FIRST APPROXIMATION

nugatory. Practically, the effect of such restrictive lawsis little more than to hamper and make difficult the fineradjustments of the income stream, compelling would-beborrowers to sell wealth yielding distant returns instead ofmortgaging them, and would-be lenders to buy suchwealth instead of lending to the present owners. It isconceivable that explicit interest might disappear undersuch restrictions, but implicit interest would certainlyremain. The young forest sold for $10,000 would bear thisprice, as now, because it is the discounted value of theestimated future income; and the price of the farm,$10,000, would be determined in like manner. The rate ofdiscount in the two cases, the $10,000 forest and the$10,000 farm, must tend to be the same, because, bybuying and selling, the various parties in the communitywould adjust their rates of preference to a common level—an implicit rate of interest thus lurking in every con-tract, though never specifically mentioned therein. Inter-est is too omnipresent a phenomenon to be eradicated byattacking any particular form of it; nor would any oneundertake to eradicate it who perceived its substance aswell as its form.

§7. “Marginal” Principle Is “Maximum” Principle

The fact that, through the loan market, the marginalrate of time preference for each individual is, by borrow-ing or lending, made equal to the rate of interest may bestated in another way, namely, that the total presentdesirability of, or want for, the individual’s incomestream is made a maximum. For, consider again the indi-vidual who modifies his original fixed income stream byborrowing until his rate of preference is brought intounison with the market rate of interest. His degree of

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