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A Note on Two Erroneous Ways of Defending the Pure Time Preference Theory of Interest

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Tags Capital and Interest Theory

07/30/2014Mihai Vladimir TopanCristian Paun

Volume 16, No. 3 (Fall 2013)

The present paper aims at showing that two particular types of arguments in favor of the pure time preference theory of interest (PTPTI) are mistaken. First, the idea that the logical opposite of time reference consists in the proposition that, other things equal, one must always prefer the future (and that therefore one would never consume or act), is problematic. The negation of a universal affirmative proposition is not the universal negative, but the particular negative. Therefore, the opposite of time preference is rather the thesis that man at least once prefers the future, other things equal. This has to be proven absurd for time preference to be established as a praxeological (and not just as a fairly general empirically true) law. Second, it is here argued that the idea that the rate of interest as it emerges in the exchange of present money for future money simply reflects pure time preference is problematic. Money holding and spending is—like all other goods—affected by the problem of timing. Moreover, to say that pure interest is isolated by money interest which, in turn, is a composite magnitude which cannot be grasped unless one already operates with the concept of pure interest, is to argue in a circle.

Authors:

Contact Mihai Vladimir Topan

Mihai Vladimir Topan is Academic Vice President of the Ludwig von Mises Institute–Romania. He is also associate professor in the Department of International Business and Economics, Bucharest University of Economic Sciences and co-founder of Academia Privata .

Cristian Paun

Cristian Paun is executive director of Romanian Society for Economics and associate professor of international finance at the Department of International Business and Economics, Bucharest University of Economic Sciences.

Cite This Article

Topan, Vladimir Mihai and Cristian Paŭn. "A Note on Two Erroneous Ways of Defending the Pure Time Preference Theory of Interest." The Quarterly Journal of Austrian Economics 16, No. 3 (Fall 2013): 299–316.

 

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