The Goldfield news. [volume] (Goldfield, Nev.) 1904-1911, 1907-10-19
MONEY SUPPLY AND INTEREST RATES

~ RoFEssoR JOSEPH FRENCH JoHysoN's excellent book ON money
and Currency furnishes food Tor careful thought to all those who have
money invested in mortgages. bonds etc. Moodys Magazine recently in
commenting upon this volume, has this % say:
Professor johnson unhesatatingy reaches tho conclusion that a steady Or
above the normal while a similar decrease n supply las the opposite effect BY
this means tn nominal or money rate; the actual or commodity rate o. interest
from money rates under the influence Of changing prices. He says:
BY commodity rate OF interest is meant the percentage figured in goods
instead # in money The money rate and the commodity rates ire always equal
If the level OF prices does lot change during he lie OF a loan Thus, If a man
loan $1,000 at 8 per- et for n year, the $1,000 which he receives al the end
of the year will, if the price level has notc changed, purchase 8 per cent more
goods than he could have bought with the $1,000 At the beginning Of the year
respect IL money but also with respect 70 goods. The commodity rate of interest
on that loan Is identical with the money rate
Professor johnson then supposes that a loan of $1,000 vas made o. Janu-
airy ], 1865 at 8 per- cent. During 1865 prices rose 80 per cent. At the end Of
the year the lender got $1,000. But IS each dollar had lost % per cent of its
he made the Loan Thus, while the money interest was a positive quantity the
commodity interest raj a negative quantity, so that, when measured by goods
payment u about Il per cent from thu lender. Continuing, Professor johnson
says:
"A general fall of prices has the opposite effect upon the commodity rate
of interest. If during the life Of a 6 per cent loan general prices fall 10 per cent
the lender when ne gets back his principal and interest is more than 6 per cent
better of than he was when he made the loan. He has 8 per cent more money
and zach dollar will buy II per cent more goods than each of thu dollars he
loaned. His rate Of interest figured in goods, is II per cent
Professor johnson contends that in making contracts, business men
know nothing about the commodity rate Of interest. They never speak of it
tend upwards, during periods If rising prices and downwards, during periods Of
falling prices, yet that this tendency is 10 due to the act that interest rates
that when prices are rising there is an increased desire o the part Of men to
borrow-an increasing demand for capital This is undoubtedly true Of the
average business man and probably also Of 90 per cent OF them; but it most GER
tainly Is not true OF III business men, Beyond question a few men IRE today be-
having quite differently in their business relations from what they would If they
had not studied fundamental conditions, al to money commodities prices and
interest rates.. These men are 10 guided entirely by surface facts. Professor
johnson himself, it is safe to say does no. lose sight Of some OF his theoretical
knowledge, when making investments. and goes it bIndly' as do most business
men, For example, knowing that the output Of gold is likely to increase rapidly
rates. to remain high, it Is improbable that he will ruht to invest n 4 per
cent bonds at par, should interest rates temporarily decline to 4 per cent Q be-
low. Expecting prices % rise at a rate of 4 per cent a year, he will certainly
lot invest where he will get nc actual return o his capital He will try to put
his money in tangible property that will appreciate in value'