THE THEORY OF INTEREST

the price of present real income contains no appreciableinterest to complicate the problem because these goodsare consumed so soon after purchase; and for the samereason in the future price of future real income there isno appreciable interest element. When, however, anygoods other than enjoyable goods are considered, theirvalues already contain a rate of interest. The price of ahouse is the discounted value of its future income. Hence,when we compare the values of present and future houses,both terms of the comparison already involve a rate ofinterest. Although, as will be noted more specifically later,such a complication would not necessarily beg the ques-tion, its elimination simplifies the picture.

§3. Impatience Depends on Income

Time preference, a concept which psychologically un-derlies interest, lends itself to express any situation, eitherpreference for present as against future goods or prefer-ence for future as against present goods or for no prefer-ence. The term impatience carries with it the presump-tion that present goods are preferred. But I shall treat thetwo terms (impatience and time preference) as synony-mous. Henceforth the term impatience will be the onechiefly used partly because its meaning is more self-evident, partly because it is shorter, and partly becauseit does carry a presumption as to the usual direction ofthe time preference. The degree of impatience varies, ofcourse, with the individual, but when we have selectedour individual, the degree of his impatience depends onhis entire income stream, beginning at the present in-stant and stretching indefinitely into the future; that is,

one variable, must therefore be assumed to affect indirectly the price ofeverything else by affecting its supply and demand.

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