THE THEORY OF INTEREST

ties of which are widely marketable. This increase insize of business units, although it tends to decrease theirnumber, has resulted in a rapid growth of the number ofsecurities listed on the stock exchanges. The possessorsof these securities have far wider opportunities to makeuse of collateral, and the tendency to borrow has receiveda decided impulse.

Where, on the other hand, the security needed is notavailable in the convenient form of engraved certificates,there is often considerable difficulty in negotiating a loan.A poor man may see what he believes to be an invest-ment opportunity to make millions by exploiting an in-vention of his own, and he may be right. This optionwould have a much higher present value than the onehe actually chooses, if only he could borrow the moneyneeded to exploit it. But, being poor and hence withoutadequate collateral or other guarantees, he cannot getthe loan. His choice of income stream, therefore, al-though the maximum open to him, is quite different fromwhat it would be if he had that collateral or guarantee.If he goes into the enterprise at all he must choose astopping point far short of what he would choose were hea large capitalist. This means that his marginal rate ofreturn over cost will be higher than the market rate ofinterest, just as his rate of impatience will be higherthan the market rate of interest. The last $100 he ven-tures to put in may promise a yield of 25 per cent ascompared with a rate of interest of 5 per cent. Yet hedoes not go further into debt because he cannot. Sup-posing a definite limit of possible debt, all he can dotoward further investing must be out of his own in-come, obtained by abstinence. But this possibility is alsolimited. He cannot cut his income down to zero, or he

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