THE THEORY OF INTEREST

free access to this market, whether as borrower or lender,to any desired extent, at the market rate; (4) that hissole method of modifying his future income stream isthrough such borrowing or lending (or, more exactly andgenerally, through trading income).

§2. Income Prescribed

Such assumptions are, of course, highly theoretical.They imagine a world in which incomes are producedspontaneously, as mineral water gushes from the spring.They picture these income-bearing agents as pouringforth their income streams at rates which follow a fore-known, rigid, and unchangeable schedule. There beingno flexibility in the flow from any one article, there isno flexibility in the scheme of combined flow from thewhole group possessed by an individual. His total realincome is scheduled in advance with no possibility ofmodification except by borrowing or lending, buying orselling. 1

The abstract nature of this hypothesis need not greatlytrouble us for two reasons: the first, and in itself quitesufficient reason, is that most of the elements of thishypothesis will be abandoned when we reach the secondapproximation. It is adopted temporarily merely forsimplicity of exposition. Secondly, the hypothesis mighteasily be made more realistic without changing its essen-tial features. We might even alter our hypothesis of a

1 One consequence of this assumption (to secure which the assumptionwas really made) is that the capitalized value of each person’s incomeat a given rate of interest will be unchangeable. He is, so to speak, ona definite allowance, and any trading, as by borrowing, or mortgagingthe future, cannot make him richer or poorer. It can only shift hisincome in time (with interest). The theoretical significance of thisconstancy will appear in the second approximation.

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