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Frank A. Fetter [March

A just opinion of the newer theory is possible only to those who
are willing to re-think the fundamental economic concepts. The
change in the interest theory is only a part of the general reformulation
 of distributive theory which has been under way for a third
of a century. It is to be understood only in that light.
IV, Some dificulties in Fisher’s impatience theory.
From the standpoint of the capitalization theory, the various
questions raised in the discussion between Seager and Fisher and
in Professor Brown’s paper, appear from a new angle. It seems
to be a different standpoint from that of Fisher, although at times
he may appear to hold it. It is true that in his work The Rate of
Interest (1907), in which his theory was first presented, he introduced
 his “first approximation” with a chapter on time-preference,
which he declares to be “the central fact in the theory of interest,”
giving in a footnote without comment at this point®* a page reference
 to my text. He says that “the income concept plays the
central role.” But he treats capitalization as subsequent to a
rate of interest, saying :*

When any other goods than enjoyment incomes are considered their
values already imply a rate of interest. When we say that interest is
the premium on the value of a present house over that of a future house
we are apt to forget that the value of each is itself based on a rate of
interest. We have seen that the price of a house is a discounted value
of its future income. In the process of discounting there lurks a rate
of interest. The value of houses will rise or fall as the rate of interest
falls or rises. Hence, when we compare the values of present and
future houses, both terms of the comparison involve the rate of interest.
If, therefore, we undertake to make the rate of interest depend on
the relative preference for present over future houses, we are making
it to depend on two elements in each of which it already enters,
And again he says: “The value of the capital is found by
taking the income which it yields and capitalizing it by means of
the rate of interest.” Still later he writes:*® “Capital value is
merely the present or discounted value of income. But whenever
we discount income we have to assume a rate of interest.”
From the moment Fisher begins his first approximation®” he
2 The Rate of Interest, p. 88.
%Jdem, p. 88.
*Idem, p. 91.
5 Elementary Principles, 1912, p. 229.
% Idem, p. 336.
The Rate of Interest, D. 117.