40 MULTIPLE PURPOSE RIVER DEVELOPMENT 



equal to the return at the margin which is earned by the resources 

 released for investment purposes. Each individual, given his prefer- 

 ences, will save out of his income up to the point where the sacri- 

 fice of current consumption is just compensated by the annual 

 interest earned on the marginal dollar of saving. With producers 

 willing to borrow up to the point where the value of the marginal 

 stream oi output is equal to the interest cost, the savings of the 

 community as a whole will add up to the amount at which the 

 output made possible by the marginal dollar saved is just equal in 

 present value to the sacrifice entailed in providing it. Thus, by 

 means of the competitive capital market, the efficiency conditions 

 in the allocation of factors over time are achieved. No different 

 distribution, either between consumption and investment (saving), 

 or among investment alternatives, could improve anyone's position 

 without adversely affecting the position of another. This completes 

 the cycle in specifying the marginal conditions for general economic 

 efficiency. 



SUMMARY 



Accepting the assumptions of the competitive model, we begin 

 by focusing on the individual in a free society. Our assumption 

 of rational behavior requires that he make the following alloca- 

 tions: On the one hand, he allocates his time between work and 

 leisure so as to equate his marginal valuation of his productive 

 services to the market rate of remuneration in the occupation of 

 his choice. On the other hand, he allocates his income between 

 consumption and saving so as to equate the market rate of interest 

 on his savings to the sacrifice of current satisfaction entailed by 

 the marginal dollar of saving. The portion of income left after 

 savings becomes his consumption budget. His purchases of alter- 

 native goods and services are so budgeted as to equate his marginal 

 valuation of each to its market price. Since this is done by all 

 individuals in the economy and there is only one rate of remunera- 

 tion for each occupation, one rate of interest, and one price for 

 each kind of product or consumer service — the marginal valua- 

 tions of the sacrifices and gains are the same to all the individuals 

 in the market economy. No possibility remains for any improve- 

 ment in the total gains by any reallocations. 



