1914] Interest Theories, Old and New

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:o be developed as the basis of capitalization of incomes and of a
resulting rate of contract interest.

III. Positive statement of the capitalization theory.
Accordingly, in my text, the first forty pages are devoted to
psychic income and to the process of valuation which results in a
price of things considered as directly enjoyable objects of choice.
In the next division, comprising ncarly sixty pages, is taken up
the physical productivity of wealth, the uses of goods, and the
valuation of those uses. Contract-rent is here based upon the
valuation, to individuals, of the productive uses of durable agents,
Just as contract-price is based upon the valuation of enjoyable
goods. A hundred pages were thus given to explaining as well as
[ was able to do it in a first sketch of the theory of distribution
for elementary students, what income is, and how income arises,
50 that it may be the object of choice and of exchange. In the
next division (Capitalization and Time-value) I discussed, in
seventy pages, the various problems of value that arise from a
comparison of goods in point of time. I treated capitalization
as the problem of valuation of durable agents, and developed &amp;
theory of the rate of interest: on contract loans based on this
zonception of capitalization.
For the reader unacquainted with the capitalization theory, its
essential features may be here outlined. At the outset let us seek
to avold the confusion caused by the. use of the word interest in
two senses, first, of a payment for contract loans made in terms
of money, and, secondly, of the difference in value between like
goods available at different times. Economists have of late genarally
 recognized these two meanings, and have sought to distinzuish
 them by the terms contract and economic interest,”® Though
such a terminology is an improvement upon the old, it leaves an
ambiguity that continually reappears in the discussion. I therefore
 used the word interest solely in its original and still almost
universal commercial sense of contract-interest, and I used the term
time-value to designate the other problem of “economic” or “implicıt”
 interest.®®

» Fisher prefers to call the one explicit and the other implicit interest.
However, throughout his book he uses the phrase “the rate of interest” almost
if not exclusively for contract interest, and other terms, such as rate of
preference, time-preference, etc., when implicit interest is meant.
% Other expressions, to designate various aspects of the same problem, used
in my Principles of Economics (1904), were “choice between different values,”