ch. 17 PROPERTIES OF INTEREST AND MONEY 227

custody. But it is an essential difference betweenmoney and all (or most) other assets that in the case ofmoney its liquidity-premium much exceeds its carryingcost, whereas in the case of other assets their carryingcost much exceeds their liquidity-premium. Let us,for purposes of illustration, assume that on houses theyield is q x and the carrying cost and liquidity-premiumnegligible; that on wheat the carrying cost is c 2 andthe yield and liquidity-premium negligible; and thaton money the liquidity-premium is / 3 and the yieldand carrying cost negligible. That is to say, q x is thehouse-rate of interest, - c 2 the wheat-rate of interest,and / 3 the money-rate of interest.

To determine the relationships between the ex-pected returns on different types of assets which areconsistent with equilibrium, we must also know whatthe changes in relative values during the year areexpected to be. Taking money (which need only bea money of account for this purpose, and we couldequally well take wheat) as our standard of measure-ment, let the expected percentage appreciation (ordepreciation) of houses be a x and of wheat a 2 . q 1} - c 2

and / 3 we have called the own-rates of interest ofhouses, wheat and money in terms of themselves asthe standard of value; i.e. q x is the house-rate of interestin terms of houses, - c 2 is the wheat-rate of interest interms of wheat, and 4 is the money-rate of interest interms of money. It will also be useful to call a x + q x ,a 2 - c 2 and 4 j which stand for the same quantities re-duced to money as the standard of value, the house-rateof money-interest, the wheat-rate of money-interest andthe money-rate of money-interest respectively. Withthis notation it is easy to see that the demand of wealth-owners will be directed to houses, to wheat or to money,according as a x + q x or a 2 - c 2 or 4 is greatest. Thusin equilibrium the demand-prices of houses and wheatin terms of money will be such that there is nothingto choose in the way of advantage between the alter-