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395 | THE “IMPATIENCE THEORY„ OF INTEREST |

impatience has been finally brought down to 5 per cent. Then for the last or « marginal » 100 dollars, his rate of impatience will agree with the market rate of interest. As in the general theory of prices, this marginal rate, 5 per cent, being once established, applies indifferently to all his valuations of present and future income.

In like manner, if another individual, entering the loan market from the other side, has at first a rate of impatience of 2 per cent, he will become a lender instead of a borrower. He is *willing* to accept 102 dollars of next year’s income for 100 of this year’s income, but in the market he is able, instead of the 102 dollars, to get 105, As he can lend at 5 per cent when he would gladly do so at 2 per cent, he jumps at the chance and invests, not one 100 dollars only, but another and another. But his present income, being reduced by the process, is now more highly esteemed than before, and his future income, being increased, is less highly esteemed. The result will be a higher relative valuation of the present, which, under the influence of successive additions to the sums lent, will rise gradually to the level of the market rate of interest.

In such an ideal loan market, therefore, where every individual could freely borrow or lend, the rates of impatience for all the different individuals would become equal to each other and to the rate of interest.

The two men whom we have imagined started out with rates of impatience different from the market rate of interest. The market rate was 5 per cent, while the first man had a rate of impatience above this, and the second, a rate of impatience below this. But when they finished their loan operations or readjustments in the time-shape of their income-streams, they brought their rates of impatience each into harmony with the rate of interest and therefore with each other. Therefore, as long as there is a market in which everybody can borrow or lend at will at 5 per cent, everybody will have at the margin a rate of impatience of 5 per cent. Nobody will have a rate of impatience above 5 per cent, because, if it is at first above it, he will borrow enough to bring it down to the market rate; and nobody will have a rate below it, because if it is at first below it, he will lend enough to bring it up to the rate of interest.

Thus we see that even men of widely different natures