are often urged to undertake.  And it is of practical importance to realize that the very considerations, which call most urgently for individual thrift, forbid a great indulgence in such projects.  A time of national poverty is not a time when it is suitable for the State to embark on large schemes of capital development:  we require our resources for more immediate ends.  Faced with such problems, our practical sense may no doubt suffice to keep us straight; but it is apt to do so at the expense of a complete inversion of the real issues.  If, for instance, we call for Governmental retrenchment on what we deem extravagant policies of housing and education, we usually speak as though they represented the profligacy of a spendthrift as contrasted with the saving that is indispensable.  The truth is rather that these policies represent a saving, an investment for future purposes, which may conceivably be greater (this must not be taken as representing my personal opinion) than the community can properly afford.  This is another instance of what I mean by looking at the problem of capital the right way up.

Sec.7. The Necessity of Interest.  It is only now that we are in a position to appreciate the true functions of a rate of interest, and the nature of its claims to be regarded as a “real cost.”  Interest, it is sometimes said, is necessary to provide for the future.  It is far more certain that interest is necessary to provide for the present.  It is a matter of legitimate doubt how far it is necessary to pay interest to secure a supply of capital; there is no doubt at all that it is necessary to charge interest to limit the demand for it.  As we saw in Chapter I, a world socialist commonwealth would require to retain a rate of interest, if only as a matter of bookkeeping, in order to choose between the various capital undertakings that were technically possible.  And this is the primary function which the fate of interest fulfils in our present-day society.  It separates the sheep from the goats.  It serves as a screen, by means of which capital projects are sifted, and through which only those are allowed to pass which will benefit the future in a high degree.  For this essential purpose it is hard to imagine how a better instrument could be devised.

Sec.8. The Supply of Capital.  Let us dwell for a moment on this image of a screen, or sieve.  One condition of a good sieve is that its meshes should all be of the same size.  This condition the rate of interest almost perfectly fulfils.  But it is also important that the meshes should be of the right size.  Whether this is true of the actual rate of interest is a far more doubtful matter.  It is, indeed, plain that it is not altogether devoid of merit in this respect.  In times of general world poverty, like those which follow upon a great war, it is desirable, as has been argued, that more of our productive resources should be devoted to immediately