§1. Introduction

WE found in Chapter V that, if the degree of any given individual's impatience depended solely on his income stream, and if that stream could not be modified through the loan market or otherwise, his impatience could not be modified either. In such a world of hermits, each person would have his own individual rate of time preference, the various individual rates ranging from several thousand per cent per annum down to zero, or below. In such a world, since there would be no loans, there would be no market rate of interest.

But we also perceived that, as soon as our hermits are allowed to swap income streams, one man exchanging some of this year's income for some future income of another, then these myriad rates of time preference or impatience tend to come together toward a common rate, and, on the assumption that no risk attends these transactions, a uniform market rate of interest would actually be reached. In such a perfect loan market the degree of impatience of each person would become equal to that of every other person and to the rate of interest.