THE THEORY OF INTEREST

member of such a community would be willing to ex-change $100 of the plentiful 10 billions for the first year,for only $101 out of the scarce 1 billion of next year,but would be glad to give, out of the third year’s stillmore plentiful 20 billions, $150 for the sake of $100 inthe middle and lean year.

In actual markets we find some influence of such differ-ences between future years (as looked at today) in thedifferences between short term and long term interestrates.

The reason why, in actual fact, no abrupt or largevariations in the rate of interest, such as from 1 per centto 50 per cent, is ordinarily encountered is that the sup-posed sudden and abrupt changes in the income streamseldom occur. The causes which prevent their occurrenceare:

(1) The fact that history is constantly repeating it-self. For instance, there is regularity in the population,so that, at any point of time, the outlook toward thenext year is similar to what it was at any other point oftime. The individual may grow old, but the populationdoes not. As individuals are hurried across the stage oflife, their places are constantly taken by others, so that,whatever the tendency in the individual life for the ratesof preference to go up or down with age, it will notbe cumulative in society. Relatively speaking, societystands still.

Again, the processes of nature recur in almost cease-less regularity. Crops repeat themselves in a yearly cycle.Even when there are large fluctuations in crops, the vari-ations are seldom world-wide, and a shortage in the Mis-sissippi Valley may be compensated for by an unusuallyabundant crop in Russia or Asia . The resultant regularity

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