The rate of interest as cost factor and as capitalization factor

The effects of changes in the rate of interest upon prices and production are often thought of as being the result of changed costs of production. This article examines the relative significance of interest as cost element. It is shown, first, that interest on old investments in fixed capital, a chief item of overhead cost, is without influence upon prices: second, that interest on working capital is entarely udustion of the interest pric will hardly stimulate insestment in working capital unless it be incidental to in creased investment in fixed capital; fourth, that for such fixed investment interest as cost factor serves as a measure for the expediency of alternative production methods. But much more important than all these analyses of production cost is the effect of the rate of interest upon prices of investment goods by way of capitalization of future yields. If. however. no future profits are to be expected a reduction of the interest rat, even as a factor of capitalization, remains without any effect on prices and production.