Chapter 6—Production: The Rate of Interest and
Its Determination (continued)
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Chapter
6—Production: The Rate of Interest and Its
Determination (continued)
9.
Joint-Stock Companies and the Producers’ Loan Market
We are now ready to embark on an analysis of the effect of
joint-stock companies on the producers’ loan market.
Let us take the aforementioned firm with a total capital stock and
capital value of 130 ounces and owned by six stockholders. The firm
earns a net income of 5 percent per year for its owners, and this is
the interest rate earned by all the firms in the economy.
We have already seen how the firm expanded its capital by 30 ounces
through the sale of new capital stock to F. Let us
see what happens when a productive loan is made. Suppose that the firm
borrows 20 ounces from the producers’ loan market for a
five-year period. What has happened? The firm has exchanged a future
good—a promise to pay money in the future—for
present money. The present money has been supplied by a saver, G. It is
clear that G has done the saving and is the capitalist in this
transaction, while the joint stockholders A–F are here
supplying future goods; and further, it is the stockholders who invest
the new capital in the production system. On the surface, this seems to
be a positive case of the separation of savings and investment.
However, let us look at the transaction further. G has supplied new
capital, worth 20 ounces, to the firm, for a five-year period. The
owners A–F take this new capital and invest it in future
goods, i.e., factors of production. In other words, to the extent of 20
ounces, A–F are intermediary investors of the savings of the
creditors. What will the rate of interest on this loan be? It is
obvious that this rate of interest in the ERE, will be equal to 5
percent, i.e., it will be purely dependent on the rate of interest
return that prevails in the price spreads of the production structure.
The reason for this should be clear. We have already seen how the
interest rate is determined in the production structure; we
have assumed it to be 5 percent everywhere. Now, suppose that the firm
offers to pay G 3 percent on the loan. Clearly, G will not lend the
firm 20 ounces for a 3-percent return when he could get 5 percent as a
stockholder either in the same firm or in any other firm. On the other
hand, the firm is in no position to pay G any more than 5 percent,
since its net return on the investment will be only 5 percent. If the
maximum that the firm can pay in interest is 5 percent, and the minimum
that the creditor can accept is 5 percent, it is obvious that the
transaction will take place at 5 percent.
It is clear that, in essence, G, the creditor on the prospective loan
market, is no different from F, the man who has invested in stock. Both
have saved money instead of spending it on consumption, and both wish
to sell their saved capital in exchange for future goods and
to earn interest. The time-preference schedules of both F and
G, as well as of everyone else, are aggregated on the time market to
arrive at the rate of interest; both F and G are net savers at the
market rate. The interest rate, then, is determined by the various
time-preference schedules, and the final rate is set by the
saving schedules, on the one hand, and by the demand-for-present-goods
schedules, on the other. The demand schedules consist (and consist
only) of the productive demand by laborers and landowners and the
consumption demand by borrowing consumers. F and G are both
net savers, interested in investing their capital for the highest
return. There is no essential difference between F’s
method of investing his capital and G’s method of
investing his; the difference between investing in
stock and lending money to firms is mainly a technical one.
The separation between saving and investment that occurs in
the latter case is completely unimportant. The interest return
on investment, as set by total savings and total demands by owners of
factors, completely determines the rate of interest on the
producers’ loan market as well as the rate of
earning on stock. The producers’ loan market is totally
unimportant from the point of view of fundamental analysis; it is even
useless to try to construct demand and supply schedules for
this market, since its price is determined elsewhere.
Whether saved capital is
channeled into investments via stocks or via
loans is unimportant. The only difference is in the legal
technicalities. Indeed, even the legal difference between the creditor
and the owner is a negligible one. G’s loan has increased the
capital value of the assets in the firm from 130 to 150. The invested
150 pays 5 percent, or 7.5 ounces per year. Let us examine the
situation and see who the actual owners of this capital are (see Figure
53).
In this diagram, the left-hand rectangle represents assets at
any one point in time. We see in the right-hand rectangle that
130 ounces of these assets is represented by owners’ capital,
and 20 by liabilities—i.e., by I.O.U.’s due to
creditors. But what does this “representation”
mean? It means that if, for example, the firm were to liquidate and go
out of business, 20 ounces of its assets would be used to pay
off the creditors, and 130 would go to the legal owners. It means,
further, that of the seven and a half ounces paid out as net earnings
per year, six and a half ounces go to the legal owners and one ounce to
the creditors, each being 5 percent of their saving. In fact, each
group gets 5 percent on its investment, for are not
the creditors just as much investors as the stockholders? In fact, are
not the creditors the owners of 20
ounces’ worth of the firm’s assets, and do they not
own the pro rata earnings of those 20 ounces? What functions of
ownership do the creditors not have as compared to
the stockholders? Even from the legal point of view, the creditors get
first claim on the assets of a corporation, and they
get paid before the stockholders. They are therefore definitely owners
of these assets. It might be stated that since they are not
shareholders, they do not vote on the decisions of the corporation, but
there are many situations in which joint-stock companies issue
nonvoting shares, the holders of which do not vote
on company affairs, even though they receive their prorata value of the
earnings.
We must conclude that economically and even in basic law, there is no
difference between shareholders and productive creditors; both
are equally suppliers of capital, both receive interest return as
determined on the general time market, both own their proportionate
share of the company’s assets. The differences
between the two are only technical and semantic. It is true
that our discussion has so far applied only to the evenly rotating
economy, but we shall see that the real world of uncertainty
and entrepreneurship, while complicating matters, does not change the
essentials of our analysis.
In recent writings there has been a growing acknowledgment of the
essential identity between shareholders and creditors, in contrast to
the old tradition that postulated a sharp cleavage between
them. But it is curious that the new literature interprets the identity
in precisely the wrong way: instead of treating the creditors like
shareholder-owners, it treats the shareholders like creditors. In other
words, the correct approach is to consider creditors as actually part
owners of the firm; but the new literature treats stockholders
as merely creditors of the firm, in keeping with the new tradition of
picturing the hired managers as its real controllers and owners.
Managers are depicted as somehow owning the firm and paying out
interest to creditors, as well as dividends to stockholders, just as
any factor payment is made—as a grudging cost of production.
In reality, the managers are only the hired agents of the stockholders,
and it is the latter who decide how much of their earnings to reinvest
in the firm and how much to “take out of the firm”
in the form of “dividends.”
The commonly made distinction between “dividends”
and “retained earnings” is not a useful one for the
purposes of economic analysis. Retained earnings are not
necessarily reinvested; they may be held out of investment in a cash
balance and later paid out as dividends. Dividends, on the other hand,
are not necessarily spent on consumption; they may be invested in some
other firm. Therefore, this distinction is a misleading one.
Earnings are either reinvested or they are not; and all
corporate earnings constitute earnings of the individual
owners.
Savings may be channeled through intermediaries before
entering the actual producers’ loan (or the
consumers’ loan) market. Finding a
productive investment is one of the tasks of entrepreneurs,
and it is often far more convenient for all concerned when the
individual, instead of making up his mind himself on the proper
channels of investment, lends or invests his money in other
institutions specially set up to be experts in investment. These
institutions may serve as channels, gathering in the small savings of
isolated individuals, whose investments by themselves are too small to
be worth the cost of finding a market for them. The institutions then
invest the funds knowledgeably in larger lump sums. A typical example
is the investment trust, which sells its own stock
to individuals and then uses this capital to buy stock of other
companies. In the ERE, the interest that will be earned from
individuals’ savings via intermediaries will equal the
interest earned from direct investments minus the cost of the
intermediary’s service, this price to be determined on the
market just like other prices. Thus, if the interest rate throughout
the market is 5 percent, and the cost of intermediary service is 1
percent, then, in the ERE, those who channel their savings via the
convenient intermediary method will receive a 4-percent interest return
on the investment of their savings.
We have thus seen the unimportance of the producers’ loan
market as an independent determining factor in the
establishment of the market rate of interest or in the
productive system.
In many cases it is convenient to designate by different terms the rate
of interest on contractual loan markets and the rate of interest in the
form of earnings on investments as a result of price spreads. The
former we may call the contractual rate of interest
(where the interest is fixed at the time of making the contract), and
the latter the natural rate of interest (i.e., the
interest comes “naturally” via investments in
production processes, rather than being officially included in an
exchange contract). The two interest rates will, of course, coincide in
the ERE.
Throughout our analysis we have been making one underlying assumption
that might be modified: that individuals will always try to obtain the
highest interest return. It is on this basis that we have traced the
arbitrage actions and eventual uniformities of the ERE. We have assumed
that each investor will try to earn as much as he can from his
investment. This might not always be true, and critics of economics
have never tired of reproaching economists for neglecting other than
monetary ends. Economics does not neglect such ends, however. In fact,
praxeological analysis explicitly includes them. As we have
repeatedly pointed out, each individual attempts to maximize his psychic
income, and this will translate itself into maximizing his monetary
income only if other psychic ends are neutral. The ease with which
economics can accommodate nonmonetary ends may readily be seen. Suppose
that the interest rate in the society is 5 percent. Suppose, however,
that there is a line of production that is distasteful to a large
number of people, including investors. In a society, for example, where
the making of arms is held in disfavor, simple arbitrage would not work
to equate returns in the armament industry with those in other
industries. We are not here referring to the displeasure of consumers
of arms, which would, of course, reflect itself in a lowered demand for
the product. We are referring to the particular displeasure of
producers, specifically investors. Because of this psychic dislike,
investors will require a higher return in the armament industry than in
other industries. It is possible, for example, that they might require
an interest return of 10 percent in the armament industry, even though
the general rate of interest is 5 percent. What factors, then, will
have to pay for this increased discount? We are not overly anticipating
the results of our subsequent analysis if we state that the
owners of nonspecific factors, i.e., those factors
which can be employed elsewhere (or, strictly, the services
of which can thus be employed) will certainly not accept a lower
monetary return in the armament industry than in the other industries.
In the ERE, their prices as determined in this industry will, then, be
the same as in the other industries. In fact, they might be even
higher, if the owners share the investors’ specific
antipathy toward engaging in the armament industry. The burden
of the lower prices at each stage of production, then, falls
on the purely specific factors in the industry,
those which must be devoted to this industry if
they are to be in the production system at all. In the long run of the
ERE, these will not be capital goods, since capital goods always need
to be reproduced, and the equivalent resources can gradually or rapidly
leave the industry, depending in each case on the durability
of the capital good and the length of the process of its production.
The specific factor may be labor, but this is not empirically
likely, since labor is almost always a nonspecific factor that may
shift to several occupations. It is therefore likely to be specific land
factors that bear the brunt of the lower return.
The opposite will occur in the case of an industry that most investors
specifically are very eager to engage in for one reason or another. In
that case, they will accept a lower interest return in this production
process than in others. The force of competition on the market
will, once again, keep nonspecific factors at the same price from
industry to industry, although the price might be lower if the
factor-owners were also particularly eager to work in this industry.
The higher prices at the various stages are therefore reaped
by the owners of specific factors, generally land factors.
The rate of interest, then, always tends toward equality
throughout its various submarkets and in its various forms. In
the ERE, the rates will be uniformly equal throughout. This conclusion
must be modified, however, to state that the rates of interest will
differ in accordance with a “psychic” component,
either positive or negative, depending on whether there is an acute
dislike or liking among investors for a particular production process. We may say that,
in the case of a particular liking, the investors are
“consuming” the enjoyment of investing in the
particular process and paying the price of a lower return; in the case
of a particular dislike, they are charging more for a particular
disutility. It must be emphasized, however, that these differences in
return do not occur if merely one person
particularly likes or dislikes a certain field, but only if there is a
significant aggregate of strong preferences in one direction or
another. This type of consumption, positive or negative, is intertwined
in the production process and occurs directly with production,
and thus differs from ordinary consumption, which occurs at the end of
the production process.
10.
Forces Affecting Time Preferences
Praxeology can never furnish an ultimate explanation for a
man’s time preferences. These are psychologically determined
by each person and must therefore be taken, in the final analysis, as
data by economists. However, praxeological analysis can supply some
truths about time preferences, using ceteris paribus
assumptions. Thus, as we have seen above, each person has a
time-preference schedule relating to his money stock. A lower
money stock will cause a higher time-preference rate for any unit of
money remaining in his possession, until finally his time-preference
rate will rise to infinity when the money stock—or rather,
the money for consumption—is low enough. Here, one element, a
man’s money stock, is varied and his value scale is otherwise
assumed to remain constant. Hence, we can in this way gauge the effects
of a change in one determinant, the money stock.
Actually, it is not his money stock that is
relevant to his time preferences, but the real
value of his money stock. In the ERE, of course, where the purchasing
power of the money unit remains unchanged, the two are identical. Ceteris
paribus, an increase in his real income—real
additions to his money stock—will lower the time-preference
rate on his schedule. Of course, historically, there is no reason why
his time-preference schedule should remain
unchanged. It is important to know, however, that, given an
unchanged schedule, his relevant time-preference rate will
fall.
There are other elements that enter into the determination of the
time-preference schedules. Suppose, for example, that people were
certain that the world would end on a definite date in the near future.
What would happen to time preferences and to the rate of interest? Men
would then stop providing for future needs and stop investing in all
processes of production longer than the shortest. Future goods would
become almost valueless compared to present goods, time preferences for
present goods would zoom, and the pure interest rate would rise almost
to infinity. On the other hand, if people all became immortal and
healthy as a result of the discovery of some new drug, time preferences
would tend to be very much lower, there would be a great increase in
investment, and the pure rate of interest would fall sharply.
11.
The Time Structure of Interest Rates
It is clear that the natural interest rates are highly flexible; they
tend toward uniformity and are easily changed as
entrepreneurial expectations change. In the real world the
prices of the various factors and intermediate products, as well as of
the final products, are subject to continual fluctuation, as are the
prices of stock and the interest return on them. It is also clear that
the interest rate on short-term loans is easily changed with changed
conditions. As the natural interest rate changes, the new loans for
short periods can easily conform to the change.
A difficulty seems to arise, however, in the case of long-term
producers’ loans. Here is an apparently clear-cut rigid
element in the system, and one which can conform to the natural rate of
interest in investments only after a great lag. After all, a 20-year
loan is contracted at an original interest rate that remains fixed for
the duration; is this not a fixed element that cannot conform to
changing conditions and valuations? This superficial view is incorrect.
Long-term I.O.U.’s can also be bought and sold in a market.
Most of these long-term debts are called bonds, and
they are traded in a flourishing and flexible bond market. The fixed
rate of interest at the beginning is unimportant. Thus, a
100-ounce long-term loan is contracted at 5-percent fixed interest, or
five ounces per year. If the general interest rate rises, people will
tend to sell their bonds, which have been yielding them only 5
percent, and invest their money elsewhere—either in whole
firms, stocks of firms, or short-term loans. This increased willingness
to sell bonds—an increased supply
schedule—depresses the price of the bond
until the interest yield to the buyer is the same
as the general interest rate elsewhere. Thus, if the general interest
rate goes up from 5 percent to 10 percent, the price of the bond will
fall from 100 to 50, so that the fixed annual return of 5 will provide
an interest yield of 10 percent. The important element in bond
investment is not the original interest rate (the fixed return on the
so-called “par value” of the bond), but the
interest yield on the market price of the bond. A
general lowering of the interest rate will, on the other hand, raise
the bond prices above par and push yield below 5 percent. As the day of
redemption of the bond draws near, the market price of the bond will,
of course, rapidly approach the par value, until it finally sells at
par, since the amount redeemed will be the original par value, or
principal, of the loan.
It is clear that, in the ERE, the interest rates for all periods of
time will be equal. The tendency toward such
equality at any one time, however, has been disputed in the case of expected
future changes in the interest rate. Although surprisingly
little attention has been devoted to this subject, the prevailing
theory is that, on the loan market, there will not be a tendency toward
equalization if a change in interest rates is expected in the near
future.
Suppose that the interest
rate is now 5 percent, and it is expected to remain there.
Then the interest rate on loans of all maturities will be the same, 5
percent. Suppose, however, that the interest rate is expected to
increase steadily in the near future, say to increase each year by 1
percent until it will be 9 percent four years from now. In that case,
since the short-run rate (say the rate of interest on loans lasting one
year or less) is expected to increase over the next four-year period,
then the present long-run rate for that period—e.g., the
present rate for five-year loans—will be an average of the
expected future short-run rates during this period. Thus, the present
rate on five-year loans will be 5 percent plus 6 percent plus 7 percent
plus 8 percent plus 9 percent divided by 5, equaling 7 percent. The
long-run rate will be the average of short-run rates over the relevant
period. Consequently, the long-run rates will be
proportionately higher than short-run rates when the latter
are expected to increase, and lower when the latter are
expected to be lower. (See Figure 54.)
This, however, is a completely question-begging theory.
Suppose that a rise in interest rates is expected; why should
this be simply confined to a rise in the short-term rates?
Why should not the expectation be equally applicable to long-term rates
so that they rise as well?
The theory rests on the
quite untenable assumption that it sets out to prove, namely,
that there is no tendency for short-term and long-term rates
to be equal. The assumption that a change in the interest rate
will take place only over the short term is completely unproved and
goes against our demonstration that the short-run and long-run
rates tend to move together. Further, the theory rests on the
implicit assumption that individuals will be content to remain lenders
in “shorts” at 5 percent while their fellow
investors reap 7 percent on the long market, simply because they expect
that eventually, if they stay in the short market, they will earn an
average of 7 percent. What is there to prevent a
present lender in shorts from selling his currently earning
5-percent loan, purchasing a 7-percent long, waiting for the presumed
rise in shorts above 7 percent after two years, and then re-entering
the short market, earning 8 percent or 9 percent? If he does
this, he will not simply earn 7 percent as the foregoing diagram
postulates (either directly in longs or in an average of 5
percent–9 percent in shorts); he will earn 7 percent plus 7
percent plus 7 percent plus 8 percent plus 9 percent, or an annual
average of 7.6 percent. By striving to do so, he will set up an irresistible
arbitrage movement from shorts to longs, with the rate of interest in
the former thereby rising from the sales of loans on the market, and
the rate of interest in longs falling, until the rate of
interest is uniform throughout the time structure.
The same thing occurs in the case of an expectation of a future fall.
Longs cannot remain in equilibrium below shorts for any length of time,
since there will be a present movement from longs to shorts on the
market, until the rates of interest for all time structures are equal
and the arbitrage movement ceases.
The interest rate, then, always tends to be uniform throughout its time
structure. What happens if the interest rate is expected to change
in the near future? In that case, there will be a similar process as in
the case of speculation in commodities. Speculators will bid up the
interest rate in the expectation of an imminent rise or bid down the
rate in expectation of a fall. Clearly, the earlier a rise or fall is
expected to take place, the greater proportionately will be
the effect on the speculators, and the greater impact it will have on
current movement in the rate. In the case of a commodity, stocks would
be withheld in expectation of a rise in demand and price, and then
released, thereby effecting a more rapid transition to the price
eventually established by underlying supply-and-demand forces.
Similarly, in this case money will tend to be withheld from investments
and held in cash balances until the rate reaches its expected higher
level, or dislodged from cash balances and added to investment if the
rate of interest is expected to be lower. This action will speed up the
transition to the rate determined by the new alignment of basic time
preferences. Just as speculative errors in regard to commodity prices
cause losses and impel further change to the “real”
underlying price, so speculative errors will be self-correcting here
too and lead the rate of interest to the height determined by
underlying time preferences.
The time-structure diagram of interest, then, will rather tend to be as
depicted in Figure 55.
The absurdity of separating the long-run and the short-run interest
rates becomes evident when we realize that the basic interest rate is
the natural rate of interest on investments, not interest on the
producers’ loan market. We have already seen the
essential identity of the rate of earnings on the loan market
with that on the stock market. If we consider the stock market, it
becomes obvious that there is no distinction in rates between
short-run and long-run investments. Different firms engage in
stages of production of varying lengths; yet the stock market equates
the rate of interest on all investments, obliterating the differences
in time structure so thoroughly that it becomes difficult for many
writers to grasp the very concept of period of production. But since
the operations of the stock market and the loan market are essentially
the same, it is obvious that there is no difference in causal
explanation between short-run and long-run interest rates. Those
writers who postulate an essential difference between the nature of
long-run and short-run rates have been misled by a common penchant for
considering the time market as confined exclusively to the loan market,
when in fact the loan market is only a dependent one.
In actual practice, it may well happen that either the short-run loan
market or the long-run market may change first, with the other market
following. Which market characteristically changes first is the outcome
of the concrete conditions.
APPENDIX
SCHUMPETER AND THE ZERO RATE OF INTEREST
The late Professor Joseph Schumpeter pioneered a theory of interest
which holds that the rate of interest will be zero in the evenly
rotating economy. It should be clear from the above discussion why the
rate of interest (the pure rate of interest in the ERE) could never be
zero. It is determined by individual time preferences, which are all
positive. To maintain his position, Schumpeter was forced to assert, as
does Frank Knight, that capital maintains itself permanently in the
ERE. If there is no problem of maintenance, then there appears to be no
necessity for the payment of interest in order to maintain the capital
structure. This view, treated above, is apparently derived from the
static state of J.B. Clark and seems to follow purely by definition,
since the value of capital is maintained by definition in the ERE. But
this, of course, is no answer whatever; the important question is: How
is this constancy maintained? And the only answer can be that it is
maintained by the decisions of capitalists induced by a rate of
interest return. If the rate of interest paid were zero, complete
capital consumption would ensue.
The conclusive Mises-Robbins critique of Schumpeter’s theory
of the zero rate of interest, which we have tried to present above, has
been attacked by two of Schumpeter’s disciples.
First, they deny that
constancy of capital is assumed by definition in Schumpeter’s
ERE; instead it is “deduced from the conditions of the
system.” What are these conditions? There is, first, the
absence of uncertainty concerning the future. This, indeed,
would seem to be the condition for any ERE. But Clemence and Doody add:
“Neither is there time preference unless we introduce it as a
special assumption, in which case it may be either positive or negative
as we prefer, and there is nothing further to discuss.” With
such a view of time preference, there is indeed nothing to discuss. The
whole basis for pure interest, requiring interest payments, is time
preference, and if we casually assume that time preference is
either nonexistent or has no discernible influence, then it follows
very easily that the pure rate of interest is zero. The
authors’ “proof” simply consists of
ignoring the powerful, universal fact of time preference.
As Frank Fetter brilliantly stated:
Contract
[interest] is based on and tends to conform to economic interest [i.e.,
the “natural interest” price differential between
stages]. . . . It is economic interest that we seek to explain
logically through the economic nature of the goods. Contract interest
is a secondary problem—a business and legal
problem—as to who shall have the benefit of the income
arising with the possession of the goods. It is closely connected with
the question of ownership. (Fetter, “Recent Discussions of
the Capital Concept,” pp. 24–25)
“The creditor is always
a virtual partner of the debtor or a virtual owner of the pledged and
mortgaged property.” Mises, Human Action,
p. 536. Also see Fetter, “Recent
Discussions of the Capital Concept,” p. 432.
Similar psychic components may
occur in the consumers’ loan market—for example, if
there is general strong liking or dislike for a certain borrower.
Thus, cf. Friedrich A. Lutz,
“The Structure of Interest Rates” in Readings
in the Theory of Income Distribution, pp. 499–532.
Since the writing of this text,
Professor Luckett has published a critique of Lutz similar in part. See
Dudley G. Luckett, “Professor Lutz and the Structure of
Interest Rates,” Quarterly Journal of Economics,
February, 1959, pp. 131–44. Also see J.M.
Culbertson, “The Term Structure of Interest Rates,”
ibid., November, 1957, pp. 485–517.
It is remarkable that in his
empirical study of the time structure of interest rates, Charls Walker
found an irresistible tendency of interest rates to equalize, but was
forced to multiply his assumptions in order to try to demonstrate that
this was a proof of the theory that interest rates do not necessarily
equalize. Charls E. Walker, “Federal Reserve Policy and the
Structure of Interest Rates on Government Securities,” Quarterly
Journal of Economics, February, 1954, pp. 19–42.
Walker’s article has considerable merit in demonstrating the
impossibilities of governmental maintenance of a differential interest
pattern in the face of the market’s drive to equality. Cf.
Luckett, “Professor Lutz and the Structure of Interest
Rates,” p. 143 n.
See Mises,
Human Action, p. 541.
See Mises, Human
Action, pp. 527–29. Also see
Lionel Robbins, “On a Certain Ambiguity in the Conception of
Stationary Equilibrium” in Richard V. Clemence, ed., Readings
in Economic Analysis (Cambridge: Addison-Wesley Press, 1950),
I, 176ff.
Richard V. Clemence and Francis S.
Doody, The Schumpeterian System (Cambridge: Addison
Wesley Press, 1950), pp. 28–30.
As has been the case with all
theorists who have attempted to deny time preference, Clemence and
Doody hastily brush consumers’ loans
aside. As Frank A. Fetter pointed out years ago, only time preference
can integrate interest on consumers’ as well as on
producers’ loans into a single unified explanation.
Consumers’ loans are clearly unrelated to
“productivity” explanations of interest and are
obviously due to time preference. Cf. Clemence and Doody, The
Schumpeterian System, p. 29 n.
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