§15. The Four Principles as Charted

In this geometric picture we see that the four principles formerly stated in words (in Chapter V) are now interpreted geometrically on the "map" as follows:

(1) Impatience principle A (that each man's impatience or rate of time preference depends on his income stream) is represented by a family of Willingness lines for each individual.

(2) Impatience principle B (that each rate of time preference is assimilated to the market rate of interest) is represented by the tangency at each individual's point Q, thus making the slope of his W line at that point equal to the slope of the M line.

(3) Market principle A (that the market will be cleared) is represented by the fact that the aggregate Edition: current; Page: [259] horizontal shift from P's to Q's to the right (by all borrowers combined) must equal the aggregate horizontal shift from P's to Q's to the left (by all lenders combined); and also that the two aggregate vertical shifts representing next year's repayments of loans must likewise be equal, so that the centers of gravity of the P's and the Q's coincide.

(4) Market principle B (that all loans are repaid and at one rate of interest) is represented by the fact that the Market lines are straight and parallel.