THE THEORY OF INTEREST

list of characteristics of income affecting interest thecomposition of the income. It recognizes the fact that,strictly speaking, a man’s real income is not one simplehomogeneous flow of money, but a mosaic or skein ofthreads of many heterogeneous elements of psychic ex-perience. An income of $5000 may comprise for one in-dividual one set of enjoyable services, and for another, anentirely different set. The inhabitants of one country mayhave relatively more house shelter and less food in theirreal incomes than those of another. Those differences willhave, theoretically, an influence in one direction or theother upon the time preference. Food being a prime ne-cessity, a decrease of the proportion of food, or nourish-ment, even though total income remain the same, willhave an effect upon the impatience similar to the effectof the diminution of total income.

For practical purposes, however, we may ordinarilyneglect the characteristic of income called composition;for ordinarily any variation in the mere composition offamily budgets will very seldom be sufficient to have anyappreciable effect on the rate of interest.

Hereafter, therefore, all the elements of income willbe considered as lumped together in a single sum ofmoney value. Our picture of income henceforth may beconsidered as a flag or pennant without regard to stripesbut seen as a whole, stretching out into the future. Eachman’s pennant has a definite width varying with thedistance from the flagstaff.

§8. The Influence of Risk

We come finally to the element of risk. Future income isalways subject to some uncertainty, and this uncertaintymust naturally have an influence on the rate of time pref-

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