IN TERMS OF FORMULAS

for present over future income shall each be equal tothe rate of interest, and is expressed by the followingthree equations: 5

h = i

/a = »

fa = i

where i denotes the rate of interest. These three equa-tions are best written as the continuous equation:

i — /i = jz = fa*

(These equations express the fact that at the Q’s theslope of the Willingness line is the same as of the Marketlines.)

§4. Market Principle A (Two Equations)

Market Principle A, which requires that the marketbe cleared, or that loans and borrowings be equal, isformulated by the following two equations:

Xi + x/ + x 3 ' = 0,

Xi" + x" + x-r = 0.

That is, the total of this year’s borrowings is zero(lendings being regarded as negative borrowings), andthe total of next year’s repayments is likewise zero (pay-ments from a person being regarded as negative pay-ments to him).

§5. Market Principle B (Three Equations)

Market Principle B requires that the present value ofthis year’s loans and the present value of next year’s

“Strictly speaking these equalities are true only when the individualis so small a factor in the market as to have no appreciable influenceon the market rate of interest. The equality of / and i implies that thetotal desirability, or wantability, of the individual is a maximum. (SeeAppendix to this chapter (Chapter XII), §2.

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