THE THEORY OF INTEREST

To recapitulate, we have seen that the enjoyment in-come is a psychological matter, and hence cannot bemeasured directly. So we look to real income instead; buteven real income is a heterogeneous jumble. It includesquarts of milk, visits to the moving picture house, etc.,and in that form cannot be measured easily or as a whole.Here is where the cost of living comes in. It is the prac-tical, homogeneous 4 measure of real income. As the costof living is expressed in terms of dollars it may, therefore,be taken as our best measure of income in place of enjoy-ment income, or real income. Between it and real incomethere are no important discrepancies as there are betweenmoney income and real income. Money income practicallynever conforms exactly to real income because eithersavings raise money income above real income, or deficitspush money income below real income.

§7. Capital Value

Savings bring us to the nature of capital. Capital, in thesense of capital value, is simply future income discountedor, in other words, capitalized. The value of any property,or rights to wealth, is its value as a source of income andis found by discounting that expected income. We may,if we so choose, for logical convenience, include as prop-erty the ownership in ourselves, or we may, conformablyto custom, regard human beings as in a separate category.

disservices. Which of the three comes out of our accounting dependsmerely on which groups of these services and disservices are includedin our summation.

‘Even this is not homogeneous as a measure of subjective enjoy-ment; for a dollar to the poor and a dollar to the rich are not sub-jectively equal. See my A Statistical Method for Measuring “MarginalUtility” and Testing the Justice of a Progressive Income Tax. Eco-nomic Essays contributed in honor of John Bates Clark , pp. 157-193.

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