be possible. Yet the gain therefrom is problematical, for, in covering a broader field, his theory loses in definiteness.

In nearly every part of his theory, Duguit differs radically from what I have ventured to call the orthodox doctrines. Yet scientific progress is often promoted by the conflict of opposite ideas. It may be that the value of the Duguitian theory will be found to lie not so much in its positive content as in its method and aim. It is undoubtedly an attempt to place some of the most important concepts of political science upon a more philosophical basis, by coördinating political, economic and social theory into a complete and harmonious system. The Hegelian will perhaps see in the attempt an approach toward a truer conception of political science as an integral part of the Weltordnung. The Austinian will still be inclined to doubt the value of the results. Yet it cannot be denied that the Duguitian theory will be useful in promoting a healthy scepticism of commonly received doctrines, and in subjecting them to a more searching examination than they have hitherto received. The difficulty, if not the impossibility, of making a scientific synthesis which shall give an entirely true and perfect account of actuality becomes more and more apparent. It is perhaps inevitable that every tolerably complete system which attempts to marshal a highly complicated group of phenomena into a harmonious and systematic arrangement will do violence to some facts and leave no logical place for others. Each competing system must be judged by the consistency with which it is developed from its premises, and by the fruitfulness of its conclusions. Perhaps, after all, the conflict between the Duguitian theory and analytical jurisprudence is more apparent than real. It may be that each, when viewed from its peculiar standpoint, is no less true than the other. Both are perhaps necessary in order to obtain a complete and well-rounded view of the main concepts of political science.

JOHNS HOPKINS UNIVERSITY.

J. M. MATHEWS.

T

FISHER'S RATE OF INTEREST1

HERE is less novelty, either in the course of the argument or in the results achieved, in the Rate of Interest than in Mr. Fisher's earlier volume on the Nature of Capital and Income. Substantially the whole of it lies within the accustomed lines of that marginal-utility school of economics for which its author has so often and so convincingly spoken. It is true to the canons of the school, even to the point of making the usual error of logic in the usual place. But while it makes no material innovation, beyond a new distribution of emphasis among the factors held by the school to determine the rate of interest, it carries out the analysis of these determinants with unexampled thoroughness and circumspection, such, indeed, it may fairly be hoped, as will close the argument, on the main heads of the theory at least, within the school. There is all the breadth and facility of command over materials, which Mr. Fisher's readers have learned to expect, such as to make the book notable even among a group of writers to whom such facility seems native. If fault is to be found with this exposition of the marginal-utility doctrines it is scarcely to be sought in details of fact or unauthorized discrepancies of logic. Exception may be taken to the argument as a whole, but scarcely from the accepted ground of the marginal-utility school. Nor should that remnant of the classical school which has not yet given its adherence to the marginal-utility doctrines readily find fault with an exposition which finds its foundations in so good and authentic a utilitarian theorist as John Rae.

The theory of interest arrived at is the so-called "agio" or discount theory, already familiar to Mr. Fisher's readers and substantially in accord with the like theory spoken for by Böhm-Bawerk. Mr. Fisher takes issue with Böhm-Bawerk on the one grave and far-famed point of doctrine concerning the "Roundabout Process." And on this head, I apprehend, it will be conceded that the later writer occupies the stronger and more consistent position, whatever exceptions may be taken to his line of argument in refutation of the doctrine in dispute.

1 The Rate of Interest: Its Nature, Determination and Relation to Economic PheBY IRVING FISHER. New York, The Macmillan Company, 1908.-xxii,

nomena.

442 PP.

See POLITICAL SCIENCE QUARTERLY, vol. xxiii, p. 112, for a review of Fisher's Capital and Income by the same author.

In his critical survey of competing and inadequate interest theories, Occupying the first four chapters of the volume, this doctrine of the roundabout process comes in for more serious attention than all the rest; and justly so, since it is an alien in the school-a heresy which has been brought in by oversight. Leaving on one side for the moment all question as to the merits of this doctrine, it may readily be shown not to belong in the same explanation of interest with the agio theory, at least not as a proposition correlative with the theorem about the differential preference for present over future income. Interest and the rate of interest is a matter of value, therefore to be explained in terms of valuation, and so in terms of marginal utility. Within the scheme of value theory for which Mr. Fisher and Böhm-Bawerk are spokesmen no analysis of a value phenomenon can be brought to a conclusion until it is stated in terms of marginal utility. All fundamental propositions, all theorems of the first order in this theoretical scheme must be stated in these terms, since these terms alone are ultimate. Facts of a different order bear on any question of value, in this scheme, only as they bear on the process of valuation, which is a matter to be stated in terms of marginal utility. This scheme of theory is a branch of applied psychology-of that school of psychology which was in vogue in the early nineteenth century; whereas the roundabout process is not a psychological phenomenon-at least not of the same class with the doctrines of marginal utility. It is a technological matter. The roundabout process has a bearing on the rate of interest, therefore, only as it bears on the main theorem concerning the preference for present over future income; that is to say, the doctrine of the greater productivity of the roundabout process is, at the best, a secondary proposition, subsidiary to the main theorem. The valuations out of which the rate of interest emerges take account of various circumstances affecting the desirability of present as contrasted with future goods; among these circumstances may be the greater productivity of the roundabout process; but this is as near to the core of the problem as that phenomenon can be brought. The problem of the rate of interest in the marginal-utility system is a problem of applied psychology, more precisely a problem of the hedonistic calculus; whereas the alleged greater productivity of the roundabout process is a technological phenomenon, an empirical generalization concerning the mechanical efficiency of given industrial ways and means. As an explanation of interest the doctrine of the roundabout process belongs among the productivity theories, as Mr. Fisher has indicated; and as such it cannot be admitted as a competent, or indeed a relevant,

explanation of interest in a system of theory whose purpose is to formulate a scheme of economic conduct in terms of the hedonistic calculus.

It is quite conceivable that in some other system of economic theory, worked out for some other purpose than the hedonistic explanation of value, the roundabout process might be brought into the central place in a doctrine of interest; but such a doctrine would have as its theoretical core, upon which the theorist's attention should be concentrated, the physical production of that increment of wealth that is presumed to go to interest, rather than the pecuniary determination of the rate of interest through which this increment is distributed among its claimants. Such a doctrine would belong in a theory of production, or of industry, not in a theory of distribution, or of business. But the marginal-utility system is primarily a theoretical scheme of distribution, and only secondarily a scheme of production; and, therefore, in so far as it aims to deal with the current economic situation, it is or aims to be primarily a theory of business traffic, not of the processes of industry, particularly not of technological efficiency or of technological changes. This is well shown, e. g., in Mr. Fisher's discussion of invention (ch. x, ch. xi, sec. 4, ch. xvii, sec. 6).

Apart from all question of consistency or conclusiveness within the premises of the marginal-utility school, the test to which Mr. Fisher's theory of interest must finally be brought is the question of its adequacy as an explanation of interest in modern business. Mr. Fisher has recognized this, and the most painstaking and most admirable portions of the volume are those which discuss interest as involved in current business transactions (e. g., ch. xii-xvi). In modern life distribution takes place almost wholly in pecuniary terms and by means of business transactions. In so far as it does not, e. g., in the distribution of consumable goods within the household or in the distributive use of public utilities, it does not bear sensibly on any question of interest, particularly does it not bear immediately as a determinant on the rate of interest. Interest, as demanding the attention of the modern economist, is eminently a pecuniary phenomenon, and its rate is a question of business adjustments. It is in the business community and under the guidance and incitement of business exigencies that the rate is determined. The rate of interest in any other bearing in modern life is wholly subordinate and subsidiary. It is therefore an inversion of the logical sequence when Mr. Fisher, with others of the school, explains pecuniary interest and its rate by appeal to non-pecuniary factors. But such are the traditions of the school, and such a line of analysis is imposed by their premises.

As has been remarked above, Mr. Fisher's development of the doctrine of interest is true to these premises and traditions to a degree of nicety never excelled by any of the adepts. These premises or postulates on which the marginal-utility scheme rests are derived from the English classical economists, and through them from the hedonistic philosophy of the earlier decades of the last century. According to the hedonistic postulates the end and incentive is necessarily the pleasureable sensations to be derived from the consumption of goods, what Mr. Fisher calls "enjoyable income" or "psychic income " (see Glossary, pp. 339-340), and for reasons set forth in his analysis (ch. vi), it is held that, on the whole, men prefer present to future consumption. This is the beginning of economic (marginal-utility) wisdom; but it is also the end of the wisdom of marginal-utility. To these elemental terms it has been incumbent on all marginal-utility theorists to reduce their formulations of economic phenomena. And from the acceptance of these limitations follow several characteristic excrescences and incongruities in Mr. Fisher's theory, presently to be spoken of.

To save argument it may be conceded that the hedonistic interpretation of human conduct is fundamentally sound. It is not requisite for the purpose in hand to discard that postulate, however frail it might prove on closer scrutiny. But if it be granted that the elemental motive force of economic life is the hedonistic calculus it does not follow that the same elemental calculus of preference for present over future sensations of consumption is to be directly appealed to in explanation of a phenomenon so far from elementary as the rate of interest. In point of historical fact anything like a consistent rate of interest emerges into the consciousness of mankind only after business traffic has reached some appreciable degree of development; and this development of business enterprise has taken place only on the basis and within the lines of the so-called " money economy," and virtually only on that higher stage of the money economy specifically called a "credit economy." Indeed interest is, strictly, a phenomenon of credit transactions alone. But a money economy and the consequent credit transactions which give rise to the phenomena of interest can emerge only on the basis afforded by the mature development of the institution of property. The whole matter lies within the range of a definite institutional situation which is to be found only during a relatively brief phase of civilization that has been preceded by thousands of years of cultural growth during which the existence of such a thing as interest was never suspected. In short, interest is a business proposition and is to be explained only in terms of business, not in terms