But on funds obtained on credit the debtor has to pay interest, which, being deducted from the gross earnings of the business, leaves, as net gain due to hia use of credit, only the amount by which the increment of gross earnings exceeds the interest charge. This sets a somewhat elastic limit to the advantageous use of loan credit in business. In ordinary times, however, and under capable management, the current rate of business earnings exceeds the rate of interest by an appreciable amount; and in times of ordinary prosperity, therefore, it is commonly advantageous to employ credit in the way indicated. Still more so in brisk times, when opportunities for earnings are many and promise to increase. To turn the proposition about, so as to show the run of business motives in the case : whenever the capable business manager sees an appreciable difference between the cost of a given credit extension and the gross increase of gains to be got by its use, he will seek to extend his credit. But under the r%ime
TlM Algebraic Btatement serves to bring out the equivoleiice betwMQ
an acceleration of tbe rate of turnover and an increase of the volome
of business capital. Cf. Jevona, Thtory of Political Economy, pp.
^ 240-268.
J 1 / I Sombarl U mlfltaken in saying (KapilatUmus, vol. IL ob. VX p. T4)
J^ r- th&t the use of credit lengtbena the time of turnover of capital,
I* f'' j Credit shortens the lime relatively to the magnitude of the tamover ;
1 1 .«. a given iuitial capital by the help of credit turns over a target
^ paonnlary magultode la a given llmei — — — >-.