The nature of capital and income

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Monograph

Identifikator:: 102659555X

URN:: urn:nbn:de:zbw-retromon-82920

Document type:: Monograph

Author:: Fisher, Irving http://d-nb.info/gnd/118533541

Title:: The nature of capital and income

Place of publication:: New York

Publisher:: The Macmillan Company

Year of publication:: 1923

Scope:: XXI, 427 Seiten

Digitisation:: 2019

Collection:: Economics Books

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Document type:: Monograph

Structure type:: Chapter

Title:: Part III. Capital and income

Collection:: Economics Books

- Skc. 7] THE RISK ELEMENT 277 is the ratio of the commercial to the riskless value (+35 x $= 145) and may be called the coefficient of risk. The coefficient of caution expresses a feature of individ- ual character as determined partly by nature and partly by environment. In times like the colonial period when lotteries were common, or in places like Monte Carlo, where gamblers congregate, the coefficient of caution is such as to represent an abnormal lack of caution. The opposite extreme is found in the timid investor who hoards money rather than risk its investment in any form. The coefficient of caution also varies with the same individual under different circumstances. Chief among these varying ecir- cumstances, as Professor Norton has pointed out, is the amount of capital of which the individual is possessed. The more capital a man possesses, the less is his chance of serious loss in any enterprise involving risk; and for this reason a rich man finds it possible to grow still richer. The rich can well afford to lose millions where the poor could barely afford to lose hundreds. There is less likeli- hood of ruin to the United States Steel Corporation from its projected investment of $75,000,000 to found a new steel- producing city than there would be to a workingman who makes a ‘ safe ”’ investment of $1000. §7 We are now in a position to apply these principles of probability to the valuation of capital, i.e. to the capitaliza- tion of uncertain income. The most important classifica- tion of investments from a practical point of view is into two categories of safe and unsafe investments. But even in so-called safe investments the element of risk enters. As between bonds and stocks, the latter usually represent the precarious and the former the safe investments ; yet in’ the case of bonds, the receipt of interest and principal is always in some degree a matter of uncertainty. 1 For a mathematical statement, see Appendix to Chap. XVI, § 1.

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