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Praxeological vs Positive Time Preference: Ludwig von Mises's Contribution to Interest Theory

J. Patrick Gunning ()
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J. Patrick Gunning: Feng Chia University - Department of Economics

History of Economic Ideas, 2005, vol. 13, issue 1, 105-120

Abstract: Mises’s concept of praxeological time preference has been confused by Neo-Austrians with the idea of positive time preference. Praxeological time preference refers to the idea that individuals acting in the consumer role distinguish between actions on the basis of whether they expect the effects to be felt sooner or later. Positive time preference goes beyond this to claim that some set of goods, money, or utility would always be preferred in the present to the same set in the future. Neo-Austrian economists have written as though the assumption of positive time preference is needed to explain a ‘positive rate of interest’ in the market economy. This paper has three aims. The first is to show that Mises did not subscribe to the positive time preference view. The second is to discuss the claims to the contrary in order to show how this mistaken interpretation of Mises has evolved. The third is to present the basic assumptions that are necessary to deduce a positive rate of interest under the conditions of the pure market economy.

Date: 2005
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