Cover
Table of Contents
Dedication
Errata
Preface
Suggestions to Readers
Part I. INTRODUCTION
I.I. Income and Capital
I.II. Money Interest and Real Interest
I.III. Some Common Pitfalls
Part II. THE THEORY IN WORDS
II.IV. Time Preference (Human Impatience)
II.V. First Approximation to the Theory of Interest (Assuming Each Person's Income Stream Foreknown and Unchangeable Except by Loans)
II.VII. Second Approximation to the Theory of Interest (Assuming Income Modifiable (1) by Loans and (2) by Other Means)
II.VIII. The Investment Opportunity Principles
II.VIIII. Discussion of the Second Approximation
II.IX. Third Approximation to the Theory of Interest (Assuming Income Uncertain)
Part III. THE THEORY IN MATHEMATICS
III.X. First Approximation in Geometric Terms
III.XI. Second Approximation in Geometric Terms
III.XII. First Approximation in Terms of Formulas
III.XIII. Second Approximation in Terms of Formulas
III.XIV. The Third Approximation Unadapted to Mathematical Formulation
Part IV. FURTHER DISCUSSION
IV.XV. The Place of Interest in Economics
IV.XVI. Relation of Discovery and Invention to Interest Rates
IV.XVII. Personal and Business Loans
IV.XVIII. Some Illustrative Facts
IV.XIX. The Relation of Interest to Money and Prices
IV.XX. Objections Considered
IV.XXI. Summary
Appendix to Chapter I.
Appendix to Chapter X.
Appendix to Chapter XII.
Appendix to Chapter XIII.
Appendix to Chapter XIX.
Appendix to Chapter XX.
Bibliography
Articles EconLog EconTalk Books Encyclopedia Guides Search

The Theory of Interest

As Determined by Impatience to Spend Income and Opportunity to Invest It
Fisher, Irving
(1867-1947)
CEE
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Editor/Trans.
First Pub. Date
1930
Publisher/Edition
New York: The Macmillan Co.
Pub. Date
1930
Comments
1st edition.
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APPENDIX TO CHAPTER XIX

§ 1 (to Ch. XIX, § 4)
Tables giving basic data

App.5.1

Table. Click to enlarge in new window.

App.5.2

Table. Click to enlarge in new window.

App.5.3

Table. Click to enlarge in new window.

App.5.4

Table. Click to enlarge in new window.

App.5.5

Table. Click to enlarge in new window.

App.5.6

Table. Click to enlarge in new window.

App.5.7

In Chapter XIV of The Rate of Interest "virtual," or "real," rates of interest were computed from "nominal," or "money," rates of interest by making adjustments for appreciation in the value of money calculated from index numbers of prices. In this book, the money rates of interest are adjusted directly to the rates of change in the general price level. These two methods, of course, yield identical results, since the one is the obverse of the other.

App.5.8

The average annual percentage changes in the general price level, given in the Tables VII to XI inclusive, are computed from the wholesale price indexes of the several countries. The index numbers for two dates, as 1825 and 1834, give us a measure of the price level at those two dates, and from these it is easy to calculate the average annual percentage change. The method is the same as that employed for finding the rate of interest by which $1, by compounding, will amount to a given sum in a given time. Theoretically, since the loans here included run usually perhaps thirty to ninety days, the quotations of rates of interest averaged should begin at the first of the two dates, and cease, say, sixty days before the second. But the index numbers are not always for definite points of time, nor can the interest quotations be subjected to such minute corrections without an immense expenditure of labor. Hence, the method adopted has been to average the rates for all the years of a period, e.g., for the ten years, 1824-1834. The annual percentage change in the price level is reckoned between those dates. If the index numbers present the price levels at the middle of 1825 and 1834, then the average interest rates ought in theory to include only the last six months of 1825 and the first four months of 1834. But it seems better to include too much at both ends than to omit the averages for 1825 and 1834 altogether, for the reason that an average is the more valuable the greater the number of terms included.

App.5.9

The real interest rates are obtained by subtracting from the money rate for any period the rate of annual change in the price level for the same period.

TABLE VII
Rates of Interest in Relation to Annual Rates of Change in the Price Level, London, 1825-1927
  BANK
RATE
 MARKET
RATE
 ANNUAL RATES OF
CHANGE IN THE
PRICE LEVEL
 REAL INTEREST IN
COMMODITIES (BANK)
 REAL INTEREST IN
COMMODITIES (MARKET)
1825-1834 4.2 3.4 -3.0 +7.2 +6.4
1834-1839 4.4 4.0 +3.3 +1.1 +0.7
1839-1852 3.7 3.4 -2.7 +6.4 +6.1
1852-1857 3.8 4.7 +5.8 -2.0 -1.1
1858-1864 4.4 4.2 +2.4 +2.0 +1.8
1864-1870 4.3 4.1 -1.6 +5.9 +5.7
1870-1873 3.7 3.5 +4.8 -1.1 -1.3
1873-1896 3.2 2.5 -2.6 +5.8 +5.1
1896-1913 3.6 3.1 +1.9 +1.7 +1.2
1914-1920 5.2 4.4 +14.5 -9.3 -10.1
1920-1927 4.8 4.2 -10.9 +15.7 +15.1

App.5.10

TABLE VIII
Rates of Interest in Relation to Annual Rates of Change in the Price Level, New York, 1860-1927
  PRIME TWO NAME
60-90 DAY COMMERCIAL
PAPER RATES
 ANNUAL RATES OF
CHANGE IN THE PRICE LEVEL
 REAL RATE OF INTEREST IN
COMMODITIES (MARKET)
1860-1865 6.9 -14.3 -7.4
1865-1871 7.8 +8.1 +15.9
1871-1879 6.4 -4.3 +10.7
1879-1889 5.1 -0.2 +5.3
1889-1896 4.9 -3.1 +8.0
1896-1915 4.7 +2.1 +2.6
1915-1920 5.1 +14.9 -9.8
1920-1927 5.0 -6.3 +11.3

App.5.11

TABLE IX
Rates of Interest in Relation to Annual Rates of Change in the Price Level, Berlin, 1864-1912
  BANK
 MARKET
 ANNUAL RATES OF
CHANGE IN THE
PRICE LEVEL
 REAL INTEREST IN
COMMODITIES (BANK)
 REAL INTEREST IN
COMMODITIES (MARKET)
1864-1867 5.1 4.7 +5.0 0.1 -0.3
1867-1870 4.2 3.3 -4.5 +8.7 +7.8
1870-1873 4.6 4.2 +8.2 -3.6 -4.0
1873-1886 4.2 3.2 -4.3 +8.5 +7.5
1886-1891 3.7 2.7 +6.2 -2.5 -3.5
1891-1896 3.5 2.5 -5.9 +9.4 +8.4
1896-1912 4.4 3.5 +2.6 +1.8 +0.9

App.5.12

TABLE X
Rates of Interest in Relation to Annual Rates of Change in the Price Level, Paris, 1872-1914
  BANK
 MARKET
 ANNUAL RATES OF
CHANGE IN THE
PRICE LEVEL
 REAL RATE OF
INTEREST IN
COMMODITIES (BANK)
 REAL RATE OF
INTEREST IN
COMMODITIES (MARKET)
1872-1896 3.2 2.6 +2.4 +0.8 +0.2
1896-1914 3.0 2.6 -2.0 +5.0 +4.6

App.5.13

TABLE XI
Rates of Interest in Relation to Annual Rates of Change in the Price Level, Calcutta, 1861-1926, Tokyo, 1887-1926
  BANK
 ANNUAL RATES OF
CHANGE IN THE
PRICE LEVEL
 REAL RATE OF
INTEREST IN
COMMODITIES (BANK)
Calcutta, 1861-1866 6.6 +5.7 +0.9
1866-1871 6.1 -6.0 +12.1
1871-1875 5.8 +5.4 +0.4
1878-1881 5.4 -11.2 +16.6
1883-1897 5.5 +3.1 +2.5
1897-1899 7.3 -11.2 +18.5
1899-1901 5.6 +6.9 -1.3
1901-1904 5.1 -4.8 +9.9
1904-1913 5.6 +4.4 +1.2
1913-1920 5.9 +11.2 -5.3
1920-1926 5.9 -5.2 +11.1
Tokyo, 1887-1899 7.0 +3.8 +3.2
1899-1902 8.7 -2.6 +11.3
1902-1913 6.9 +2.9 +4.0
1913-1920 7.0 +12.7 -5.7
1920-1926 7.8 -6.4 +14.2

§ 2 (to Ch. XIX, § 6)
Tables of interest rates

App.5.14

Table. Click to open in new window.

App.5.15

TABLE XIII
Interest Rates on 15 Railroad Bonds, United States, 1900-1927
YEAR
 AVERAGE PER CENT
 YEAR
 AVERAGE PER CENT
 YEAR
 AVERAGE PER CENT
1900 4.05 1910 4.16 1920 5.79
1901 3.90 1911 4.17 1921 5.57
1902 3.86 1912 4.21 1922 4.85
1903 4.07 1913 4.42 1923 4.98
1904 4.03 1914 4.46 1924 4.78
1905 3.89 1915 4.64 1925 4.67
1906 3.99 1916 4.49 1926 4.51
1907 4.27 1917 4.79 1927 4.31
1908 4.22 1918 5.20  
1909 4.06 1919 5.29  

SOURCE: The Statistical Bulletin of The Standard Statistics Company, Inc., 1929-1930, page 58.

The Wholesale Price Indexes used in making correlations are the indexes of the United States Bureau of Labor Statistics given in Table II.

App.5.16

Table. Click to enlarge in new window.

App.5.17

Table. Click to enlarge in new window.

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