THE THEORY OF INTEREST
turns, expected by the investor and the market rate ofinterest by which those benefits are discounted.
The income which he expects may be a perpetual in-come (flowing uniformly or in recurring cycles) or itmay be any one of innumerable other types. If we as-sume that five per cent is the rate of interest, any one ofthe following income streams will have a present valueof $1000: a perpetual annuity of $50 per year; or anannuity of $50 a year for ten years, together with $1000at the end of the period; or $100 a year for fourteenyears, after which nothing at all; or $25 a year for tenyears, followed by $187.50 a year for ten years, afterwhich nothing at all.
We began this chapter with the enjoyment income re-ceived by a person and then travelled back, by way ofreal income, cost of living, and money income to capitalvalue, which simply embodies the capitalization or antici-pation of income. This was going upstream, as it were,from the enjoyer of income to its source. We may now re-verse our point of view and look downstream. We then
attached to bonds, or the privilege attaching to certain bonds whichpermits National Banks to use the bonds for the security of NationalBank notes. Some of these benefits may be very indirect and relatedto whole groups. A man seeking voting control as a benefit who alreadypossesses 49 per cent may pay a specially high price for a few moreshares of stock for the benefit of raising his holdings to 51 per cent.Or, a man may include in the benefits of his wealth the fun of runningthe business, or the social standing he thinks it gives him, or politicalor other power and influence, or the mere miserly sense of possession orthe satisfaction in the mere process of further accumulation. Howeverindirect, unusual, or bizarre the benefit, the principle still holds thatthe value of any capital good or goods is derived solely from theprospect of future benefits.
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