Economics Dictionary of ArgumentsHome
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| Time preference: Time preference refers to the tendency of individuals to value present gratification over future gains. This attitude influences decision-making in the economy. See also Decisions, Decision theory, Consumption, Investments, Entrepreneurship._____________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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Eugen von Böhm-Bawerk on Time Preference - Dictionary of Arguments
Rothbard IV 10 Time Preference/Böhm-Bawerk/Rothbard: It was Böhm-Bawerk who finally found the answer [for the problem of interest] in the concept of time preference. >Interest/Medieval Philosophy. Interest/Böhm-Bawerk/Rothbard: For when a creditor lends $100 to a debtor, in exchange for receiving $106 a year from now, the two men are not exchanging the same things. The creditor is giving the debtor $100 as a “present good,” money that the debtor can use at any time in the present. But the debtor is giving the creditor in exchange, not money, but an IOU, the prospect of receiving money one year from now. In short, the creditor is giving the debtor a “present good,” while the debtor is only giving the creditor a “future good,” money which the creditor will have to wait a year before he can make use of. And since the universal fact of time preference makes present goods worth more than future goods, the creditor will have to charge, and the debtor will be willing to pay, a premium for the present good. That premium is the rate of interest. How large that premium will be will depend on the rates of time preference of everyone in the market. This is not all for Böhm-Bawerk went on to show how time preference determined the rate of business profit in the same way: in fact that the “normal” rate of business profit is the rate of interest. For when labor or land is employed in the process of production, the crucial fact is that they do not have to wait, as they would in the absence of capitalist employers, for their money until the product is produced and sold to the consumers. If there were no capitalist employers, then laborers and landowners would have to toil for months and years without pay, until the final product - the automobile or bread or washing machine - is sold to the consumers. But capitalists perform the great service of saving up money from their income ahead of time and then paying laborers and landowners now, while they are working; the capitalists then perform the function of waiting until the final product is sold to the consumers and then receiving their money. It is for this vital service that the laborers and landowners are more than willing to “pay” the capitalists their profit or interest. The capitalists, in short, are in the position of “creditors” who save and pay out present money, and then wait for their eventual return; the laborers and landowners are, in a sense, “debtors” whose services will only bear fruit after a certain date in the future. Again, the normal rate of business profit will be determined by the height of the various rates of time preference. >Interest/Böhm-Bawerk._____________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. |
Böhm-Bawerk I Eugen von Böhm-Bawerk Kapital und Kapitalzins. Vol. 2, Positive Theorie des Kapitales. 2nd ed. Innsbruck: Wagner’sche Universitätsbuchhandlung.1909 Innsbruck 1909 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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