IN GEOMETRIC TERMS

vestment in his farm will have a variable decreasing re-turn as contrasted with the (to him) constant return tobe got in the loan market. Yet every investment in hisfarm will somewhat imply an interest element and willtheoretically change as the interest rate changes. Thus,strictly speaking, his O line is not to be pictured asimmovable like a rock but as subject to some slightchange with every change in the slope of the M line.Nevertheless this fact evidently does not alter the prin-ciples by which the slope of the M line is determined.The M line still rolls around an 0 line, even if that curvechanges a little as it rolls.

The 0 lines have been exemplified by the law of de-creasing returns in agriculture. Such a curve is concavetoward the origin and represents a law of decreasing re-turns in the sense that each succeeding dose of $100 in-vested out of this year’s income will return less and lessnext year.

But may there not be a law of increasing return? Thatis, may not the curve be convex in parts instead ofconcave?

We may imagine the 0 line, bounding or enclosing thegroup of points representing the possible options, to beconvex or to have any conceivable shape. It may be re-entrant, jagged, discontinuous, straight in parts. It islargely for convenience that we have hitherto pictured itas concave, curved and continuous. But if it were other-wise, almost the same result would follow. The line PQwould still roll around it. The result would evidently bethat, wherever the curve was re-entrant (convex towardthe origin), the straight Market line, in rolling aroundthe group of points, would jump across this chasm at theslightest provocation due to a change in the interest rate.

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