THE THEORY OF INTEREST

modify his income stream—in reference to the rate of in-terest by applying this principle.

We can scarcely exaggerate the importance of the con-cept of “rate of return over cost” and of its special variety“marginal rate of return over cost” as an element in ouranalysis of the conditions determining the rate of inter-est. It supplies, on the physical or technical or produc-tivity side of the analysis, what the marginal rate of timepreference supplies on the psychical side. The subjectis, as has been seen, one which may be looked upon frommany points of view, which may seem at first to be in-consistent yet which may be thoroughly coordinatedunder the foregoing generalizations.

§12. Interrelation, of Human Impatience and Investment

Opportunity

The rate of interest, then, is the resultant of three setsof principles of which the market principles are self-evident. The other two great sets of principles are the onecomprising two principles of human impatience and theother comprising two principles of investment oppor-tunity. The principles of impatience relate to subjectivefacts; those of investment opportunity, to objective facts.Our inner impatience urges us to hasten the coming offuture income—to shift it toward the present. If incomescould be shifted at will, without shrinking in the process,they would be shifted much more than they are. Buttechnical limitations prevent free shifting by penalizinghaste and rewarding waiting. Thus Henry Ford mighthave continued making his Model T car. He would havethereby enjoyed a large immediate income but a gradu-ally decreasing one. Instead, he resolved to place a bettertype of car on the market. To do so, he had to suspend

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