OBJECTIONS CONSIDERED

§2. Income and Capital

Income, which, as I have stated before, is the mostimportant factor in all economic theory and in interesttheory in particular, resolves itself in final analysis into aflow of psychic enjoyments or satisfactions during aperiod of time. While this concept is the ideal, we can,for purposes of objectivity, approximate this ideal and atthe same time impute to the income concept varyingdegrees of measurability by using in place of psychic in-come any of the following: real income, cost of living asa measure of real income, or money income.

One objection to the psychic concept of income as abasis for a theory of interest is that it is too narrow andrestricted. It is held that the analysis of interest based onthis concept “finds the cause of the changes in rates solelyin the changed ratio between the stocks of present and offuture consumption goods,” while the “interest rate mar-ket is a funds market, not a machine or raw material orpresent consumables market.” 4

“Nor is it entirely clear,” continues this criticism, “why,in Fisher’s view, the consumption perspective should readthe law in point of interest rates to all equipment loancontracts, rather than, as Bohm-Bawerk sometimes ap-pears to assert, the other way about. Why should notboth sorts of demands be regarded as of equal title incausal effectiveness in the interest adjustment on finalloans?” 5

I reply that I do not exclude “equipment loan con-tracts” from due consideration, but I do maintain thatsuch intermediate loans are made for the purpose of se-

* Davenport, H. J., Interest Theory and Theories. American EconomicReview, Vol. XVII, No. 4, December, 1927, pp. 636-656.

‘Ibid., p. 650.

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