We have already said that the rate of interest depends upon the demand for capital and the supply of capital. The two theories which we have just investigated, namely, the productivity theory and the use theory, are attempts to explain interest from the side of demand for capital. The greater the productivity of capital or the greater the use of the capital the greater will be the demand for it and the higher will be the rate of interest. The abstinence theory, on the other hand, approaches the problem from the point of view of supply of capital. The saving of capital according to this view, the abstaining from the present consumption of goods in order that capital may be created, represents a sacrifice and the payment for this sacrifice or abstinence is one of the necessary costs in producing capital. The capitalist has a good moral claim to interest according to this theory because it is payment for the service which he renders and he has a good economic claim; that is, he is able to enforce his moral claim, because capital will not be produced unless payment is made for this abstinence.

To this theory of interest it has frequently been objected that saving or abstaining from immediate consumption does not represent a sacrifice in the case of a great many capitalists. In fact there are a great many wealthy persons who would find it very much of a burden to be compelled to consume their income at once instead of saving it. It is undoubtedly true that there is much capital saved, the saving of which represents a sacrifice and which would not be saved if interest were not paid; and to this extent there is merit in the abstinence theory.