SECOND APPROXIMATION

names of farming, lumbering, mining, merely for conven-ience in distinguishing and remembering the three types,not because these types are true to these names, norbecause examples concerned with land comprise oppor-tunities any more important than those concerned withcommercial or industrial examples. The only essentialpoint is that the three series of numbers representing theincome streams A, B, and C are different.

Our imaginary land owner thus has the option ofsecuring any one of these three different income streams.While they will, in the first instance, differ in composi-tion—one income stream consisting in the production ofcrops, another in the production of lumber, and the thirdin the production of minerals—we may, for our presentpurpose, assume that these are all reduced to real incomemeasured in terms of money. That is, we here assume thatthe prices and values of the crops, lumber, and mineralsare given and determined in accordance with the prin-ciples which determine prices . 3

’ It is, of course, realized that the principles of price determinationinvolve interest just as the principles determining interest involveprices. A complete picture of economic equilibrium includes every pos-sible variable, each acting and reacting on the others. Theoreticallywe cannot determine the price of bread by itself and then go on todetermine, each separately, other prices, including the rate of interest.Theoretically any analysis of one part of the economic organism mustinclude an analysis of the whole, so that a complete interest theorywould have to include also price theory, wage theory and, in fact, allother economic theory.

But it is convenient to isolate a particular element by assum-ing the other elements to have been determined. So this book is amonograph, restricted, so far as may be, to the theory of interest, andexcluding price-theory, wage theory and all other economic theory.Afterward it will be easy to dovetail together this interest theory, whichassumes prices predetermined, with price theory which assumes interestpredetermined, thus reaching a synthesis in which the previously as-sumed constants become variables. But all the principles remain valid.

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