OBJECTIONS CONSIDERED

the cheapest way whether that way is to make it one-self, buy a substitute or otherwise, for in ProfessorBrown’s reasoning it is solely the existence of an alterna-tive cheaper way which makes the supposed disturbance.

The reasoning proves too much. Suppose Jones offersSmith a bond at one price and Smith refuses because hecan get another just like it for less. He would choose thecheaper and he would have a “curious mind” if thecheaper cost affected him only through first making himthink elaborately of the discount process. All he needs toknow is that if Jones’ bond is worth the price offered thecheaper one is even more clearly worth while. And Joneswill sit up and take notice, possibly reducing his price.

The cheaper bargain thus has in Professor Brown’ssense a “direct” effect on the price of Jones’ bond, not aneffect solely on a revaluation of expected services. But wecannot here conclude that the usual mathematical for-mula for the price of a bond was incorrect.

There is no more definite and universally acceptedformula in the whole realm of economics and businessthan that referred to. It is used every day in brokers’offices. It gives the price of a bond in terms of the interestbasis, the nominal interest and the time of maturity. Itis the type, par excellence, of the capitalization principleboth in theory and practice. It is not impaired by anyundercutting of the market.

The boat is, economically, a sublimated bond. If Jonesoffers it to Smith for $150, while Smith can get it cheaperthe discount principle is not invalidated. There is simplya readjustment in the boat as in the bond market. More-over in an individual transaction where there is no mar-ginal point reached by repeating the transaction—onlyone boat, not a series—there are wide limits within which

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