Economic Problem Solution Essay

If capital increases, say, 2 per cent per annum, the capital equipment of the world will have increased by a half in twenty years, and seven and a half times in a hundred years.Think of this in terms of material things – houses, transport, and the like.The increase of technical efficiency has been taking place faster than we can deal with the problem of labour absorption; the improvement in the standard of life has been a little too quick; the banking and monetary system of the world has been preventing the rate of interest from falling as fast as equilibrium requires.

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From the earliest times of which we have record – back, say, to two thousand years before Christ – down to the beginning of the eighteenth century, there was no very great change in the standard of life of the average man living in the civilised centres of the earth. There is no record of when we first possessed these things.

At some epoch before the dawn of history perhaps even in one of the comfortable intervals before the last ice age – there must have been an era of progress and invention comparable to that in which we live to-day.

And the power of compound interest over two hundred years is such as to stagger the imagination.

Let me give in illustration of this a sum which I have worked out.

6d., when we might, if we were more sensible, have 1; yet, nevertheless, the 18s. mounts up to as much as the 1 would have been five or six years ago.

We forget that in 1929 the physical output of the industry of Great Britain was greater than ever before, and that the net surplus of our foreign balance available for new foreign investment, after paying for all our imports, was greater last year than that of any other country, being indeed 50 per cent greater than the corresponding surplus of the United States.

This she invested in the Levant Company – which prospered.

Out of the profits of the Levant Company, the East India Company was founded; and the profits of this great enterprise were the foundation of England’s subsequent foreign investment.

I believe – for reasons with which I must not encumber the present argument – that this was initially due to the rise of prices, and the profits to which that led, which resulted from the treasure of gold and silver which Spain brought from the New World into the Old.

From that time until to-day the power of accumulation by compound interest, which seems to have been sleeping for many generations, was re-born and renewed its strength.