THE THEORY OF INTEREST

It should be noted that in the first approximation,where the income stream is fixed or rigid and there isno alternative income stream, there can be no com-parative cost or return and therefore no rate of retur nover cost. But we cannot so easily imagine a similar dis-appearance of impatience. It would be quite impossible tohave any exchange between present and future—any rateof interest—without the existence of time preference, asit would be quite impossible to have any exchange what-ever without human wants. They are an omnipresent andnecessary condition of all exchange and valuation.

§3. Options Differing in Time Shape Only

Options differ in three chief ways corresponding to thecharacteristics, already noted, of the income Stream,namely, (1) in composition, (2) in risk, and (3) in sizeand time shape. Options which differ primarily in com-position or the kind of services rendered are illustratedby the options of using a building as a dwelling, as a shop,or as a factory. Options which differ primarily in theprobability or risk are exemplified by the use of a ship ona hazardous voyage or in safe river transportation. Op-tions which differ in size and time shape of the incomestream are illustrated by the innumerable uses of landand artificial capital to produce different kinds of goods(income) of different degrees of immediateness as to thesatisfactions they render.

The third group of options (which differ in the size andtime shape of the income stream) is the one which espe-cially concerns us here. First, let us suppose only onedegree of flexibility, permitting variation in the timewhen the income items arrive but no variation in theiramounts. Let us suppose, then, that the income stream

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