Chapter 6—Production: The Rate of Interest and Its Determination (continued)

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Chapter 6—Production: The Rate of Interest and Its Determination (continued)

4. The Time Market and the Production Structure

     The time market, like other markets, consists of component individuals whose schedules are aggregated to form the market supply and demand schedules. The intricacy of the time market (and of the money market as well) consists in the fact that it is also divided and subdivided into various distinguishable sub­markets. These are aggregable into a total market, but the sub­sidiary components are interesting and highly significant in their own right and deserve further analysis. They themselves, of course, are composed of individual supply and demand sched­ules.

     As we have indicated above, we may divide the present-future market into two main subdivisions: the production structure and the consumer loan market. Let us turn first to the production structure. This may be done most clearly by considering once again a typical production-structure diagram. This diagram is the one in Figure 41, with one critical difference. Previously the dia­gram represented a typical production structure for any partic­ular consumers’ good. Now the same diagram represents the ag­gregate production structure for all goods. Money moves from consumers’ goods back through the various stages of production, while goods flow from the higher through the lower stages of production, finally to be sold as consumers’ goods. The pattern of production is not changed by the fact that both specific and nonspecific factors exist. Since the production structure is aggre­gated, the degree of specificity for a particular product is irrele­vant in a discussion of the time market.

     There is no problem in the fact that different production proc­esses for different goods take unequal lengths of time. This is not a difficulty because the flow from one stage to another can be aggregated for any number of processes.

     There are, however, two more serious problems that seem to be involved in aggregating the production structure for the en­tire economy. One is the fact that in various processes there will not necessarily be an exchange of capital goods for money at each stage. One firm may “vertically integrate” within itself one or more stages and thereby advance present goods for a greater period of time. We shall see below, however, that this presents no difficulty at all, just as it presented no difficulty in the case of particular processes.

     A second difficulty is the purchase and use of durable capital goods. We have been assuming, and are continuing to assume, that no capital goods or land are bought—that they are only hired, i.e., “rented” from their owners. The purchase of durable goods presents complications, but again, as we shall see, this will lead to no essential change whatever in our analysis.

     The production-structure diagram in Figure 45 omits the num­bers that indicated the size of payments between the various sec­tors and substitutes instead D’s and S’s to indicate the points where present-future transactions (“time transactions”) take place and what groups are engaging in these various transactions. D’s indicate demanders of present goods, and S’s are suppliers of present goods, for future goods.

     Let us begin at the bottom—the expenditure of consumers on consumers’ goods. The movement of money is indicated by ar­rows, and money moves from consumers to the sellers of con­sumers’ goods. This is not a time transaction, because it is an exchange of present goods (money) for present goods (consumers’ goods).[13]

     These producers of consumers’ goods are necessarily capitalists who have invested in the services of factors to produce these goods and who then sell their products. Their investment in fac­tors consisted of purchases of the services of land factors and la­bor factors (the original factors) and first-order capital goods (the produced factors). In both these two large categories of transac­tions (exchanges that are made a stage earlier than the final sale of consumers’ goods), present goods are exchanging for future goods. In both cases, the capitalists are supplying present money in exchange for factor services whose yield will materialize in the future, and which therefore are future goods.

     So the capitalists who are producing consumers’ goods, whom we might call “first-stage capitalists,” engage in time transactions in making their investments. The components of this particular subdivision of the time market, then, are:

      Supply of Present Goods:      Capitalists₁
      Supply of Future Goods:       Landowners, Laborers, Capitalists₂ 
          (Demand for Present Goods)

     Capitalists₁ are the first-stage capitalists who produce consum­ers’ goods. They purchase capital goods from the producer-own­ers—the second-stage capitalists, or Capitalists₂. The appropriate S’s and D’s indicate these transactions, and the arrows pointing upward indicate the direction of money payment.

     At the next stage, the Capitalists₂ have to purchase services of factors of production. They supply present goods and purchase future goods, goods which are even more distantly in the future than the product that they will produce.[14] These future goods are supplied by landowners, laborers, and Capitalists₃. To sum up, at the second stage:

      Supply of Present Goods:      Capitalists₂ 
      Supply of Future Goods:       Landowners, Laborers, Capitalists₃

These transactions are marked with the appropriate S’s and D’s, and the arrows pointing upward indicate the direction of money payment in these transactions.

     This pattern is continued until the very last stage. At this final stage, which is here the sixth, the sixth-stage capitalists supply future goods to the fifth-stage capitalists, but also supply present goods to laborers and landowners in exchange for the extremely distant future services of the latter. The transactions for the two highest stages are, then, as follows (with the last stage designated as N instead of six):

Fifth Stage:

    Supply of Present Goods:   Capitalists₅
    Supply of Future Goods:    Landowners, Laborers, Capitalists_N

Nth Stage:

    Supply of Present Goods:   Capitalists_N
    Supply of Future Goods:     Landowners, Laborers

     We may now sum up our time market for any production struc­ture of N stages:

     To illustrate clearly the workings of the production structure, let us hark back to the numerical example given in Figure 41 and summarize the quantities of present goods supplied and received by the various components of the time market. We may use the same figures here to apply to the aggregate production structure, although the reader may wish to consider the units as multiples of gold ounces in this case. The fact that different durations of production processes and different degrees of vertical integration make no difficulties for aggregation permits us to use the dia­gram almost interchangeably for a single production process and for the economy as a whole. Furthermore, the fact that the ERE interest rate will be the same for all stages and all goods in the economy especially permits us to aggregate the comparable stages of all goods. For if the rate is 5 percent, then we may say that for a certain stage of one good, payments by capitalists to owners of factors are 50 ounces, and receipts from sales of products are 52.5 ounces, while we can also assume that the aggregate payments for the whole economy in the same period are 5,000 ounces, and receipts 5,250 ounces. The same interest rate connotes the same rate of return on investments, whether considered separately or for all goods lumped together.

     The following, then, are the supplies and demands for present goods from Figure 41, the diagram now being treated as an aggre­gate for the whole economy: 

The horizontal arrows at each stage of this table depict the move­ment of money as supplied from the savers to the recipient de­manders at that stage.

     From this tabulation it is easy to derive the net money in­come of the various participants: their gross money income minus their money payments, if we include the entire period of time for all of their transactions on the time market. The case of the owners of land and labor is simple: they receive their money in exchange for the future goods to be yielded by their factors; this money is their gross and their net money income from the pro­ductive system. The total of net money income to the owners of land and labor is 83 ounces. This is the sum of the money in­comes to the various owners of land and labor at each stage of production.

     The case of the capitalists is far more complicated. They pay out present goods in exchange for future goods and then sell the maturing less distantly future products for money to lower-stage capitalists. Their net money income is derived by subtracting their money outgo from their gross income over the period of the production stage. In our example, the various net incomes of the capitalists are as follows:

The total net income of the capitalists producing capital goods (orders 2 through N) is 12 ounces. What, then, of Capitalists₁, who apparently have not only no net income, but a deficit of 95 ounces? They are recouped, as we see from the diagram (in Figure 41), not from the savings of capitalists, but from the expenditure of con­sumers, which totals 100 ounces, yielding a net income to Capi­talists₁ of five ounces.

     It should be emphasized at this point that the general pattern of the structure of production and of the time market will be the same in the real world of uncertainty as in the ERE. The difference will be in the amounts that go to each sector and in the relations among the various prices. We shall see later what the discrepancies will be; for example, the rate of return by the capitalists in each sector will not be uniform in the real market. But the pattern of payments, the composition of suppliers and demanders, will be the same.

     In analyzing the income-expenditure balance sheets of the production structure, writers on economic problems have seen that we may consolidate the various incomes and consider only the net incomes. The temptation has been simply to write off the various intercapitalist transactions as “duplications.” If that is done here, then the total net income in the market is: capital­ists, 17 ounces (12 ounces for capital-good capitalists and five ounces for consumers’-good capitalists); land and labor factors, 83 ounces. The grand total net income is then 100 ounces. This is exactly equal to the total of consumer spending for the period.

     Total net income is 100 ounces, and consumption is 100 ounces. There is, therefore, no new net saving. We shall deal with savings and their change in detail below. Here the point is that, in the endless round of the ERE, zero net savings, as thus defined, would mean that there is just enough gross saving to keep the structure of productive capital intact, to keep the production processes rolling, and to keep a constant amount of consumers’ goods produced per given period.

     It is certainly legitimate and often useful to consider net in­comes and net savings, but it is not always illuminating, and its use has been extremely misleading in present-day economics.[15] Use of the net “national” income figures (it is better to deal with “social income” extending throughout the market community using the money rather than to limit the scope to national boundaries) leads one to believe that the really important ele­ment maintaining the production structure is consumers’ spend­ing. In our ERE example, the various factors and capitalists receive their net income and plow it back into consumption, thus maintaining the productive structure and future standards of living, i.e., the output of consumers’ goods. The inference from such concepts is clear: capitalists’ savings are necessary to increase and deepen the capital structure, but even without any savings, consumption expenditure is alone sufficient to maintain the productive capital structure intact.

     This conclusion seems deceptively clear-cut: after all, is not consumer spending the bulwark and end product of activity? This thesis, however, is tragically erroneous. There is no simple autom­atism in capitalists’ spending, especially when we leave the certain world of the ERE, and it is in this real world that the conceptual error plays havoc. For with production divided into stages, it is not true that consumption spending is sufficient to provide for the maintenance of the capital structure. When we consider the maintenance of the capital structure, we must con­sider all the decisions to supply present goods on the present-future market. These decisions are aggregated; they do not cancel one another out. Total savings in the economy, then, are not zero, but the aggregation of all the present goods supplied to owners of future goods during the production process. This is the sum of the supplies of Capitalists₁ through Capitalists_N, which totals 318 ounces. This is the total gross savings—the supply of present goods for future goods in production—and also equals total gross investment. Investment is the amount of money spent on future-good factors and necessarily equals savings. Total ex­penditures on production are: 100 (Consumption) plus 318 (In­vestment = Savings), equals 418 ounces. Total gross income from production equals the gross income of Capitalists₁ (100 ounces) plus the gross income of other capitalists (235 ounces) plus the gross income of owners of land and labor (83 ounces), which also equals 418 ounces.

     The system depicted in our diagram of the production struc­ture, then, is of an economy in which 418 gold ounces are earned in gross income, and 100 ounces are spent on consumption, while 318 ounces are saved and invested in a certain order in the pro­duction structure. In this evenly rotating economy, 418 ounces are earned and then spent, with no net “hoarding” or “dishoard­ing,” i.e., no net additions or subtractions from the cash balance over the period as a whole.[16]

     Thus, instead of no savings being needed to maintain capital and the production structure intact, we see that a very heavy pro­portion of savings and investment—in our example three times the amount spent on consumption—is necessary simply to keep the production structure intact. The contrast is clear when we consider who obtains income and who is empowered to decide whether to consume or to invest. The net-income theorists im­plicitly assume that the only important decisions in regard to consuming vs. saving-investing are made by the factor-owners out of their net income. Since the net income of capitalists is ad­mittedly relatively small, this approach attributes little importance to their role in maintaining capital. We see, however, that what maintains capital is gross expenditures and gross investment and not net investment. The capitalists at each stage of production, therefore, have a vital role in maintaining capital through their savings and investment, through heavy savings from gross income.

     Concretely, let us take the case of the Capitalists₁. According to the net-income theorists, their role is relatively small, since their net income is only five ounces. But actually their gross income is 100 ounces, and it is their decision on how much of this to save and how much to consume that is decisive. In the ERE, of course, we simply state that they save and invest 95 ounces. But when we leave the province of the ERE, we must realize that there is nothing automatic about this investment. There is no natural law that they must reinvest this amount. Suppose, for example, that the Capitalists₁ decide to break up the smooth flow of the ERE by spending all of the 100 ounces for their own consump­tion rather than investing the 95 ounces. It is evident that the entire market-born production structure would be destroyed. No income at all would accrue to the owners of all the higher­-order capital goods, and all the higher-order capital processes, all the production processes longer than the very shortest, would have to be abandoned. We have seen above, and shall see in more detail below, that civilization advances by virtue of additional capital, which lengthens production processes. Greater quanti­ties of goods are made possible only through the employment of more capital in longer processes. Should capitalists shift from saving-investment to consumption, all these processes would be necessarily abandoned, and the economy would revert to bar­barism, with the employment of only the shortest and most primi­tive production processes. The standard of living, the quantity and variety of goods produced, would fall catastrophically to the primitive level.[17]

     What could be the reason for such a precipitate withdrawal of savings and investment in favor of consumption? The only reason—on the free market—would be a sudden and massive increase in the time-preference schedules of the capitalists, so that present sat­isfactions become worth very much more in terms of future satis­factions. Their higher time preferences mean that the existing rate of interest is not enough to induce them to save and invest in their previous proportions. They therefore consume a greater proportion of their gross income and invest less.

     Each individual, on the basis of his time-preference schedule, decides between the amount of his money income to be devoted to saving and the amount to be devoted to consumption. The aggregate time-market schedules (determined by time preferences) determine the aggregate social proportions between (gross) savings and consumption. It is clear that the higher the time-preference schedules are, the greater will be the proportion of consumption to savings, while lower time-preference schedules will lower this proportion. At the same time, as we have seen, higher time-pref­erence schedules in the economy lead to higher rates of interest, and lower schedules lead to lower rates of interest.

     From this it becomes clear that the time preferences of the individuals on the market determine simultaneously and by them­selves both the market equilibrium interest rate and the propor­tions between consumption and savings (individual and aggre­gate). [18] Both of the latter are the obverse side of the same coin. In our example, the increase in time-preference schedules has caused a decline in savings, absolute and proportionate, and a rise in the interest rate.

     The fallacies of the net product figures have led economists to include some “grossness” in their product and income figures. At present the favorite concept is that of the “gross national prod­uct” and its counterpart, gross national expenditures. These con­cepts were adopted because of the obvious errors encountered with the net income concepts.[19] Current “gross” figures, however, are the height of illogicality, because they are not gross at all, but only partly gross. They include only gross purchases by capitalists of durable capital goods and the consumption of their self-owned durable capital, approximated by depreciation al­lowances set by the owners. We shall consider the problems of durable capital more fully below, but suffice it to say that there is no great difference between durable and less durable capital. Both are consumed in the course of the production process, and both must be paid for out of the gross income and gross savings of lower-order capitalists. In evaluating the payment pattern of the production structure, then, it is inadmissible to leave the consumption of nondurable capital goods out of the investment picture. It is completely illogical to single out durable goods, which are themselves only discounted embodiments of their non­durable services and therefore no different from nondurable goods.

     The idea that the capital structure is maintained intact with­out savings, as it were automatically, is fostered by the use of the “net” approach. If even zero savings will suffice to maintain capital, then it seems as if the aggregate value of capital is a permanent entity that cannot be reduced. This notion of the permanence of capital has permeated economic theory, particu­larly through the writings of J.B. Clark and Frank H. Knight, and through the influence of the latter has molded current “neo­classical” economic theory in America. To maintain this doctrine it is necessary to deny the stage analysis of production and, in­deed, to deny the very influence of time in production.[20]The all­-pervading influence of time is stressed in the period-of-production concept and in the determination of the interest rate and of the investment-consumption ratio by individual time-preference schedules. The Knight doctrine denies any role to time in pro­duction, asserting that production “now” (in a modern, complex economy) is timeless and that time preference has no influence on the interest rate. This doctrine has been aptly called a “myth­ology of capital.” Among other errors, it leads to the belief that there is no economic problem connected with the replacement and maintenance of capital.[21][22]

     A common fallacy, fostered directly by the net-income ap­proach, holds that the important category of expenditures in the production system is consumers’ spending. Many writers have gone so far as to relate business prosperity directly to consumers’ spending, and depressions of business to declines in consumers’ spending. “Business cycle” considerations will be deferred to later chapters, but it is clear that there is little or no relationship between prosperity and consumers’ spending; indeed almost the reverse is true. For business prosperity, the important considera­tion is the price spreads between the various stages—i.e., the rate of interest return earned. It is this rate of interest that induces capitalists to save and invest present goods in productive factors. The rate of interest, as we have been demonstrating, is set by the configurations of the time preferences of individuals in the society. It is not the total quantity of money spent on consump­tion that is relevant to capitalists’ returns, but the margins, the spreads, between the product prices and the sum of factor prices at the various stages—spreads which tend to be proportionately equal throughout the economy.

     There is, in fact, never any need to worry about the mainte­nance of consumer spending. There must always be consumption; as we have seen, after a certain amount of monetary saving, there is always an irreducible minimum of his monetary assets that every man will spend on current consumption. The fact of human action insures such an irreducible minimum. And as long as there is a monetary economy and money is in use, it will be spent on the purchase of consumers’ goods. The proportion spent on capital in its various stages and in toto gives a clue to the impor­tant consideration—the real output of consumers’ goods in the economy. The total amount of money spent, however, gives no clue at all. Money and its value will be systematically studied in a later chapter. It is obvious, however, that the number of units spent could vary enormously, depending on the quantity of the money commodity in circulation. One hundred or 1,000 or 10,000 or 100,000 ounces of gold might be spent on consumption, without signifying anything except that the quantity of money units available was less or greater. The total amount of money spent on consumption gives no clue to the quantity of goods the econ­omy may purchase.

     The important consideration, therefore, is time preferences and the resultant proportion between expenditure on consumers’ and producers’ goods (investment). The lower the proportion of the former, the heavier will be the investment in capital struc­ture, and, after a while, the more abundant the supply of con­sumers’ goods and the more productive the economy. The ob­verse of the coin is the determining effect of time preferences on the price spreads that set the rate of interest, and the income of the capitalist savers-investors in the economy. We have already seen the effect of a lowering of investment on the first rank, and below we shall analyze fully the effect on production and interest of a lowering of time preferences and the effects of various changes in the quantity of money on time preferences and the production structure.

     Before continuing with an analysis of time preference and the production structure, however, let us complete our exami­nation of the components of the time market.[23]

     The pure demanders of present goods on the time market are the various groups of laborers and landowners—the sellers of the services of original productive factors. Their price on the market, as will be seen below, will be set equal to the marginal value product of their units, discounted by the prevailing rate of in­terest. The greater the rate of interest, the less will the price of their service be, or rather, the greater will be the discount from their marginal value product considered as the matured present good. Thus, if the marginal value product of a certain labor or land factor is 10 ounces per unit period, and the rate of interest is 10 percent, its earning price will be approximately nine ounces per year if the final product is one year away. A higher rate of interest would lead to a lower price, and a lower rate to a higher price, although the maximum price is one slightly below the full MVP (marginal value product), since the interest rate can never disap­pear.

     It seems likely that the demand schedule for present goods by the original productive factors will be highly inelastic in response to changes in the interest rate. With the large base amount, the discounting by various rates of interest will very likely make little difference to the factor-owner.[24] Large changes in the interest rate, which would make an enormous difference to capitalists and determine huge differences in interest income and the profitable­ness of various lengthy productive processes, would have a neg­ligible effect on the earnings of the owners of the original produc­tive factors.

     On the time market, we are considering all factors in the ag­gregate; the interest rate of the time market permeates all particu­lar aspects of the present-future market, including all purchases of land and labor services. Therefore, when we are considering the supply of a certain factor on the market, we are considering it in general, and not its supply schedule for a specific use. A group of homogeneous pieces of land may have three alternative uses: say, for growing wheat, raising sheep, or serving as the site of a steel factory. Its supply schedule for each of the three uses will be elastic (relatively flat curve) and will be determined by the amount it can obtain in the next best use—i.e., the use in which its discounted MVP is next highest. In the present analysis, we are not considering the factor’s supply curve for a particular in­dustry or use; we are considering its supply curve for all users in the aggregate, i.e., its supply curve on the time market in ex­change for present goods. We are therefore considering the be­havior of all owners of a homogeneous factor of land (or of one owner if the land factor is unique, as it often is). Land is very likely to have no reservation price, i.e., it will have little subjec­tive-use-value to the owner. A few landlords may place a valu­ation on the possibility of contemplating the virgin beauty of the unused land; in practice, however, the importance of such reser­vation-demand for land is likely to be negligible. It will, of course, be greater where the owner can use the land to grow food for himself.

     Labor services are also likely to be inelastic with respect to the interest discount, but probably less so than land, since labor has a reservation demand, a subjective use-value, even in the aggregate labor market. This special reservation demand stems from the value of leisure as a consumers’ good. Higher prices for labor services will induce more units of labor to enter the mar­ket, while lower prices will increase the relative advantages of leisure. Here again, however, the difference that will be made by relatively large changes in the interest rate will not be at all great, so that the aggregate supply-of-labor curve (or rather curves, one for each homogeneous labor factor) will tend to be inelastic with regard to the interest rate.

     The two categories of independent demanders of present goods for future goods, then, are the landowners and the laborers. The suppliers of present goods on the time market are clearly the capi­talists, who save from their possible consumption and invest their savings in future goods. But the question may be raised: Do not the capitalists also demand present goods as well as supply them?

     It is true that capitalists, after investing in a stage of produc­tion, demand present goods in exchange for their product. This particular demand is inelastic in relation to interest changes since these capital goods also can have no subjective use-value for their producers. This demand, however, is strictly derivative and de­pendent. In the first place, the product for which the owner de­mands present goods is, of course, a future good, but it is also one stage less distantly future than the goods that the owner pur­chased in order to produce it. In other words, Capitalists₃ will sell their future goods to Capitalists₂, but they had bought future goods from Capitalists₄, as well as from landowners and laborers. Every capitalist at every stage, then, demands goods that are more distantly future than the product that he supplies, and he sup­plies present goods for the duration of the production stage until this product is formed. He is therefore a net supplier of present goods, and a net demander of future goods. Hence, his activities are guided by his role as a supplier. The higher the rate of interest that he will be able to earn, i.e., the higher the price spread, the more he will tend to invest in production. If he were not essen­tially a supplier of present goods, this would not be true.

     The relation between his role as a supplier and as a demander of present goods may be illustrated by the diagram in Figure 46.

     This diagram is another way of conveniently representing the structure of production. On the horizontal axis are represented the various stages of production, the dots furthest to the left be­ing the highest stages, and those further to the right being the lower stages. From left to right, then, the stages of production are lower and eventually reach the consumers’-good stage. The verti­cal axis represents prices, and it could interchangeably be either the production structure of one particular good or of all the goods in general. The prices that are represented at each stage are the cumulative prices of the factors at each stage, excluding the in­terest return of the capitalists. At each stage rightward, then, the level of the dots is higher, the difference representing the inter­est return to the capitalists at that stage. In this diagram, the interest return to capitalists at two adjacent stages is indicated, and the constant slope indicates that this return is equal.

     Let us now reproduce the above diagram in Figure 47.[25]The original production structure diagram is marked at points A, B, and C. Capitalists X purchase factors at price A and sell their prod­uct at point B, while capitalists Y buy at B and sell their product at C. Let us first consider the highest stage here portrayed—that of capitalists X. They purchase the factors at point A. Here they supply present goods to owners of factors. Capitalists X, of course, would prefer that the prices of the factors be lower; thus, they would prefer paying A' rather than A. Their interest spread can­not be determined until their selling prices are determined. Their activities as suppliers of present goods in exchange for interest return, therefore, are not really completed with their purchase of factors. Obviously, they could not be. The capitalists must transform the factors into products and sell their products for money before they obtain their interest return from their supply of present goods. The suppliers of future goods (land­owners and laborers) complete their transactions immediately, as soon as they obtain present money. But the capitalists’ trans­actions are incomplete until they obtain present money once again. Their demand for present goods is therefore strictly de­pendent on their previous supply.

     Capitalists X, as we have stated, sell their products at B to the next lower rank of capitalists. Naturally, they would prefer a higher selling price for their product, and the point B' would be preferred to B. If we looked only at this sale, we might be tempted to state that, as demanders of present goods, capitalists X prefer a higher price, and therefore a lower discount for their product, i.e., a lower interest rate. This, however, would be a superficial point of view, for we must look at both of their exchanges, which are necessarily considered together if we consider their complete transaction. They prefer a lower buying point and a higher sell­ing point, i.e., a more steeply sloped line, or a higher rate of dis­count. In other words, the capitalists prefer a higher rate of inter­est and therefore always act as suppliers of present goods. Of course, the result of this particular change (to a price spread of A' B') is that the next lower rung of capitalists, capitalists Y, suf­fer a narrowing of their price spread, along the line B'C. It is, of course, perfectly agreeable to capitalists X if capitalists Y suf­fer a lowering of their interest return, so long as the return of the former improves. Each capitalist is interested in improving his own interest return and not necessarily the rate of interest in general. However, as we have seen, there cannot for long be any differences in interest return between one stage and another or between one production process and another. If the A' B' C situation were established, capitalists would pour out of the Y stage and into the X stage, the increased demand would bid up the price above A', the sales at B' would be increased and the de­mand lowered, and the supply at C lowered, until finally the in­terest returns were equalized. There is always a tendency for such equalization, and this equalization is actually completed in the ERE.

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