The author, Sir John Hicks, begins this brief section by noting that once we distinguish between transactions made on different dates, and we replace actual prices by discounted prices, "the whole static theory of value becomes directly applicable" to the analysis of expenditure plans. The analogous conditions of equilibrium and stability apply.
Another similarity discussed is that of the effects of changes in prices. When analyzing the effects of such changes, which, in the present context of expenditure planning, also include interest-rate changes, we can divide the effects into two types, substitution and income effects, just as was done in the static theory case.
The substitution effect results from the individual deciding to substitute some planned purchases for others, due to the changes in their relative discounted prices.
The income effect, or more precisely, the effect that the author describes as "corresponding to" the income effect in the static case, results from "the extent to which the individual is made better or worse off by the change in question." In short, the individual is better off if he can plan the same set of purchases at the various dates (and have something left over) as before the change. Conversely, he will be worse off if he cannot expect to make the same purchases as before but must instead "retrench somewhere." This effect depends on the capital values of the streams of both his planned expenditures and his expected receipts. As a result, the author notes that it actually "would be more logical to call it a 'capital effect', or something of that sort, rather than than an 'income effect,'" but he does not consider it worth the trouble to make that change in terminology. He does note, however, that "we must remember the precise meaning which has to be given to it from now on."
