THE THEORY OF INTEREST

posed to be possessed of an increasing, or ascending, in-come stream AB, a fact which, in his mind, results in arate of preference above the market rate. This leads himto borrow, and relatively to level up his ascending incomestream toward such a position as A'B'. The second typeof individual already possesses a uniform income streamAB (Chart 8), but having, a strong propensity to spend,he too experiences a rate of preference above the marketrate, and will therefore modify his income stream towardthe curve A'B'. The third type is shown in Chart 9 andrepresents even more of a spendthrift. This individualhas also a rate of preference in excess of the market rate,in spite of his having a declining income stream picturedby the descending curve AB. By his borrowing, he obtainsa curve A'B' of still steeper descent.

In a similar way, the three types of lenders may begraphically represented. Chart 10 represents a descend-ing income AB, which the owner, by lending presentincome in return for future income, converts into a rela-tively uniform income A'B'; Chart 11 represents a uni-form income converted, by lending, into an ascendingincome; and Chart 12 an ascending income convertedinto a still more steeply ascending income.

The borrower changes his income curve by tipping itdown in the future and up in the present. The lendertips his income curve in the opposite direction. Of thethree types of borrowers and of lenders, the first in eachgroup of three (see Charts 7 and 10), is the usual andnormal case. In both these cases the effort is to trans-form the given income into a more uniform one, the ris-ing curve (Chart 7) being lowered and the falling curve(Chart 10) being raised toward a common horizontalposition. Chart 9 and Chart 12, on the other hand, repre-

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