ABSTRACT
In the preceding chapter, capital was considered in a double light. The problem of current demand and supply was examined mainly in relation to free capital, and the results reached were largely dependent on being able to regard the supply as consisting of interchangeable and equivalent units. The earnings of the least productive units, the units which, at current borrowing rates, are on the margin between net profit and net loss to the borrower, were found to register the marginal utility of capital. To pay more for these would be unprofitable, while, if they were yielding substantial net returns, further borrowing would be profitable—they would not be on the margin. The characteristic of interchangeability ensures the rate paid for these being the rate paid for all other units, if we may assume the borrowing and lending to take place in a well-organised market under active competition.
