IT is quite common to discuss interest theory and influence of a controlled rate of interest on economy in terms of rate of interest, assuming some definite, and often fixed, relationship among various types of rates. Lord Keynes, for example, referred to the complex of rates of interest on loans of various maturities and risks. 1 Dr. J. R. Hicks, in a later work,2 also speaks of rate; thus, he states that rates will differ some sort of 'normal' risk-premium, whose size will depend upon estimate put upon gain in security (p. I50I). Yet, even most superficial inspection of interest rate data will show that various complexes do not move together. Particularly is this true of various risks within same time (or maturity) category. Moreover, there is no logical reason for concordant movement to rule all time. Borrowing from Hicks, we may say that variations in rate of interest among loans of same duration are caused by differences in risk of default by borrower, I or, rate for each loan of a given duration is pure rate of interest plus a risk-premium. To a great extent, this risk element is a subjective valuation of lender; that is, it is a measure of how certain he feels that loan will be repaid.4 Hence, if lender feels cheerful, he is likely to believe risk element less than if in a more disagreeable frame of mind. fairly well established fact is that community in general, and lenders in particular, feel more optimistic in prosperity than in a depression.5 Applying this statement to risk premium, we would expect it to decrease in prosperity and increase in a depression. In other words, spread between safest investments and riskier ones would tend to narrow as boom proceeds, and widen as times become worse. Thus, complex of interest rates is highly unstable, and we must be careful in regard to rates we are discussing. Rates on safe investments will fall in depression, particularly after passing of panic phase, but rates on risky investments may well rise. Hence, to state that rate of interest falls in this case is erroneous; some rates fall, while others rise, or fall less. Implied in preceding paragraph is difficulty of government manipulation of rate of interest, particularly current cheapmoney policy. All that may result from such interference is a low rate of return of triple A securities, but an increase in risk-premium on riskier securities, notably those representing new investment, whose revival may be chief aim of such a policy. If this interference creates fears among investing class, either as to future interest rates being higher after cheap-money policy is ended, thus depressing capital value of older securities, or simply a reluctance to invest because of political opposition to such governmental policy, then risk premium will almost certainly rise pari passu with fall in yields of safe investments.