THE THEORY OF INTEREST

shifts again, this time from Mi to Mi”, that is, fromthis-year-1100-and-next-year-1090 to this-year-1200-and-next-year-980. Borrowing a third $100 would bring him toMi”, (this-year-1300-and-next-year-870). Every addi-tional borrowing of $100 adds $100 to this year’s incomeand subtracts $110 from next year’s income. Chart 26pictures these successive changes as a “staircase” of which

This Year's Income

CHART 25

Effect of Borrowing Upon an Individual’s Income Position.

each “tread” is $100 and each “riser” is $110. The stairsare steep. So long as there exists a rate of interest theirdescent is necessarily always faster than 45 degrees—thatis, future income decreases faster than present income in-creases; the riser is more than 100 per cent of the tread—more by the rate of interest. 2

2 The steps could be drawn just as well on the under side of the lineas shown by dotted lines on the chart. If the steps were to consist, notof successive $100 loans, but of successive $1 loans the steps to Pi, Mi,

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