THIRD APPROXIMATION

would starve. He can however cut it “to the quick”,stopping at the point where his impatience has risen tomeet the rate of return over cost which in turn will tendto fall with each additional dollar invested.

The story is told of the inventor of rubber making a lastdesperate—and, fortunately, successful—sacrifice in hisexperiments in which he resorted to burning up his furni-ture because he could not get funds with which to buyfuel.

Many such cases exist—cases of limitation on loans—which prevent a person’s degree of impatience and hisrate of return over cost from reaching the level of therate of interest. But there is another part of the picture.The poor man who cannot borrow enough to exploit hisinvention can often find substitutes for loans and lenders.He may associate himself with others in a joint stockcompany and get the required capital partly from loans,by selling bonds secured by mortgage, partly by sellingdebentures on a higher interest basis, partly by sellingpreferred stock on a still higher basis, and partly by sell-ing common stock. That is, the risks are recognized andpooled. One result may be to bring both his estimated rateof return over cost and his rate of impatience more nearlyinto harmony with these various rates of interest whendue account has been taken of the various risks involved.

§4. Risk and Small Loans

Where the borrowing takes place in pawn shops, therate of interest is usually very high, not so much becauseof the inadequacy of the security as because of its incon-venient form. The pawnbroker will need to charge a highrate of interest, if it is to be called interest, partly becausehe needs storage room for the security he accepts, partly

[213]