THE THEORY OF INTEREST

impatience was at first, say, 10 per cent; that is, he waswilling, in order to secure an addition of $100 to hispresent income, to sacrifice $110 of next year’s income.But he needed to sacrifice only $105; that is, he wasenabled to get his loan for less than he would have beenwilling to pay. He was therefore a gainer to the extent ofthe present desirability of, or present want for, $5 of nextyear’s income. The second $100 borrowed was equiva-lent, in his present estimation, to $108 of next year’sincome, and the same reasoning shows that, as he paysonly $105, he gains to the extent of the present desir-ability of $3 next year; that is, he adds this presentdesirability to the entire present total desirability of hisincome stream. In like manner, each successive incrementof loans adds to the present total desirability of his in-come, so long as he is willing to pay more than $105 ofnext year’s income for $100 of this year’s income. But,as he proceeds, his gains and his eagerness diminish untilthey cease altogether. At, let us say, the fifth instalmentof $100, he finds himself barely willing to pay $105;the present total desirability of his income is then amaximum, and any further loan would decrease it. A sixth$100, for instance, is worth in his present estimation lessthan $105 due next year, say $104, and since in the loanmarket he would have to sacrifice $105 next year tosecure it, this would mean a loss of desirability to theextent of the desirability today of $1 due in one year.Thus, by borrowing up to the point where the rate ofpreference for present over future income is equal tothe rate of interest, five per cent, he secures the greatesttotal desirability, or, so-called consumer’s rent. 6

'We do not here need to argue as to the zero or starting point fromwhich we measure net total desirability. The crest of a hill is the highest

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