THE THEORY OF INTEREST

extreme conditions supposed in the hard-tack case, mustbe zero, is at first startling, but it is easy to convince our-selves of its correctness. It would be impossible for anywould-be lender to obtain interest above zero on his]/ loan A for the only way in which a borrower could repaya loan would be to pay it out of his original stock of hard-tack. For assuming he had the impulse to borrow 100

CHART 22

Zero Rate of Return, Total Income Fixed, Case 2.

pounds to consume today and pay back 105 pounds at theend of a year, he would instantly perceive that he couldbetter consume the 100 pounds of his own hard-tack,thereby sacrificing next year not 105, but only 100 poundsout of his own stock. It is equally impossible that thereshould be a negative rate of interest. No one would lend100 pounds of hard-tack today for 95 receivable a yearlater, when he had the option of simply storing awayhis 100 pounds today and taking it out, undiminished, ayear later. Hence, exchanges of present for future hard-

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