a necessity hardly less unpleasant than an increased wages bill, or an Excess Profits Duty.  Concessions must indeed be made to the shareholders’ rapacity:  but when something has been done in this direction, dust can easily be thrown in their not very observant eyes.  Reserves, which within limits are a necessity of sound finance, can be accumulated beyond those limits, and, when the further limits of an extreme but just arguable conservatism have been passed, there remain the innumerable devices, known to every resourceful Board, of hidden reserves, the secret of which is unmenaced by the meager information of a balance-sheet.  In all this the shareholder, as the directors occasionally assure themselves, has no real grievance, for he will gain in the long run, from the appreciation in the capital value of his shares, all and perhaps more than all that he foregoes in the meantime in the way of dividends.

In the long run the shareholder is not injured; but in the meantime he is in effect compelled, without any consciousness of the proceeding, to save and to reinvest in the company a portion of the dividends, which he might otherwise have spent.  The reserves which are accumulated are not allowed to lie idle:  they are employed either in what are really capital extensions of the business, or in the purchase of outside securities, and in either case they represent an increase in the total supply of capital.  The principal which these proceedings represent is capable of indefinite extension.

But however possible it might be to secure a supply of capital without the inducement of a rate of interest, that rate is indispensable for dealing with the demand.  It is no good saying, “Three per cent seems a fair rate of interest; let us try and limit it to that.”  Given the amount of savings which are supplied, the rate of interest must be allowed to reach whatever figure is necessary to confine the demand to that amount.  Given the quantity of resources which you have available for future needs, the meshes of the sieve must be made as narrow as is necessary to confine the projects that pass through within those limits.  And so, indeed, it becomes necessary for any particular business to pay for its capital interest at the market rate, not so much to secure the saving of it as to secure its allocation from the common pool.

Sec.10. Interest and Distribution.  It is unavoidable that this interest should accrue to whoever it is that supplies the capital.  If the capital were supplied, as it might conceivably be, collectively by the community, the interest would accrue to the community, and all would be well.  But as things are, the capital is supplied mainly by the savings of individuals, and largely by individuals confined to a relatively narrow class.  The profits of Capital have thus a vital influence on the very serious matter of the distribution of wealth between social classes.  Now, as experience shows, there is no element in profits which is capable of such radical change in so short a space of time, as is the rate of interest.  Even before the war it had become hard for people in Great Britain to realize that 3 per cent Consols had stood at 114 as late as 1896.  “How blest,” wrote two cynical satirists of society in the same period: