nd. A higher rate of interest leads to more saving; it is thus
necessary to _evoke_ more saving; it is thus required as an
_incentive_ to induce people to incur the _sacrifice_ of waiting; this
sacrifice represents the "real cost" for which interest is paid.

This terminology of incentive, inducement and sacrifice is of very
dubious validity. A rich man, who is made richer by a rise in the rate
of interest, will probably save more, but it will be rather because he
has become richer than because he is tempted by the higher rate: and
the less we talk about his sacrifice the better. Nor is it clear that
the attraction of a high rate of interest is an operative factor on
the mind of a man to whom saving means a real sacrifice of immediate
comfort or enjoyment. Certainly it is only one among many factors, and
seldom an important one. A really poor man will think not so much of
the annual income which will accrue from his savings, as of the
capital sum upon which he or his family can fall back if a rainy day
should come. And for this purpose he might save as much as he saves
now, even if there were no interest to be obtained thereby. He might
even be prepared to lend what he had saved, at least to banks (a
deposit with a bank is in effect a loan), for the mere advantage of
safe custody. The people who save rather for the sake of the capital
sum that can be realized than for that of the annual interest are very
numerous, and probably include many men in receipt of quite
considerable earned incomes. Moreover, those who consider mainly the
future annual income which their savings will yield them, are usually
more concerned with its absolute amount than with the ratio it bears
to the amount they must save in order to acquire it. For this reason,
as has been often recognized, they may save less when the rate of
interest rises, since a smaller quantity of savings will insure to
them the future annual income they desire to obtain. There is no need
to be dogmatic upon any of these points. The psychology of saving is
both complex and obscure. Our conclusion must be the negative one that
we have insufficient evidence to warrant the assertion that the
particular rate of interest which happens to prevail is a measure of
the sacrifice involved in saving, even in the case of what we might
regard as the "marginal saving." And, if we cannot assert this, we
must be careful not to assume it as the basis of other arguments, or
as part of a gene