TIME PREFERENCE (IMPATIENCE)

shouldn’t I enjoy myself during the few years thatremain?”

§11. Income Rather Than Capital in the Leading Role

The essential fact, however, is that for any given in-dividual at any given time, his impatience depends in adefinite manner upon the size, time shape, and probabil-ity of his income stream.

This view, that the degree of impatience and, conse-quently, the rate of interest depend upon income, needsto be contrasted with the common view, which makes therate of interest depend merely on the scarcity or abun-dance of capital. It is commonly believed that wherecapital is scarce, interest is high, and where capital isplentiful, interest is low. In a general way, there is un-doubtedly some truth in this belief; and yet it containsa misinterpretation of borrowing and lending.

In the first place, we must distinguish between capitalwealth and capital value. It is capital value of whichmost people think when they say capital. But capitalvalue is merely capitalized income. Behind, or rather be-yond, a capital of $100,000 is the stream of income whichthat capital represents, or rather the choice of any oneamong many possible streams. To fix attention on the$100,000 capital instead of on the income which is capi-talized is to use the capital as a cloak to cover up thereal factor in the case.

Moreover, capital value is itself dependent on a pre-existing rate of interest. As we know, the capital valueof a farm will be doubled if the rate of interest is halved.In such a case there would seem to be more capital infarms than before; for the farms in a community wouldrise, say, from $100,000,000 to $200,000,000. But it is not

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