FIRST APPROXIMATION

first and second approximations that there will neverbe a lack of such assurance. This amounts almost to as-suming that there is no risk in the world. The elementof risk is assumed to be entirely lacking, both with respectto the certainty of the expected income streams belong-ing to the different individuals, and with respect to thecertainty of repayment for loans. In other words, weassume that each individual in the market is free togive up any part of his income during one period of timeto some other person in consideration of receiving backan addition to his own income during another periodof time.

We assume further that thus to buy and sell rights tovarious parts of his income stream is the only methodopen to any individual to alter his income stream. Suchtrading between present and future dollars may be inthe form of loans, since a loan is the sale of future moneyfor present money, or it may be in the guise of buyingand selling bonds or other securities conveying title tofixed sums of money. In any case the trading reducesitself to buying and selling titles to future income. Priorto such exchange, the income stream of each individualis assumed to be fixed in size and shape. Each capitalinstrument which he possesses, including himself, is as-sumed to be capable of only a single definite series ofservices contributing to his income stream. Each indi-vidual is a stipendiary with a definite income which hereceives and spends according to a foreknown schedule—so much next year, so much the year after, and so forth.

Thus the assumptions of our first approximation are:(1) that each man’s income stream is initially certainand fixed; (2) that he is a negligible element in a vastand perfect competitive loan market; (3) that he has

[ 101 ]