like the pointer on the spring balances. A fall in the rate of interest is not so much the cause of lessened saving in the community as a whole as it is the effect of increased saving.
The causal order is from the growth of the spirit of saving in large classes to a falling interest rate, which continues to fall as long and as far as the cause is operative or is not offset by the acts of others. The truth in the view that a fall in the interest rate decreases saving is this: that a fall in the rate of interest may cause some individuals to save less. The fall is the resultant of the acts of other individuals who are willing to go on saving at a lower rate of interest than some other individuals are.
True, custom, example, and training have so fixed the habit of saving in many individuals that they would continue to accumulate just as much after the rate of interest fell. It is even conceivable that a few, in middle life, with a pretty definite idea of the amount of money income needed for a com petence in old age, or to leave to their children, might be spurred to yet greater efforts when the investment premium fell. But this must be confined to a peculiar group of persons at a particular stage in their lives and is not characteristic of the whole community. Abstinence may, like jealousy, grow by what it feeds on, but only in some few older natures, not in the ever-renewing generations. It is not true of men in general that the longer they have to wait for income the easier they find it to wait.
Lending at interest was formerly very generally prohibited and the rate of interest was always high in those times. Well-meaning reformers are always proposing the prohibition of interest as a remedy for social ills. If this were done those savers who could buy and manage the agents themselves would still have strong motives for abstinence, but those who could not be active managers themselves would be deprived of the stimulus of a premium for saving. In itself the mere prohibi tion of contract interest would tend toward a lowering of the quality of the environment, and this would result in a higher rate of time-preference.
§ 8. Bountiful income and abstinence. Another question that has proved puzzling is as to the relation between the amount of income a man enjoys and the degree of abstinence. For if, as income increases, abstinence becomes easier, then improved methods of industry should have cumulative effects— not only making possible a larger sum of goods to enjoy now, but multiplying the amount of saving to produce other goods, and constantly lowering the rate of interest.
True, it is easier for a man with habits of life somewhat fixed to save more when his income rises. (See above, Chapter
24.) But it is not safe to say as much of men altogether, where the younger generation has time to adjust its tastes to the larger income. A community does not grow old in the same way that an individual does. (See above, under statics and dynamics, Chapter 32, section 2, on renewal of the gen erations.) "The children are always new" and each genera tion starts where its fathers left off. For this reason there appears to be little relation discoverable in history between the bountifulness of incomes in successive generations (through the discovery of richer lands, the use of better tools, ma chinery and methods) and the rate of time-preference. Such differences in the interest rate as appear can be explained through the changing conditions more or less favoring saving, rather than by the productiveness of industry in a community. Amount of production is only one factor in determining the rate of time-preference from generation to generation, and not the primary factor. And so, while interest was less in the seventeenth century in some European countries than it had been for centuries before, it does not seem to have fallen much, if any, in the chief commercial centers during the last two centuries, while enormous strides have been made in the pro ductiveness of industry. It has been a matter of wonderment to social students that the rate of interest continued so high in the United States (higher than in Europe) in the last half of the nineteenth century, when the general level of incomes was so much higher than in the countries of Europe, or in any other country in the world theretofore. In fact, a very large portion of the American people have not been contributing in any degree to cumulative saving; rather they have been heed lessly consuming fully their own comparatively large incomes made possible by and drawn from the consumption and destruction of the natural resources of the country. (See Chapter 35.) The premium on the present as compared with the future may thus be just as high or higher when many men are living in great bounty as when all are in a meager environment. When they have large incomes they may save a smaller proportion of what they have, and yet possibly continue to accumulate more rapidly than when their incomes were smaller. Moreover, a large part of recent progress has been through the invention of simpler and better methods rather than through mere multiplication of old ap pliances. Time-preference is a psychological factor, which can not be explained by physical productivity. The attitude of men toward their environment has tremendous economic consequences.