THE THEORY OF INTEREST

in January, but has to meet his largest expenses, let ussay taxes, in September, he is likely to borrow at taxtime for the ensuing four months, in anticipation of theJanuary dividends. That is, he borrows at a time whenhis real income would otherwise be low, and repaysat a time when it would otherwise be high. The effect isto level up the fluctuations of his income. He could, ofcourse, proceed in the opposite way, lending in Januarywhen “flush” and being repaid in the fall in time to helphim when “short” because of tax payments.

In brief, either he borrows, when short, because hisdegree of impatience, in view of the flush time coming,is higher than the rate of interest, or he lends when flushbecause his degree of impatience, in view of the leantime coming, is lower than the rate of interest.

The third class of personal loans comprises those whichgrow out of large expected additions to income or incomeearning power. Heirs to a fortune sometimes borrow inanticipation of bequests coming to them, the prospect ofwhich excites their impatience. A considerable volume ofsuch loans are made perhaps most often in Great Britain .The borrower under these circumstances borrows so thathe can enjoy in the present some of the income whichotherwise he would have to wait for. The same motivesactuate young men preparing for the earning period oflife and explain the loans which are often contractedby them for defraying the expenses of education. Itwas for such persons that Benjamin Franklin left hispeculiar bequests to the cities of Philadelphia and Bos-ton in 1790. To each he bequeathed £1000 to be lent outin small sums at 5 per cent to young married “artificers”.The sums repaid, including interest, were to be added tothe fund and again lent. Modern building and loan asso-

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