DISCUSSION OF SECOND APPROXIMATION

of future—a shifting forward in time of the income stream—and this will cause a rise in the rate of interest. Thus,it follows that any fall in the rate of interest will tend tobring its own correction.

Again, it is evident that a choice of the more durableinstruments, as compared with those less durable, will befavored by a low rate of interest, and a choice of short-lived instruments will be favored by a high rate of inter-est. If the rate of interest should fall, there would be agreater tendency to build stone houses as compared withwooden ones. The present value of the prospective ser-vices and disservices of stone houses as compared withwooden houses would be increased, for although stonehouses are more expensive at the start, they endurelonger, and their extra future uses, which constitute theiradvantage, will have a higher present value if the rateof interest is low than if it is high. We find, therefore,as John Rae has so well pointed out, that where therate of interest is low, instruments are substantial anddurable, and where the rate of interest is high they areunsubstantial and perishable.

We see, then, that the existence of numerous optionshas a regulative effect. Beyond the margin of choice therealways lie untouched options ready to be exploited theinstant the rate of interest falls. Among these, as Cassel 7has pointed out, are waterworks of various kinds. Notonly works of stupendous size but hundreds of less con-spicuous improvements are subjects of possible invest-ment as soon as the rate of interest falls low enough tomake the return upon cost equal to the rate of interest.The same is true of the improving, dredging, and deepen-ing of harbors and rivers, the use of dikes and jetties,

7 The Nature and Necessity of Interest, p. 122.

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