The true explanation of the cause of interest is bound up with the explanation of the fact that present goods are, as a rule, worth more than future goods of like kind and number; that is, goods which are available for use now are worth more than the same quality and quantity of goods which will be available for use a year or five years or ten years from now. This means of course that the present goods are worth more to-day than the future goods are worth to-day. It is possible, when the time arrives when the future goods are available, that the future goods will be just as valuable then as the present goods are to-day.

There are three different factors any one of which separately, or all of which together, can account for a difference in value between present and future goods. These factors are: first, difference in want and provision for want in the present and in the future; second, the underestimate, due to perspective, of future advantages and future goods; and third, the greater fruitfulness of lengthy methods of production. Let us examine these three factors in the order given. First, with regard to differences in want and provision for want in the present and in the future: beginners in many occupations, for example, young lawyers, young doctors, or young engineers, have in the present ordinarily only meager incomes with which to satisfy present needs. In the years to come, probably, their hope will be fulfilled that their incomes will very materially increase and it will not then be necessary to practice the careful economies that they must now practice if they are to live within their present incomes. For this class of persons it is evident that the future holds a greater provision for want than the present. The same thing is true of a large class of persons who are suffering distress at the present as a result of various kinds of accident or of illness. Business men who have just weathered a year of financial depression, or farmers who have just lost their crops by hail or drought or the visitation of insects, or house owners whose houses have burnt down, or workingmen who have fallen ill and are out of work, - all of these classes of persons are suffering now from the scantiness of their incomes, but when normal conditions return they will be better off than they are now. To this, some one may object that there are other classes of persons who are enjoying good incomes to-day who will suffer from bad business and bad health and unemployment in the future. But it must be remembered that it is possible for those who are enjoying good incomes to-day to keep a part of those incomes in the form of money or other durable goods to help satisfy future wants, but it is not possible for the former classes of persons to apply part of their future income in the satisfaction of their present wants. It would appear, therefore, that those with relatively large present incomes are readily able to use those incomes to satisfy future wants but that the persons with relatively large future incomes are not able to use them for satisfying present wants. The net result is that there is a relative shortage of present goods for supplying present wants as compared with future goods for supplying future wants, and, consequently, because of this shortage present goods are valued more highly than future goods. A second reason why present goods are as a rule worth more than future goods of like kind and number is to be found in the fact that we systematically underestimate future wants and the goods which are to satisfy them. The Indian who parts with the land of his forefathers for a few trinkets, the workingman who drinks his week's wages on Saturday night and suffers for food during the following week, or the man who cannot refrain from the consumption of a dish which has been denied to him by his physician will serve as an example of the general tendency to underestimate the wants of the future and the goods which are to satisfy them, as compared with present wants and present goods. The explanation of this underestimate of future wants and goods is to be found partly in our lack of imagination in regard to future wants, partly in the weakness of our will which results in our not making provision for the future which we know we ought to make, and partly in our realization that life is uncertain and that we may not be alive to enjoy the future goods.

In the third place, the person who possesses present goods which he may use for present consumption is enabled to devote his time to roundabout processes of production, while the person with future goods of the same quantity and quality must devote his present time to the direct production of goods to satisfy his immediate needs. This direct production of goods is less fruitful than the roundabout production of goods, and for this reason, a person will value present goods which permit him to undertake roundabout processes more highly than future goods of the same kind and number which leave him under the present necessity of engaging in direct production which is less fruitful. As a result of these three factors present goods are as a rule worth more than future goods of like kind and number and this fact explains why interest is paid.