DISCUSSION OF SECOND APPROXIMATION

startling in its conclusions, is presented in which thetechnical limitations impose a fixed rate of interest andof human impatience of zero per cent. There, investmentopportunity dominates.

On the other hand, we could also imagine the conversecase; we could assume, as a theoretical possibility, a so-ciety of persons having an obstinate constancy in theirrates of impatience, all being 10 per cent. In such a case,the marginal rate of return over cost would be adjustedthereto.

A person’s rate of impatience depends on the extentto which he modifies his income stream by loans or sales.It is evident that if loans can be used to any extentdesired, impatience will vary continuously with them.

The rate of return over cost, on the other hand, dependson the extent to which a person modifies his incomestream by altering the way in which he utilizes his capitalresources. Such alteration, while partly continuous, ispartly discontinuous, as when new machinery, buildings,personnel or systems are introduced.

It was to emphasize this distinction between impatienceand opportunity that I chose to begin with the case of asupposedly rigid income stream, as in the first approxima-tion, with no opportunity to substitute any other; thento proceed to the case of three optional uses of land (dis-tinguished for convenience as farming, mining, forestry)affording opportunity to substitute for one of them eitherof the others and thus disclosing in such substitutiontwo alternative rates of return over cost; and finally toreach the supposed case of an infinite variety of incomestreams differing from one another by infinitesimal grada-tions. Only in the last named case is the rate of returnover cost as variable as the rate of impatience.

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