[Letter] Feb.3,1890,Smith College [to F.H. Giddings]

Feb. 3, 1890, Smith College.

Dear Friend,
      One or t'other of
us is has jumped into
a bramble and scratched
out his eyes. If it is I -
I will jump into another.
All I will try to do is to
make my arithmetic clear
if I can. If real and subtle
differences of thought survive
we must wait for time
to remove them, or for a
full conference. We agree
that "A gets in 1890 19
units more than he would
have gotten the equivalent
for in 1889 if his actual
reward had been deferred till
1890, and if capital had
been unproductive."
 I do not usually
select wheat as typical
capital; but we can take it
in this case, in so far as I
see, without affecting the
principle in question. Shall
we postulate that wheat
somehow increases in quantity
by lapse of time? That
would be a severely simple
conception of agriculture, but
I should think our postulate
might do. 100 bushels gather
to themselves in some
way 10 new ones in a year.
 Now to me the arithmetic
of the case is very simple.
A and B work equally long
and hard. Each gets 100 bushels
of wheat. B puts his aside for
eating - we throw out of
account the delay involved in
the eating. Let us say B
puts his 100 into immediate
utilization. Our standard of
measuring products is, for
simplicity, only labor sacrifice,
and if both ate their wheat
it is clear they would have
sacrificed alike and gained
alike.
 A capitalizes his 100
bushels; i.e. he puts the
enjoyment of them a year
ahead. That reduces their subjective value
at the time to about 91 units of
labor product. Thus far A is
by 9 units worse ( ) than B.
A knows that there will be
10 units more at the end
of the year He mentally
discounts the increase. Its
psychological present worth is
about 9 units. This added to the
91 units of subjective value
that he had before gives him
a present reward of 100 units,
being just what B has.
 Such such a comparison
of gains seems to me to be
made when one man takes
his choice between using
labor products and capitalizing
them. A for instance has
200 bushels of wheat. They
represent the gains of say
the 10th hour of labor on
each working day of a year.
The gains of the earlier 9
hours are spoken for in
some way. He has an option
of using the gains of the 10th
hour in luxuries or in
capital goods.
 He will very likely
divide the 200 bushels
between the different uses.
He may use 100 bushels
in raising the quality of his
diet in a luxurious way.
That means immediate
realization of the utility in that
part: it has a subjective value
represented by 100. He may
capitalize 100 units. That
means - I accept here,
your statement - deferring
the utilization of the
original 100 for one year.
It has the effect of reducing
the present subjective value
of that part to 91. At the
end of the time there will be
10 units more. Present worth
of these 10 = 9.91 + 9 =
100. The man gets as
much present satisfaction
out of what he capitalizes as
out of what he consumes.
 Now compare total
sacrifices and total gains.
For the 100 bushels that he
eats he has sacrificed 100
labor units. For the 110
units that he gets at the
end of the year by capitalizing
he sacrifices 100 labor
units and 10 units of waiting.
That is he waits long enough to
incur a sacrifice equal to
10 labor units.
 Now I can interpret the
expression "capital goods lag
behind consumer goods in
value." I had in mind tools;
they present the question in a
different way, but with, I
should think, the same result.
The capitalized 100 bushels,
measuring the 100 bushels
stored till the end of the year
will - as separated from the
increment of 10 bushels -
lay behind the 100 bushels of
wheat for immediate consumption
in present subjective value.
This makes the present subjective
value of the 100 stored bushels
to be 91. You have to
take the product into
account to bring the present
value of capital goods up to
the standard of the same labor
product in consumable
goods. With the product in
sight the two subjective present
values become equal. The
ultimate value of capital goods
and product seems to me to be
by just 10 units greater than
that of the consumable goods;
and this increment seems to
me to be the exact offset for
the waiting, or interest, if we accept
this much of the B. Bawerk
philosophy. Frankly I will
say I think the single
element of time is not adequate
to yield a complete philosophy of
interest. We have both, however,
been arguing in this line.
We make the present desire
for a future gratification a
calculable thing and put it
at the basis of the interest
problem as either adequate
above or adequate
with an extra cost of production
of capital to account for interest.
Don't let this letter seem to
you to be another demand
on your time. I do not know
whether it makes my position
clearer or not. I cannot for
my life see anything but a
simple arithmetical question
in the case; and yet when
your meaning as to the
double gain of capitalization by
(1) waiting and (2) production
first got through the lobes of my
tardy cerebrum it did look to
me like a fascinating thought
puzzle. Put as it can be put
it looks so still. When you
think of tools rather than wheat
as the type of capital you are
compelled to take the product into
consideration. You can put the use
of 100 bushels of wheat a year into
the future and think of 10 entirely
new units as a product. With
hatchets, spades etc. you have
to think of a complete transformation.
This, I believe, is the way in
which B. Bawerk approaches the
problem. I cannot now see that
the results are different. By the
way we do certainly differ seriously
in our ideas of B. B.'s meaning.
I read that part of his book
slowly and with great care, and
I really am quite sure he
does not at all deny the fact
that we call productivity of
capital. He says again and
again that capital makes the
product of labor greater; but he
only insists that it is still to
be regarded as a product of the
man who works, Like Gide he thinks the
man is the only 'agent' while
capital is a 'condition'.
All the same without
capital the man produces
X, and with it he produces
X+. The amount of the
+ measures what we call the
product of capital. I am
very sure that B. B. does
not at all deny the fact of
the +- Well, well,
I am getting old, and
forget what a bore I am
in danger of being. Forgive
the persistent return to the
subject. It greatly interests
me. I am sure also
that independently of the
question we are now
arguing you have done a
very valuable service in
calling attention to the fact
of increasing sacrifice by
prolongation of labor. That
seems to me to have very
important applications. How
it applies to interest I
do not see.
 I am able to see
one thing stated on pages
3-4 of your letter,
which I will keep and look
over with you when you
come here in the early
Summer, as I confidently hope
you will! I quote "Take a
bu. of wheat. As food for today we
value it today at 100 (say 100 cents)
as capital (enjoyment deferred)
we value it today at only 90.
(Save as we take its reproductive
power into account, and if we
do that we cancel the discounting
of futures ... and have interest
unaccounted for save by cost of
production, which is my whole
contention). Now up to the
dotted line ... that expreses
exactly my view. The capitalized
bushel is worth 91 today. Its
increase is 10, worth 9 today.
It cancels the discount in
the sense of making the capitalized
bushel subjectively worth just
the same as the consumable
bushel." Does this leave
interest unaccounted for?
How does it do that? I call
interest the earnings of the
capitalized bushel what that bu.
creates. We enable it to do the
creative work by waiting - to us 
it is the ( ) of waiting. It
is "all the same" bushel 10.
If there is a difficulty here I
am blind to it still. I cannot
see that is a double genesis of
interest. I see 9 units of
present subjective value
destroyed by deferred enjoyment
and restored by interest, or
product of capital made
possible by waiting. I see
the title to it ethically
justified by the waiting.
 Well, well, again. I
did not mean to thus
prolong my letter the
fascination of the subject
has its 'grip' on me.

      Yours Very Truly,
            J. B. Clark