THE THEORY OF INTEREST

corner. This represents a man whose rate of impatienceis only 1 per cent, being low both because his income islarge, decreasing and assured, and because his nature isfarsighted, self-controlled, accustomed to save, and desir-ous to provide for heirs.

Table 1

Time-Preference of Different Individu-als with Different Incomes

Individuals who are

shortsighted,weak willed,accustomedto spend,without heirs

of a mixedor mediumtype

farsighted,self-con-trolled,accustomedto save, de-sirous toprovide forheirs

Income small, increasing,

20%

10%

5%

precarious .

Income of a mixed or me-

dium type .

Income large, decreasing, as-

10%

5%

2%

sured i.

5%

2%

1%

This schematic representation is, in the effort to begeneral, rather vague. We may be more specific if, in-stead of thinking of a man’s income stream as uncertainand variable at every point, we think of it, for the mo-ment, as certain throughout and as invariable, or frozen,at all points of time except two—the present time and oneyear hence.

Restricted by this highly artificial hypothesis, we canconstruct for the man an impatience and demand sched-ule and demand and supply schedules for loans andinterest analogous to the ordinary utility schedule anddemand or supply schedule for commodities and prices.

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