The man who does this beneficent work, increasing mankind’s output of goods, and providing employment as long as the factory or railway that he helps to build is running, is induced to do so, as a rule, by the purely selfish motive of providing for his old age or for those who come after him by earning the rate of interest that is paid to him for his capital.  What is this rate of interest going to be, and how much effect does it have upon the creation of capital?

Some people argue that a low rate of interest makes people save more because it is necessary for them to save more in order to acquire independence.  Others maintain that a high rate of interest induces people to save because they can see the direct advantage of doing so.  Both these arguments are probably true in some cases.  But, as a rule, people who have the instinct of saving will save, within certain limits, whatever the rate of interest may be.  When the rate of interest is low they will certainly not reduce their saving because each hundred pounds that they put away brings them in comparatively little, and when the rate of interest is high the attraction of the high rate will also deter them from diminishing the amount that they put aside.  Moreover, we have to consider, not only the money payment involved by the rate of interest, but its buying power in goods.  In 1896 trustee securities could only be bought to return a yield of 2-1/2 per cent. for the buyer; now the investor can get 5-1/4 per cent. and more from the British Government.  And yet the power that this 5-1/4 gives him over the goods and services that he wants for his comfort Is probably not greater, and very likely rather less, than the power which he got in 1896 from his 2-1/2 per cent.  One of the few facts which seem to stand out clearly from a study of the movement of the prices of securities, and consequently of the rate of interest to be derived from them, is that the rate of interest is high when the price of commodities is high, and vice versa.  So that the answer to the question:  What is the rate of interest likely to be after the war? may be given, in Quaker fashion, by another question:  What will happen to the index number of the prices of commodities?  It seems fairly probable that both these questions may be answered, very tentatively and diffidently, by the expression of a hope that after a time, when peace conditions have settled down and all the merchant ships of the world have been restored to their peaceful occupations, the general level of the price of commodities will be materially lower than it is now, though probably considerably higher than it was before the war.  If this be so, then it is fairly safe to expect that the rate of interest, as expressed in money, will follow the movement of prices of goods.  But it must be remembered that by rate of interest I mean the pure rate of interest, that is to say, the rate earned on perpetual fixed-charge securities of the highest class.  It may be that, owing to the very large amount of gilt-edged securities created in the course of the war by the various warring Governments, the rate of profit to be earned by the man who takes the risks of industry from dividends on ordinary shares and stocks will have to be made relatively more attractive than it was before the war.