In Defense Of the Time Preference Theory of Interest

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jimmy replied on Fri, Apr 18 2008 6:52 PM

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 I suspect you've misunderstood Hülsmann in your opening paragraph. To make it more obvious, is $100 today the same as $100 in 1915? Clearly not - the value of $100 has changed over that time. In fact, the value of anything will depend on circumstances - in this case it depends on the scarcity of the good. If you live by a lake then water will play a minor role in your daily decisions. If you live in a desert it will be a prized and strategic resource. Similarly, if there are lots of other dollars around, one or two of them (or $100 of them) will be less valuable to you than if there are very few. Today there are more dollars than there were last year, and so a dollar today is not the same thing as a dollar one year ago.

As such, people will factor what they anticipate will be future monetary inflation (devaluation of currency) into any decisions they make to save or invest vs. immediate consumption.