§5. The Two Lines Compared

The M line of Chart 26 and the W line of Chart 27 are brought together in Chart 28. From P1 we have a pair of Edition: current; Page: [241] lines, one (M1) showing by its divergence from the 45° slope the rate which Individual 1 can get, as a borrower, and the other (W1) showing by its slope the rate at which he is willing to borrow. Evidently if he is willing to pay 30 per cent for a $100 loan when he can get it at 10 per cent, he will borrow. Evidently also he will continue to borrow as long as his willingness rate, i.e., his rate of time preference or impatience, is greater than the rate of interest, in other words as long as, at each stage, the Willingness line is steeper than the Market line.

All that has been done so far is to describe the income map, and to place on it a point P1 to represent the assumed Edition: current; Page: [242] fixed income situation of Individual 1, and to draw through this point P1 two lines, one a straight line, the Market line, showing the direction in which Individual 1 can move away from P1, and the other a curved line, the Willingness line, showing the direction in which he is willing to move. He is willing to borrow a first $100 at 30 per cent, or lend a first $100 at 40 per cent, but can do either at 10 per cent.