THE THEORY OF INTEREST

impulse to provide for them at the expense of the pres-ent.

But sometimes the relative uncertainty is reversed, andimmediate income is subject to higher risk than remoteincome. Such is the case in the midst of a war, in a strike,or other misfortune, believed to be temporary. Such isalso the case when an individual is assured a permanentposition with a salary after a certain date, but, in themeantime, must obtain a precarious subsistence. In thesecases the effect of the risk element is to enhance the esti-mation in which immediate income is held.

Again, the risk, instead of applying especially to re-mote periods of time or especially to immediate periods,may apply to all periods alike. Such a general risk largelyexplains why salaries and wages, being relatively assured,are generally lower than the average earnings of thosewho take the risks incident to being their own employers.It also explains why the bondholder is content with alower average return than the stockholder. The bond-holder chooses fixed and certain income rather than avariable and uncertain one, even if the latter is, on theaverage, larger. In short, a risky income, if the risk appliesevenly to all parts of the income stream, is equivalent toa low income. And, since a low income, as we have seen,tends to create a high impatience, risk, if distributed intime, uniformly or fairly so, tends to raise impatience.

It follows, then, that risk tends in some cases to increaseand in others to decrease impatience, according to thetime incidence of the risk. But there is a common prin-ciple in all these cases. Whether the result is a high or alow time preference, the primary fact is that the riskof losing the income in a particular period of time oper-ates, in the eyes of most people, as a virtual impoverish-es ]