The Categorical Requisite of Mises’s Pure Time-Preference Theory of Interest

Troy P. Lynch

History of Economics Review, 2010, vol. 52, issue 1, 41-51

Abstract: Ludwig von Mises advocated a pure time-preference theory of interest. He regarded time-preference as a categorical (or universal) requisite for human action, even in a world without capital goods or in a society that is governed by a non-capitalistic method of production. Mises not only rejected Eugen von Böhm-Bawerk’s productivity theory of interest, but also Böhm-Bawerk’s and Frank Fetter’s mix of psychological and time-preference explanations of interest rates. Instead, he regarded time preference as a necessary condition of interest. This paper has three aims: to demonstrate the rationalist basis for Mises’s pure time-preference theory of interest; to examine the relation between the pure time-preference theory and roundabout methods of production; and to discuss the connection between the pure time-preference theory and the market rate of interest.

Date: 2010
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DOI: 10.1080/18386318.2010.11682163

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