Pagina:Scientia - Vol. IX.djvu/405

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397 THE “IMPATIENCE THEORY„ OF INTEREST

high price of 20 per cent, interest will borrow only, say, 1,000,000 of dollars. Under such conditions the demand for loans is far short of the supply, and the rate of interest will therefore go down. At an interest rate of 10 per cent, the present year’s income offered as loans might be 50,000,000 of dollars, and the amount which would be taken at that rate only 20,000,000 of dollars. There is still an excess of supply over demand, and interest must needs fall further. At 5 percent we may suppose the market cleared, borrowers and lenders being willing to take or give respectively 30,000,000 of dollars. In like manner it can be shown that the rate would not fall below this, as in that case it would result in an excess of demand over supply, and cause the rate to rise again.

Thus the rate of interest is the common market rate of impatience for income, as determined by the supply and demand of present and future income. Those who, having a high rate of impatience, strive to acquire more present income, at the cost of future income, tend to raise the rate of interest. These are the borrowers, the spenders, tin1! sellers of property yielding remote income, such as bonds and stocks. On the other hand, those who — having a low rate of impatience — strive to acquire more future income at the cost of present income, tend to lower the rate of interest. These are the lenders, the savers, the investors.


VI. Verification and Conclusion.


We have sketched the main principles determining the rate of interest. Some have not been mentioned save by implication. In summary we may say the rate of interest, considered independently of fluctuations in the monetary standard, is determined by six conditions. Those which we have here considered and explained are the following three: (1) the dependence of impatience upon prospective income — its size, shape, composition, and uncertainties ; (2) the tendency of rates of impatience for different individuals to become equal to each other and to the rate of interest, through the loan market; (3) the fact that supply and demand must be equal so that the modifications in the income-streams of individuals, through