SECOND APPROXIMATION

ent value. He might find it advantageous, or even neces-sary, to take one of the others, being scarcely able to liveif his property offered only distant income. If his capitalwere all in the form of growing young forests, and hecould not mortgage the future in some way, he wouldhave to starve or give up some of his holdings. In actuallife we find such people—people who are said to be “landpoor.” In fact, we are all somewhat hampered in thechoice of options by difficulties and risks both in thechoice of options and in the financing it requires.

But we see that, in such a fluid world of options aswe are here assuming, the capitalist reaches his finalincome through the co-operation of two kinds of choice ofincomes which, under our assumptions, may be consideredand treated as entirely separate. To repeat, these twokinds of choice are: first, the choice from among manypossible income streams of that particular income streamwhich has the highest present value, and, secondly, thechoice among different possible modifications of thisincome stream by borrowing and lending or buying andselling. The first is a selection from among income streamsof differing market values, and the second, a selectionfrom among income streams of the same market value.

§4. Opportunity to Invest by Change of Use of Capital

Since this double choice results, when made, in aperfectly definite income stream, it might seem that thesituation does not materially differ from the case of therigid income stream discussed in the first approximation.But the two cases do differ materially, for under thepresent hypothesis (of optional income streams) the par-ticular choice made by the individual depends upon whatthe rate of interest is. A change in that rate may shift

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