F.H.Gidding's letter of Feb 5,1890 to J.B.Clark,Bryn Mawr.

     F. H. Giddings' letter of Feb 5, 1890 to J. B. Clark, Bryn
     Mawr.

Dear Friend:
       We understand each other at
last I think. There has been a real
difference of thought. Your arithme-
tic is as clear as sunlight. The
only question is whether the prob-
lem is simple or complex. Your
admission that you do not ac-
count for interest by the time ele-
ment alone quashes the case so
far as my argument against your
position is concerned. My con-
tention in the Quarterly article is
simply that if anybody undertakes
to account for interest solely by
the difference between present and
future values of goods "of like kind
and number," as Böhm-Bawerk puts
it, he must face the fact of double
interest. The question then becomes
whether I have misunderstood
Böhm-Bawerk's theory of the rela-
tion of capital to production: have
I been wrong in supposing that
he undertakes to account for in-
terest apart from the productivity
of capital? I have understood
precisely as you understand, that
he admits the increase of goods
through capitalistic production, though
attributing the increase to the effort
of man rather than to any potency
of capital. I agree also with you
that this is, so far as it affects
the question of interest, merely a
verbal distinction. But the seri-
ous point in B. B's theory, as I under-
stand him, is a different thing from
this altogether. I understand him
to deny that the production of
additional goods in the capital-
istic process is also a produc-
tion of additional value. "Great
product is antagonistic to great
value," is the dictum on which
he rings the changes. If there is
no production of new value when
the 100 bushels of wheat become
the 110, then interest must be ac-
counted for wholly by the time ele-
ment, and this, I have supposed
was B. B.'s conclusion. And I can
hardly think that I have been mista-
ken, in as much as Dr. Wieser and
Mr. Bonar have both evidently under-
stood him in the same way, not
to mention Patten, to whom I sub-
mitted my statement of B. B.' s position
and who said that this was his under-
standing of it. If you will turn
to Der Natürliche Werth' pp. 133-139
you will see that Wieser enters
into a long argument against
what he understand to be B. B.'s
doctrine that the "more product" of
capitalistic production is not
"more value." Glance then at Mr.
Bonar's reply to me and at his re-
view of Böhm- Bawerk, and I think
you will be satisfied that he also
understand B. B. to deny the "more
value."
 On the basis of this understanding
I have supposed that all who ac-
cept B. B 's conclusions, as I thought
you did, regarded interest as the
difference between present and
future values of the same goods
apart from the increase of
product in production. What
other possible meaning can
you attach to Bonar' s sentences;
(Quarterly, October, 1889, page 81 .)
"To writers who agree that inter-
est is a question not of produc-
tion, but of distribution, it could
never appear right to describe
interest as 'a unique stream of
wealth drawn by means of capi-
tal from the bounty of nature'. To
them it is a problem not of sur-
plus product but of surplus value."
 Now apply these notions to
our illustration and you will
see instantly just where you
and I have differed.
 You say (in effect): A's 100
units of deferred enjoyment are
today worth 91 and would exchange
at a discount with B's 100 units of
present enjoyment but for the
fact of prospective increase by
production. But taking that pros-
pective increase into account
A's 100 units of deferred enjoy-
ment become equal today to
B's 100 units of present enjoy-
ment. Capital goods, therefore,
because of this productive in-
crement, which cancels the dis-
counting of futures, exchange on
an equality with present con-
sumable goods.
 Is this a fair statement of
your position? If so turn to
what I think would be a fair
statement of Böhm-Bawerk's, Bonar's
and Patten's:
 A's 100 units of deferred en-
joyment are worth toady 91. These
100 units are (1) commodity or
goods, (2) value. In the process of
capitalistic production they
will become 110 units of com-
modity, but never more than
100 units of value. Therefore
there is no prospective increase
of value to offset the discounting
of futurity. Therefore, further, 100
bushels of wheat to be set aside
as capital are not equal in
value today to 100 bushels to be
devoted to immediate consump-
tion, although the capital wheat
will presently become 110 bush-
els. Therefore, finally, in the div-
ision A will not accept 100
bushels of seed wheat as equiva-
lent to B's 100 bushels of con-
sumable wheat, but will in-
sist on taking 105 bushels leav-
ing to B 95 bushels, and this
additional share that A takes is
interest.
 The whole thing thus
comes down to a question of fact.
Do capital goods exchange at
a discount with consumable
goods after the productive
increment of commodity has
been taken into account, or
only before it is taken into
account?
 You evidently hold that they
exchange at a disadvantage only
if productive increment is
not taken into account, and
that taking it into account re-
stores the equality. Against that
proposition I have, as yet, made
no argument whatever. Whether
or not I should wish to do so I
can't tell until after a good deal
of further thought. But up to the
present time I have been deal-
ing solely with the proposition
that after increment of com-
modity has been taken into con-
sideration capital goods still
exchange at a disadvantage with
consumables: in other words, with
the proposition that the capital-
ist takes an extra share in dis-
tribution on the assumption
that his waiting is not otherwise
recompensed. I have contended
that his waiting is otherwise
recompensed, by productive
increment, (and you, it now
appears think so too) and there-
fore that, having taken an extra
share in distribution on this
assumption, and the assumption
itself bring false, the capitalist
gets double interest unless one
rate of interest is cancelled
by a cost of production.
 If with this explanation in
hand you will turn again to my
article, I think every point in
it will become perfectly clear
to you. Glance over again with
this explanation in mind, the
matter from the top of p. 197 to the
top of p. 203.
 Now if you can make
good your proposition that capi-
tal goods do not exchange at a
disadvantage with consumable
goods after productive incre-
ment has been taken into account,
I shall have to adjust my theory
of cost of production of capital
to a wholly new set of theoretical
considerations. I do not for a
moment think that the demonstra-
tion of your proposition would
throw the cost of production of
capital out of the problem of inter-
est. It would simply change its re-
lations to several other things. Not
to go into this fresh line of argument
just now, I will merely
call attention to the fact that, when
you admit an increase of goods
by the capitalistic process you
are brought instantly face to
face with the problem why do
not capital goods so multiply
in supply that their marginal
utility as capital becomes zero?
In other words, don't you find
yourself brought square up against
the conditions that lead Böhm-Ba-
werk to deny that the "more prod-
uct" of capitalistic production
is also "more value." My way
of saving a way out for your
theory of interest would be by
invoking the cost of production
of capital goods. If it shall
appear that that way is n.g.
I don't see why you and
Böhm-Bawerk aren't both
of you between the devil and
the deep sea. In such a
dilemma I should credit you
with the courage of conviction
to plunge into the depths - but
Böhm-Bawerk - he certainly
would be devoured!

             Sincerely Yours,
              F. H. Giddings