There is but one interest and that is the increase which labor produces when it uses capital over the same labor not using capital. We confuse interest with interest rate, with rent, with risk elements in loans, etc. To more clearly understand interest we must keep to our formula, viz., that wealth is produced by the application of labor to land or by labor assisted by capital.

For brevity I use two illustrations. One: Consider ten men of equal productivity applying labor to land of the same desirability and fertility, and the product (x) is wealth. Of these ten men five (group A) use tools (capital) and for my purpose each uses the same kind of tool or tool equipment. The other five (group B) have the tool equipment but do not use it.

At the end of any working time, an eight-hour day or a forty-hour week, the product of group B (without tools) is 10 x per man, that of group A, 40 x per man. The difference 30 x is the extra productivity obtained by labor using the tool, capital. This is interest, qualify it if necessary, call it economic interest, commercial interest, gross or net interest, or miscall it money interest, it is a quantity or volume of production as above and nothing else.

The wages of group A are the entire product 10 x per man. The wages of group B are 10 x plus 30 x per man less the mortality of the capital, viz., the tool.

For illustration two: Consider the same conditions as in one except all now use their tool equipment. The product is now 40 x per man for both groups. Each user gets 30 x (interest) by having used tools (capital) as each owns the tools he uses, there is no borrowing demand and no lending supply. Therefore the rate of interest is and must be zero. One man becomes ill and can't use his tools, the supply of capital now exceeds the demand which is zero, and the rate of interest is still zero. But another worker breaks his tool. He must now replace or borrow or return to the 10 x product if he works, or lose time and wages. The unused tool of the sick man, a labor product, is available and assuming a lender and borrower, equity demands compensation for its use (legally enjoyment in time), plus "capital write-offs, "viz., mortality items wear and tear, etc. A free lending would be charity, not equity. This will be especially evident if it is considered as a principle and not one illustrative incident. Now assume another set of tools is broken, the ratio of demand increases to 2 to supply 1 or assume the reverse, two more workers are incapacitated and we get an increase or decrease in the interest ratio or rate of interest on capital. It is therefore evident that interest is a quantitative thing and any rate of interest is absolutely dependent on supply and demand of capital. Under equitable conditions interest is inevitable and while under such conditions equity would demand a rate of interest on borrowings, the supply of capital would be such that, in all probability, the rate would approximate zero.