Economics Dictionary of ArgumentsHome
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| Interest: A. Interest refers to the inclination, motivation or benefit that a person or group has in something. It can include personal preferences as well as involvement in or pursuit of a particular goal or topic that is important or beneficial to the individual.
B. Interest Interest in economics is the cost of borrowing money or the return on invested capital. It represents the time value of money, compensating lenders for foregone consumption and risk, while also reflecting the demand for funds in financial markets. See also Interest rates, Money, Price, Risks._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Murray N. Rothbard on Interest - Dictionary of Arguments
Rothbard II 137 Abstinence Theory/interest/Rothbard: If profit were perhaps related to risk, what then accounts for the long-run ‘interest’ component of business profits? The dominant explanation for long-run interest in British economics soon became the abstinence theory of interest. The first presentation of time as the determinant of interest came from a theory related but superior to abstinence: Samuel Bailey's pioneering time-preference theory. Bailey's discussion came in the course of his brilliant demolition of Ricardo's labour theory of value and his championing of an alternative utility theory. Bailey begins his discussion of time and value by noting that if one commodity takes more time than another for its production, even using the same amount of capital and labour, its value will be greater. Ricardo: While Ricardo admits a problem here, James Mill in his Elements of Political Economy indefatigably asserts that time, being ‘a mere abstract word’, could not possibly add to anything's value. VsMill, James: Rebutting Mill, Bailey points out that ‘every creation of value’ implies a ‘mental operation’ - in short, a subjective analysis of value. Given a particular pleasure, Bailey went on, ‘We generally prefer a present pleasure or enjoyment to a distant one’ – in short, the omnipresent fact of time-preference for human life. >Time-preference. Rothbard II 138 Nassau William Senior: But the locus classicus of the abstinence theory was the lectures of Nassau W. Senior. It is true that they were not published until 1836, when they were published as the Outline of the Science of Political Economy (and also as the article on ‘Political Economy’ for the Encyclopedia Metropolitana), but they were delivered earlier as lectures at Oxford in 1827-28. Senior pointed out that savings and the creation of capital necessarily involve a painful present sacrifice, an abstinence from immediate consumption, which would only be incurred in expectation of an offsetting reward. Unfortunately, Senior lacked the concept of time-preference, so he was fuzzy about the specific motivation that would lead people to prefer present to future consumption. But he came to very similar conclusions, relating the degree of abstinence-pain (or, as the Austrians would later put it, time-preference for the present over the future) to ‘the least civilized’ peoples and the ‘worst educated’ classes, who are generally ‘the most improvident, and consequently the least abstinent’. >Capital/Senior. - - - Rothbard III 556 Interest/Mises/Rothbard: „Originary [pure] interest is not a price determined on the market by the interplay of the demand for and the supply of capital or capital goods. Its height does not depend on the extent of this demand and supply. It is rather the rate of originary interest that determines both the demand for and the supply of capital and capital goods. It determines how much of the available supply of goods is to be devoted to consumption in the immediate future and how much to provision for remoter periods of the future.“(1) >Investments/Rothbard, >Structure of production/Rothbard. Rothbard III 549 Rothbard: Since praxeology never establishes quantitative laws, there is no way by which we can determine any sort of quantitative relation between changes in the pure rate of interest and the amount that capital will change. >Praxeology/Rothbard. All we can assert is the qualitative relation. It should be noticed what we are not saying. We are not asserting that the pure rate of interest is determined by the quantity or value of capital goods available. >Capital goods/Rothbard, >Interest rate/Rothbard. We are not concluding, therefore, that an increase in the quantity or value of capital goods lowers the pure rate of interest because interest is the “price of capital” (or for any other reason). On the contrary, we are asserting precisely the reverse: namely, that a lower pure rate of interest increases the quantity and value of capital goods available. For „pure rate of interest“ see >Evenly Rotating Economy/Rothbard. The causative principle is just the other way round from what is commonly believed. The pure rate of interest, then, can change at any time and is determined by time preferences. If it is lowered, the stock of invested capital will increase; if it is raised, the stock of invested capital will fall. >Time preference/Rothbard. 1. Mises, Human Action, New Haven, Conn.: Yale University Press, 1949. Reprinted by the Ludwig von Mises Institute, 1998. pp. 523 -24_____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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