THIRD APPROXIMATION

pie , 3 although for those with loved dependents it may-decrease impatience. Consequently the rate of interest,even on the safest loans, will, in general, be raised by theexistence of such life risks. The sailor or soldier who looksforward to a short or precarious existence will be lesslikely to make permanent investments, or, if he shouldmake them, is less likely to pay a high price for them.Only a low price, that is, a high rate of interest, will in-duce him to invest for long ahead.

When the risk relates, however, not to the individual’sduration of life, but to his income stream, the effect uponthe rate of interest will depend upon which portions ofthe income stream are most subject to risk. If the im-mediately ensuing income is insecure, whereas theremoter income is sure, the rate of preference for anadditional sure dollar immediately over an additionalsure dollar in the remoter period will, as was shown inChapter IV, tend to be high, and consequently the effectof such a risk of immediate income upon the rate ofinterest will be to raise it. A risky immediate income actson interest like a small immediate income.

But if, as is ordinarily the case, the risk applies moreespecially to the remoter income than to the immediate,the effect is the exact opposite, namely, to lower the rateof interest on a safe loan. The risky remote income acts asthe equivalent of a small remote income. This exampleis, perhaps, the most usual case. If a man regards theincome for the next few years as sure, but is in doubt as toits continuance into the more remote future, he will bemore keenly alive to the needs of that future, and willconsequently have a less keen preference for the present.

'See Carver, The Distribution of Wealth, p. 256, and Cassel, ATheory of Social Economy, pp. 246-247.

[ 217 ]