230 NATURE OF CAPITAL AND INCOME [Cuar. XIV 
of calculating the rate of value-return is as follows: 
A specified property entitles the owner to a future series of 
income items which is assumed to be definitely foreknown. 
These items are all discounted by means of a specified rate 
of interest. The sum of the discounted values constitutes 
the capital-value of the property. This capital-value, at 
any time, taken as divisor and the income per year taken as 
a dividend gives the rate of value-return as quotient. 
It must be steadily borne in mind that the value of the 
capital which forms the divisor is not a fictitious book 
value, nor the value as indicated by the sum of money 
originally invested, but is simply the discounted value, at 
the specified time, of the expected income subsequent to 
that time. We should at the outset rid our minds of 
the bogey of an unvarying “ principal’ perpetually existing 
somewhere in a debt or other property. The only value 
entity we have to deal with is the value of the property 
considered, which is the discounted value of the expected 
income, and which therefore is continually changing. 
When capital is for the present yielding no income, as, 
for instance, vacant land, it nevertheless is expected some- 
time to yield income, and it is the discounted value of this 
remote income which alone constitutes the present value 
of the land. It is true that a speculator may prize the 
land simply because he thinks he can sell it later to some 
one else, and to him it may seem that its value is inde- 
pendent of any future income, and depends only on the 
future capital-value at which he expects to sell. But it is 
clear that this future capital-value is itself the discounted 
value of the income which the then purchaser will expect. 
Or, if he too be a speculator, and his valuation, like his 
predecessor’s, depends on a resale, the dependence on 
future income is merely again postponed to the time when 
some purchaser shall buy the land for the income it will 
yield. This ultimate expected income gives the basis for 
all prior capital valuations. Were there no expectation