THE THEORY OF INTEREST

assumed in which each individual is so insignificant apart that he acts as if the market rate of interest werefixed and merely has to decide how much at that rate heis willing to borrow or lend.

Because of the existence of a wide range of choice,the owner of a given capital has ample opportunity tomodify the income stream he derives from it by changingthe uses to which that capital is put. He is seldom socommitted to a definite future program but that he canconsider some alternative. It is on this principle that thecotton belt of the United States , by diversifying its cropsand industries, has increased its real income. The pro-duction of these Southern States has recently risen withexpanding industries, diversified agriculture, water powerdevelopment, and improved highways. It was largely bychanging the uses to which its income, natural resources,and technological equipment had been put that the Southhas entered a new era.

Under the first approximation, our first glimpse of anyflexibility of income was by borrowing and lending. Nextwe introduced the process of buying or selling and notedthat this really included as a special case borrowing andlending. It might be claimed here that, just as buying andselling virtually include borrowing and lending, so thesubstitution of one use of a person’s capital for anotheruse may be said to include buying and selling, and there-fore also to include borrowing and lending. It is evi-dently quite possible to say that one method of utilizingcapital is to sell it. In fact, a merchant regards himselfas making use of his stock in trade only in the sense ofselling it.

While we could thus extend the meaning of optionaluses to include buying and selling (which in turn include

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