paradox
by its assertion that the amount of money
had fallen off one half in the ten years be-
ginning with 1870. As interest fell during
this time, the paper is obliged to maintain
that the scarcer the money the lower the
interest, and tries to prove, by this forlorn
paradox. that money has become scarce.
BY parity of reasoning we might as well
say, "When empty houses are scarce, rent
is low; but when they are plentiful rent is
high.n The assertion that the scarcer
money becomes the lower the price that
must be paid for its use, may well stagger
even protectionist editor, and cause him
to admit that the statement is rather
.'paradoxical."
The figures showed that the rate of in
terest had fallen about % per cent. in
twenty years, declining from 6 per cent. in
1869 to 4.6 per cent in 1889. To harmonic
with the Tribune's alleged discovery that
the rate OF interest falls as money becomes
scarce and its statement that money de
creased one half in amount between 1877
and 1850, the rate should have fallen 80 pei
cent. in ten years instead of only % pei
cent. in twenty years. The figures beat
the organ on its alleged discovery in finance
almost as badly as they do on the doctrine o.
interest that is held by economists. If tn,
Tribune has really made discovery in eco
nomic science, it should hasten to explain
this discrepancy between its theory ant
the facts in the ase, so that the world
may be prepared to listen to this move
discovery, and to shape economic sci
ence in accordance with it. The Tribun
states its discovery as follows:
When the volume of money is large, money i
DOT SO valuable as property, and men are in
vesting money and making improvements a.
the time, which makes a steady demand 70
money at high rates,
That is, the less money will bring, tn
more eager men will be to borrow or spen
it, and this makes interest high! How
writer could keep a straight face while h
penned that choice bit of logic, would be
hard question to answer. But here follow
the complement to the above absurdity:
When the volume of money is small, the
property is less valuable than money and cor
tinucs to fail, SO that men who have money d
not invest it III property, but prefer to loan it
low rates.
That is, when little money will buy
large amount of property, men do not blu
property with it, but offer to loan it at 10,
rates. Men do not invest money in propert
when property is cheap, because wheneve
that is the case property will continue 1
fall,'' getting cheaper and cheaper
We deem it unnecessary to debate TIN
alleged discovery of the Tribune which
admits, with unconscious accuracy,
'.paradoxical;' but we may here state MOI
fully the nature Of interest on loans.
The economice doctrin of interest is
that while the rate of interest does not d.
pend upon the absolute supply of none
in circulation it does depend upon tt
amount of money that is to be loaned, Tt
rate of interest indicates whether lars
or small proportion of the existing stoc
of money is offering for loan. If the cul
rency of a country were q . ibled in amour
by ouer-issue, there would be twice as man
dollars offering to loan. no doubt, but tn
number of dollars needed by borrower
would be twice greater also; so that, viii
the nominal rate of interest might be OF
half what it had been before, the real ra
would be the same. For the value
money is diminished in the exact ratio tn
it is issuedin excess Of the nominal d
mand for it.
Other things being equal, the amount
money will increase as wealth increase
and it will become easier to borrow none
that is, the rate of interest will be lowe
as the wealth (and money of communi
becomes more abundant If, through sea
city, the value of gold has increased, &
profits OF mining gold must have increas
correspondingly. and gold miners shou
now be reveling in wealth according to Il
Tribune. Those who lend money also,
money is worth twice as much and will pu
chase twice as much of other things as
did a few years ago, should receive twi
as much for the use of their money
others as they did when it was worth b
half its present value. But as matter
fact, the rate of interest has steadily d
clined, and this fact leads the Tribune
make the rash and foolish statement tn