THE THEORY OF INTEREST

nition of investment opportunity is specially framed toexclude mere loans. It is any opportunity of an individualto modify his prospective income other than by merelylending or borrowing (or the equivalent, buying or sell-ing) at the market rate of interest.

Under this definition and the assumptions employedin the theory there can never be any doubt as to whethera given proposed transaction is an investment oppor-tunity or a market loan or purchase. In the case of amarket loan or purchase the individual cannot vary therate of interest by any act of his, such as varying thesize of his transactions. Under our assumptions of a per-fect market his influence on the market rate is not onlyunconscious but infinitesimal and therefore entirelynegligible in our analysis in which his motivity is of theessence. In the case of an investment opportunity, onthe other hand, he can vary the rate of return by varyingthe size of his operations.

This contrast between the theoretical constancy of theone and the variability of the other, in relation to indi-vidual action, is due to the fact that in the public marketthe individual is a negligible element, while an invest-- ment opportunity is more private and personal to him orhis group. The former is typified by the purchase, say, ofa Liberty bond, or other standard securities. The latter istypified by building a factory, improving a sales organ-ization, deepening the shaft of a mine—cases where themarginal rate of return is under the control of the indi-vidual since he sets the margin.

Of course it is true that, in almost every such opera-tion, there are elements of purchase and sale in whichthe market rate of interest is an implicit ingredient, butas long as the operation is not exclusively a mere market

[ 498 ]