THE THEORY OF INTEREST

Evidently the line Pi M-i is a straight line. It may becalled the Market line, Loan line, or Rate of Interestline, and, if prolonged, will contain all the positions towhich this particular individual (who may be calledIndividual 1 ) can shift his income position by borrowingor lending.

If, starting at P 1} he shifts down this straight staircase(southeast) he is a borrower or a seller of next year’sincome, because he is adding to this year’s income andsubtracting from next year’s. If, instead, he shifts upthe staircase (northwest) he is a lender or buyer of nextyear’s income, subtracting from this year’s income andadding to next.

§4. The Willingness Line

So far we have used the new type of chart only to showhow the individual can move—change his income situa-tion. The next question is: in which one of the two direc-tions on the Market line will he actually move? Theanswer depends on his degree of impatience comparedwith the market rate of interest. We have seen how themarket rate of interest is represented graphically by theslope, relatively to 45°, of the Market line in Chart 26.We are now ready to make a similar graphic representa-tion of the individual’s rate of time preference or impa-tience. This is expressed by a series of curved lines show-ing on what terms, at any income position (such as Pi),the individual would be willing to lend or borrow, say$100. What one is willing to do and what he can do aretwo quite different things. The Market line of Chart 26shows what he can do, while the Willingness lines, now tobe described, will show what he would be willing to do.

Individual T s impatience is such that he would be

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