Seo. T] CONCEPT OF RATE OF INTEREST 199

terest. This goes to explain why, in the actual market, the
rate of interest for short-time loans fluctuates so much
more widely than the rate of interest on long-time investments.
 It is scarcely necessary to exhibit statistics to show
this, though they are easily obtained by comparing the
fluctuations in the rate of interest on short-term and longterm
 loans, in the United States or in England.
We see, then, that the two concepts of interest rate, though
definitely related,' are not always interchangeable.

§ 7

There is yet another device for indicating the terms of
time exchanges. Besides the rates of interest and their
reciprocals, the ratios of capitalization, there is the rate of
discount. We have seen that if $104 due one year hence
will buy $100 of present goods, then §¢ is the rate of exchange
 between the two times and exceeds unity or par by
145, the rate of interest. The rate of exchange between the
two times, when taken in the opposite direction, is 1§§ and
this is less than unity or par by t&;. This deficiency,
which amounts to 3.9 per cent, is called the rate of discount.
The number representing the rate of discount is always
slightly less than that representing the corresponding rate
of interest.? The rate of discount is practically employed
only for short-time loans, usually less than a year, in which
cases it better serves the purposes of rapid computation.

§ 8
The present chapter may be briefly summarized as follows:
 —
First, the rate of interest is a special case of “valuereturn,”
 and may be approached from either of two standpoints,
 according as we consider it the price of capital in

1 See Appendix to Chap. XII, § 5. .
? For further discussion of the rate of discount, see Appendix to

Chap. XII, §§ 6, 7.