THE THEORY OF INTEREST

the buyer gets his consumer’s surplus and the seller hisproducer's surplus. Only when there is a series of suc-cessive boats or bonds do we have a full fledged exampleof the margin where consumer’s rent disappears and anequality replaces inequalities.

In the isolated case we should be content to say thatSmith will not pay more than the capitalized value. Inthe case of the conventional series of boats, the marginalboat will be such that the capitalization principle and thecost principle will both apply. The seventh boat, let ussay, will cost Smith $100 whether to make or to buy.Jones and other boat owners will have reduced their pricefrom $150 and Smith will have found that to make somany boats will have cost $100 instead of $40, to saynothing of the important fact that he would have towait much more than a week.

All these points are covered in my presentation, forProfessor Brown’s example is only one of the myriad ex-amples of alternative opportunities. Smith, like every-body else, will use the cheapest way in the sense ofchoosing the income stream of labor and satisfactionhaving the maximum present worth at the market rateof interest.

Professor Brown has his eyes on the opportunity partof the picture and no one has stressed that part morethan I. But interwoven with it and consistent with it, inthe analysis of a perfect market in which the individualis a negligible factor, is the principle that every article ofcapital is valued at the discounted value of its expectedservices and costs.

I do not intend to underestimate the importance ofthe cost concept. The importance it holds in my mind isnot to be measured by the number of pages devoted to it

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