The Theory of Interest | Jeffrey M. Herbener

[@DimitrisAndreou]

Not sure this novel (at least to me) way of defining "time preference" is helpful. When we think that someone has "low time preference", we mean that he is willing to postpone consumption. If time preference assumes that the time allocation has already been dealt with, and only the waiting time before the satisfaction is referred to by time preference (sure we prefer less waiting), then it seems too narrow. It does avoid the messy issue of trying to compare two satisfactions, one sooner and one later, and trying to rely on concepts like "these are equivalent satisfactions", where multiple counterexamples are easily offered (celebrating anniversaries is a good example, or the classic one of ice in summer vs ice in winter)

[@thouwilltarot8916]

I thought he was going to say he got married in 1883.

[@coonhound_pharaoh]

In my view the time preference theory of interest is not sufficient to explain what we see in reality. It is not only the time which matters to the rate of interest; risk is the ultimate determinant of the rate of interest. Time is one dimension of risk, but there are many other dimensions of risk. Sometimes new credit finances projects which make the period of production longer, but other times it finances projects which do not lengthen the period of production but do make the period of production more risky. It is often the most risky projects which disappear first when interest rates rise, and this is because they are the projects with the lowest calculated ROI. Perhaps some day I will get around to finishing my book. A perfect example of this is the entire cryptocurrency industry, which would not exist absent credit expansion by the Fed. Almost immediately as rates rose, crypto companies started showing their cracks and frauds. Crypto produces almost no value to anyone except for its use as a means of gambling. I won't call crypto gambling "speculation" or "investment" because those terms imply there actually is use value to the products offered. The numbers of people it to which does provide use value are vanishingly small.

[@AustrianDuration]

Fantastic comment

[@enigma7314]

Future is uncertain. Every action with a delayed outcome is a risk analysis. Risk assessment and time preference can be considered the same thing.

[@tomrusack3266]

If people see crypto as an alternative to fiat then it has utility. Value is derived purely from subjective belief of a minimum two people, buyer and seller. Crypto‘s will be determined solely by market forces not governments or economists.

[@coonhound_pharaoh]

@@enigma7314 Perhaps so, but Mises himself points out the words economists choose to formulate their theories must be very concise because they walk a razor's edge between logical validity and complete nonsense, due to the nature of logical deduction. With this in mind, time and risk are not equal concepts. While they do share some characteristics, some very risky actions consume almost no time at all. Economics and praxeology are a constant research project, just as is all of science.

[@enigma7314]

@@coonhound_pharaoh I have 2 questions for you: 1. Can you give me an example time preference which is not dependent on risk assessment. 2. Can you give me an example of risk assessment which is not a demonstration of time preference?