INCOME AND CAPITAL
I define wealth as consisting of material objects ownedby human beings (including, if you please, human beingsthemselves). The ownership may be divided and parcelledout among different individuals in the form of partnershiprights, shares of stock, bonds, mortgages, and other formsof property rights. In whatever ways the ownership bedistributed and symbolized in documents, the entire groupof property rights are merely means to an end—income.Income is the alpha and omega of economics.
The bridge or link between income and capital is therate of interest. We may define the rate of interest as theper cent of premium paid on money at one date in termsof money to be in hand one year later. Theoretically, ofcourse, we may substitute for money in this statementwheat or any other sort of goods. This will be discussedin Chapter II. But practically, it is only money which istraded as between present and future. Hence, the rateof interest is sometimes called the price of money; andthe market in which present and future money are tradedfor that price, or premium, is called the money market.If $100 today will exchange for $105 to be received oneyear hence, the premium on present money in terms offuture money is $5 and this, as a percentage of the $100,or the rate of interest, is five per cent. That is to say,the price of today’s money in terms of next year’s moneyis five per cent above par. It should always be remem- \bered that interest and the rate of interest are not iden-tical. Interest is computed by multiplying capital valueby the rate of interest.
The aim of this book is to show how the rate of interestis caused or determined. Some writers have chosen, for
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