INVESTMENT OPPORTUNITY PRINCIPLES

value of manufactured things to the cost of production,instead of to their discounted future services.

I prefer the term investment opportunity. It has someof the demerits as well as the merits belonging to any newterm. It is unfamiliar and therefore requires precisedefinition. The concept of investment opportunity restson that of an “option.” An option is any possible incomestream open to an individual by utilizing his resources,capital, labor, land, money, to produce or secure said in-come stream. An investment opportunity is the oppor-tunity to shift from one such option, or optional incomestream, to another.

It includes all possible opportunities to invest—those that can yield only negative returns upon the invest-ment as well as those which are capable of yielding verylarge surpluses over the amount of the investment orcost.

The first (A) of the two investment opportunity prin-ciples specifies a given range of choice of optional incomestreams. Some of the optional income streams, however,would never be chosen, because none of their respectivepresent values could possibly be the maximum. We haveseen that the land, in our example, would be most profit-ably employed for farming, for mining, or for forestry, ac-cording to the rate of interest. But it would not be em-ployed, let us say, for a quarry, no matter what mightbe the rate of interest.

The optional uses which are thus out of the question,whatever be the rate of interest, are called ineligible.The rest are the eligible options. We need to consider theeligible ones—any one of which might be made to havethe maximum present value, given the right rate of in-terest to make it so.

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