THE THEORY OF INTEREST

and may be called the Option line or the Opportunityline, 1 and is designated as O x for Individual 1.

§3. The Individual’s Adjustment Without Loans

What we have seen so far is that Individual 1, havingdiscarded all income positions inside the Investment Op-portunity line, has left as still eligible only the points onthat curve.

As before, we assume that each individual is uncon-scious of having any influence on the market rate ofinterest. To fix our ideas suppose, as before, this rate tobe 10 per cent. The only adjustments the individual canmake are: (1) adjusting his position on the 0 line; (2)further adjusting on the M line. Problem (2) is analogousto that of Chapter X, so that Problem (1) is the onlynew one. The solution of Problem (1) will be found topoint the way to the solution of the knottiest part of theinterest problem, purposely omitted from the first ap-proximation. This is the problem of investment oppor-tunity, productivity, or technique of production inrelation to the rate of interest.

The principle by which the individual may shift hisposition along the Investment Opportunity line is verysimilar to the principle already set forth in Chapter Xby which he shifts along the Market line. It will be re-called that the individual shifted along the Market or

'An option is represented by any one point in Chart 35 not out-side the area bounded by A Oi’Oi lv . Only those points on the curveOi'Oi IV are really eligible. The opportunity to move from one of thesepoints to another implies tvx> points on this line. If these two pointsare close together, the direction of one from the other is the slope ofthe tangent to the curve. Thus, the term “option” suggests a point onthe curve while the term “opportunity” suggests the direction of thecurve.

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