THE THEORY OF INTEREST

his action upon it. In his guess he discounts everythinghe can foresee or estimate, even future inventions andtheir effects. In an estimate which I saw in print of thevalue of a copper mine, allowance was made for futureinventions which might reasonably be expected. In thesame way, too, the buyer of machinery allows not simplyfor its depreciation through physical wear, but for itsobsolescence. New investments in steam railroads are to-day made with due regard to the possibility that the roadmay, within a few years, be run by electricity, or that itwill be injured by competition of bus lines or helped byterminal connections with them.

It may easily happen that, in a country consisting ofoverly sanguine persons, or during a boom period whenbusiness men are overhopeful, the rate of interest will beout of line with what actual events, as later developed,would justify. It seems likely that, in ordinary communi-ties, realization justifies the average expectation. But inan individual case this is not always true; otherwise therewould be no such thing as risk. Risk is synonymous withuncertainty—lack of knowledge. Our present behaviorcan only be affected by the expected future,—not thefuture as it will turn out but the future as it appears to”s beforehand through the veil of the unknown.

§8. Effect of Risk on the Six Principles

We see, then, that the element of risk introducesdisturbances into those determinir^g conditions whichwere expressed in previous chapters as explaining the rateof interest. To summarize these disturbances, we may nowapply the risk factor to each of the six conditions whichwere originally stated as determining interest. We shallfind that its effects are as follows:

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