1. The fixing of the discount on future goods is, in its essentials, like the fixing of the market price of consumption goods. This problem appears to be one of the most difficult in economic theory; but reduced to its simplest terms, it is an aspect of exchange value, and its ultimate explanation must be found in a comparison of psychic incomes.' There must be noted the conditions of demand and supply, the interplay and final equilibrium of the two forces. The declining and marginal utility to the two parties to exchange must be carefully analyzed. One who can do these things is prepared to find the answer to the problem of time-value. Whenever a group of buyers and sellers meet, a ratio of exchange commonly will be arrived at. The ratio of exchange between buyers and sellers of present and future rents likewise is fixed at the estimates of a "marginal pair,' at which point the amount offered and taken comes to equilibrium, for at that point no motive exists for any one to change sides.

The exchange value of present and future goods.

2. Time-value as the premium rate on present goods is unlike the. ordinary mgrket price of goods only in the special nature of the utilities exchanged. The one peculiar need in the theory of this subject is a clear understanding on this point. The goods exchanged, or compared, are direct and indirect goods, or present and future goods, or, more generally speaking, two goods or groups of goodsunequally dis-tant in time from present enjoyment. What are sold in a case such as capitalization, involving an estimate of time-value, are present goods or gratifications; what are bought are future gratifications, or indirect agents which stand for, typify, or make possible, future gratifications. Practically every man in a market acts on the knowledge of what the exchange of direct and indirect goods means; yet abstractly stated, the thought seems at first difficult. In valuing any durable good, the theory of time-value is implied. Every time a machine, a house, a book, a field, is bought, the distinction between direct and indirect goods is acted upon, for a choice has been made between present enjoyment and future provision. Anything that endures is an indirect good and implies in its valuation a premium rate on present goods.

The peculiar nature of the exchange in the case of time-value.

Several reasons why this is not easily recognized.

The real nature of the exchange in time-valuation is made unclear by the uncertainty of life, leading men to work on to provide against possibility of mishaps; for the most part the world's treasures never afford to their temporary owners the gratification that they typify, or could give. The nature of this exchange is made unclear also by habit, under the influence of which the exchange in so many cases is not carefully thought out, is not the result of a close comparison of the utilities of goods in present and future moments. The real nature of this exchange is made unclear by the indirect, or induced, gratification derived from wealth. Wealth gives to its owner power, prestige, the esteem of his fellows, and pride in evidences of success and growing prosperity. Its very possession creates a new need and imparts to it another utility, that of insuring against the misery of a declining fortune one who has enjoyed wealth and power. Men make the greatest efforts up to the last moment of life to retain wealth that they will enjoy only in this subtle and indirect way. Thus every motive that leads men to postpone present enjoyment makes them bidders for indirect agents and for future goods, and helps to determine the market rate of premium on the present, and of discount on the future.

The scarcity of present gratifications.

3. There being a limited number of indirect agents, their limited powers in a given period limit the supply of present goods. The principle is familiar that value is always connected with relative scarcity. Now the desire for the present goods is indefinitely large. If the right kind and quality could be had at will, an enormously greater amount of present goods would be used. But the present goods are dependent on indirect agents. The psychic income of a civilized community is dependent on a favorable and extremely refined environment: houses, libraries, theaters, the agencies of travel, as well as the sources supplying the more material needs. These indirect agents, even in the richest community, are limited in variety, in quality, and in number.

But if indirect agents could produce an indefinitely large product at any given moment, the supply of present goods could be indefinitely increased. The - supply of utilities, therefore, is limited by "diminishing returns" in the use of agents, making their maximum yield depend upon the lapse of time. The uses any given material can yield in a limited period have an absolute limit: an acre of land with the most perfect cultivation cannot feed the world; but remove the limit of time, wait an eternity, and the acre would yield an infinite crop. The economic return of a given agent in a given period is reached much sooner than the technical return. If agents are forced to yield more bountifully, it is at the sacrifice of utilities in other agents, and a point of maximum net yield is found in any given period. Here also the lapse of time is the condition of the increase of the net utilities derivable from limited agents.

The total of future uses is vastly greater.

4. The rate of capitalization of income and the rate of contract interest on money capital tend to unite into a single market rate. A person wishing to exchange present goods or income for future goods may buy an income-bearer at its capitalized value, or he may create a new rent-bearer. Having saved a sum of money, either he may purchase a factory known to be profitable; or he may hire the services of men and unite them with materials and machinery to create a new industry or a new form of income-bearer; or he may loan his money to others to make either kind of purchase. In any one of the three cases it is evident that capitalization (that is, the discounting of future rents in goods) is the primary and important fact making possible the emergence of a surplus, or net yield, over and above the value of the capital. The expected uses contained not only in whole industrial establishments, but in the particular materials and agents united to form new agents, are purchased at their capitalized value; that is, the future uses have been discounted and have entered into the price of the goods as less than they will be when realized as actual rents. This is the crucial point in the theory either of contract interest or of time value; for to explain the rate of interest as due to the process of "producing" capital agents out of other materials, is to beg.the question involved. The surplus yielded by capital above its cost is but the realization of a net income made possible by the discounting of future rents.

The choice open to the investor of money.

The choice open to the borrower of wealth.