ABSTRACT
Let us approach our problem in a series of steps, beginning with the following three assumptions: 1. An individual considering possible uses for his money has only the choice between holding cash or investing in long-term bonds, which we shall take to be perpetual bonds or consols. We thus neglect the possibility of investing in bonds of short maturity or in real capital. The first limitation will be dropped in the next chapter, and the relationship between the rate of interest and the yield on real capital will be dealt with when we make the assumption that the real assets can be expanded - that is, when we depart from the initial approach of analysing matters at a single point oftime. 2. We assume single-valued expectations, which means that investors feel certain that the expected yields on securities will actually be realised. This assumption will be dropped in the second section of this chapter. 3. We neglect the cost and trouble involved in the purchase and sale of securities. This assumption, too, will be dropped in the second section of the present chapter.
