Economy and Interest

Maurice Allais (1911–2010) was a French economist and winner of the 1988 Nobel Memorial Prize in Economics. John Stephen Daly is a freelance translator working between French, English, and Latin. 

Preface to the American Edition
A Note on the Translation
To the Reader

Chapter 1. Introduction 1. Importance and difficulty of the theory of interest (1)
2. Aim of the present study (2)
3. The plan followed (3)
Chapter 2. Overview 1. Capital and the availability of capital (4)
2. Definition of interest (5)
3. The case of conventional monetary economies (6)
4. The rate of interest as price of use and as exchange premium (7)
5. Quadruple aspect of the rate of interest in conventional monetary economies (8)
6. Capital-based monetary theories of interest (9)
7. Diversity of interest rates (10)
8. Pure interest (11)
9. The assumption of perfect foresight (12)
10. Stationary models (13)
11. Representation of the rate of interest (14)
12. Continuous capitalization and discounting (15)
13. Discontinuous capitalization and discounting (16)
14. Equivalent rates (17)
15. The Fable of the Golden Shilling (18)
16. Monetary interest rates, wage interest rates, real interest rates, gold interest rates, true interest rates (19)
17. The production process (20)
Chapter 3. The Fable of the Fishermen 1. A fable (21)
2. Possibility of a positive or negative real interest rate in the absence of any indirect process of production (22)
3. Effects of technical progress (23)
4. Possibility of positive real interest under stationary conditions in the case of an indirect production process (24)
5. Possibility of a real negative rate under stationary conditions in the case of an indirect production process (25)
6. Role of the rate of interest in production (26)
7. Characteristic diagram of production (27)
Chapter 4. Interest, Capital, and Capitalization 1. Principles governing exchanges over time (28)
2. Price of durable goods (29)
3. Price of perpetual annuities (30)
4. Capital and income (31)
5. Determination of the value of goods (32)
6. Analysis of the price of use (33)
7. Basic components of prices (34)
8. Basic price components in equilibrium (35)
9. Nature of capital (36)
10. Aggregation of capital and income (37)
Chapter 5. Determination of the Equilibrium Rate of Interest on Capital in an Account-Based Economy Overview (38) A. The Supply of Capital 1. Available capital and supply of capital (39)
2. Motives for saving (40)
3. The saver’s rent (41) B. The Demand for Capital 1. Distribution of the factors of production over the different stages of production (42)
2. Indirect processes of production and waiting (43)
3. Technical interest rate (44)
4. Demand for capital (45)
5. Importance of forecasts in determining investments (46)
6. Rate of interest, production period, and distribution of the primary factors of production (47) C. The Capital Market 1. Determination of the rate of interest in disequilibrium dynamics (48)
2. Determination of the rate of interest in equilibrium dynamics (49)
3. Accumulation of capital and the role of the banks (50)
4. Role of savings (51)
5. Technical progress and interest (52)
6. Accumulations of capital and transitions (53)
Chapter 6. Interest and Social Efficiency 1. Definition of social efficiency (54)
2. Theorem of social efficiency (55)
3. Social efficiency and the distribution of consumer goods and services (56)
4. Maximization of social efficiency, distribution of incomes over time, and organization of the system of production (57)
5. Conditions determining the proof of the theorem of social efficiency (58)
6. Infinite-horizon model (59)
7. Broadening the concept of social efficiency (60)
8. Generalized theorem of social efficiency (61)
9. Interest, social efficiency, and production (62)
10. Interest, social efficiency, and consumption (63)
11. Interest, social efficiency, propensity to own, and propensity to bequeath (64)
12. Interest, social efficiency, and State intervention (65)
13. Interest, social efficiency, and classical theory (66)
Chapter 7. Interest and Social Productivity 1. Problem of social productivity (67)
2. Physical productivity of indirect processes of production (68)
3. Conditions for maximization of physical productivity of indirect processes of production (69)
4. Variation of the physical productivity of production processes with their capital intensity and the rate of interest (70)
5. Significance of the results obtained (71)
6. Social productivity and distribution (72)
7. Social productivity and social efficiency (73)
8. Transition from one stationary state to another (74)
9. Interest, social productivity, and propensity to own and to bequeath (75)
10. Social productivity and classical theory (76)
11. Social efficiency, social productivity, and interest rate policy (77)
Chapter 8. Interest and Money Overview (78) A. Liquidity Premium of Money 1. Working capital (79)
2. Speculative reserve (80)
3. Interest as price paid for use of money (81)
4. Liquidity preference and money balances (82) B. General Structure of the Economy General outline of the economic mechanism (83) (a) 100% backing of demand deposits 1. Value-yields and pure interest rate (84)
2. Consumers’ decisions (85)
3. Decisions of firms (86)
4. Financial market (87)
5. Money market (88)
6. Arbitraging between financial investments (89)
7. Money market and financial market (90) (b) Partial backing of demand deposits 1. The credit mechanism (91)
2. Lending banks: their income and policy (92)
3. Central Bank discount rate (93)
4. Pure interest rate, discount rate, liquidity premiums, and volume of money balances (94)
5. Credit and financing (95) C. Determination of the Rate of Interest Equilibrium and disequilibrium (96) (a) 100% backing of demand deposits 1. Determination of the rate of interest in the dynamic equilibrium process of an economy having no unbacked demand deposits and in which cash is inconvertible (97)
2. Determination of the rate of interest in the dynamic disequilibrium of an economy having no unbacked demand deposits, no hoarding, and using inconvertible cash (98) (b) Partial backing of demand deposits 1. Determination of the rate of interest in a dynamic equilibrium process (99)
2. Determination of the rate of interest in a dynamic disequilibrium process (100)
3. Classical point of view and modern theory (101) D. The Theory of Money, the General Theory of Prices, and the Theory of Interest 1. Theory of money, general theory of prices, theory of interest, and viewpoints (102)
2. Interest, money, and quantity theory (103)
3. Money, credit, and social efficiency (104)
4. Specific characteristics of money as an economic good (105)
5. Inflation, deflation, and the rate of interest (106)
6. Inflation, deflation, and competition (107)
7. Discount rate policy (108)
8. Bank inflation and forced savings (109)
9. Exchange rates and discount rates (110)
10. Interest rate disparities (111)
11. Basic factors of economic instability (112)
12. Principles of an economic regulatory policy in relation to the phenomenon of interest (113)
Chapter 9. The Problem of Interest A. State of the Problem 1. Existence of a problem (114)
2. Analysis of the problem (115)
3. The problem of interest from the ethical and economic viewpoints (116) B. Erroneous or Incomplete Interest Theories Overview (117) (a) Crude theories of interest 1. Risk-based theories (118)
2. Progress-based theories (119)
3. Exploitation theories (120)
4. Spontaneous productivity of nature theory (121a)
5. Capital demand theory (121b)
6. Capital supply theory (121c) (b) Theories based on misconceptions 1. Capital stock theory (122)
2. Time theory (123) (c) Primary theories of interest 1. Supply-and-demand theory (124)
2. Relative wage and interest level theory (125)
3. Quantitative theory of interest (126) (d) Incomplete secondary theories 1. Theories based on the physical productivity of capital (127)
2. Abstinence theories (128)
3. Perfected capital-based theory of interest (129)
4. Agio theory (130)
5. Fructification theory (131)
6. Theory of the availability of money (132)
7. Annuity theory (133) C. Rationale of the Existence of an Invariably Positive Interest Rate 1. Exact statement of the problem (134)
2. Rate of interest and private ownership of land (135)
3. Rates of interest, storage, and hoarding (136)
4. Why there is an invariably positive interest rate (137)
5. Effects of indefinite accumulation of capital (138)
6. Rates of interest and State intervention (139)
Chapter 10. Significance of the General Theory of Interest A. Key Aspects of the Phenomenon of Interest 1. Interconnected roles of the theory of interest (140)
2. Capitalistic and monetary aspects of the phenomenon of interest (141)
3. Ubiquity of the interest rate (142)
4. Need for mathematical logic and of abstraction (143) B. Interest and Social Efficiency 1. Interest, social efficiency, and production (144)
2. Interest, social efficiency, and consumption (145) C. Interest and Social Productivity 1. Social efficiency and social productivity (146)
2. Social productivity and classical theory (147) D. Interest and Money 1. The rate of interest: the price paid for the use of money (148)
2. Rates of interest and economic cycles (149)
3. Money and social efficiency (150) E. The Rationale of Interest Rationale of interest (151) (a) Why there is a rate of interest 1. Necessity of interest (152)
2. The collectivist economy and the rate of interest (153) (b) Why the rate of interest is always positive 1. Necessity of an invariably positive interest rate under present structural conditions (154)
2. Collectivist economy and positive rates of interest (155)
3. Legal limitations of the rate of interest (156)
4. Present justification of interest (157) F. Economic and Social Dimensions of the General Theory of Interest Theory of Interest: General Conclusions (158) (a) Proposals for reform 1. Systematic organization of competition (159)
2. Selection of a stable unit of account (160)
3. Monetary depreciation (161)
4. 100% backing of demand deposits (162)
5. Collectivization of land ownership (163)
6. Realization of a zero rate of interest (164) (b) General advantages of the proposed economic policy 1. Fundamental defects of the laissez-faire system (165)
2. Advantages of the proposed policy in terms of the organization of production (166)
3. Advantages of the proposed policy with regard to economic cycles (167)
4. Advantages of the proposed policy with regard to distribution (168) (c) Social aspects of the proposed reforms (169)
At the End of a Study (170)

The Appendixes.  Illustration of the General Theory of Interest by the Study of Simplified Models Generalities (171)
Appendix I. Illustration of the Theory of Social Productivity 1. Conditions assumed (172)
2. Condition of maximization of social productivity (173)
3. Application to a specific case (174)
Appendix II. Illustration of General Economic Interdependences 1. Generalities (175) A. The Case of an Economy without Money or Propensity to Own 1. The economy studied (176) (a) Analytic determination of the solutions 1. The conditions of competitive equilibrium (177)
2. The circuit of values (178)
3. Conditions of validity of solutions (179)
4. The case of collective land ownership (180)
5. Private and collective land ownership (181)
6. Noteworthy levels of interest rate I (182)
7. Conditions of equilibrium in the case in which no roundabout processes are used (183)
8. Specific study of the variations in the noteworthy values of the rate of interest and of the no-land case (184)
9. General discussion (185)
10. The case of use of a double rate of interest (186) (b) Complete study of a specific case 1. Characteristics considered (187)
2. Interpretation of the conditions (188)
3. Conditions of equilibrium in the case of use of the indirect process (189)
4. Conditions of equilibrium in the case of use of direct process (190)
5. Noteworthy values of the rate of interest (191)
6. Discussion (192)
7. Interpretation of the solutions (193)
8. The case of a double rate of interest (194) (c) Economic discussion of the solutions 1. Generalities (195)
2. General conditions of equilibrium (196)
3. Social efficiency, social productivity, and satisfactions (197)
4. The rationale of interest (198)
5. State intervention (199) B. The Case of a Monetary Economy with No Propensity to Own (a) Cash not depreciated over time 1. The economy studied (200)
2. The conditions of competitive equilibrium (201)
3. The circuit of values (202)
4. Conditions of validity of the solutions (203)
5. General discussion (204)
6. Study of a specific case (205)
7. The price level (206)
8. Social efficiency (207)
9. Economic interpretation of the results obtained (208) (b) Circulating money depreciated over time 1. Conditions of equilibrium (209)
2. Economic interpretation of the results obtained (210) (c) Simultaneous use of cash and deposit money 1. Conditions assumed (211)
2. Conditions of the equilibrium (212)
3. The case of rediscount by a central bank (213)
4. Economic interpretation of the results obtained (214) C. The Case of a Propensity to Own and to Bequeath 1. The economy studied (215)
2. Conditions of competitive equilibrium (216)
3. The case of a double interest rate (217)
Appendix III. Illustration of the Generalized Theory of Social Efficiency 1. Illustration of the generalized theory of social efficiency by the study of a specific example (218)
2. The economy studied (219)
3. Conditions of competitive equilibrium (220)
4. Demonstration of generalized social efficiency (221)
Index