The Pure Time-Preference Theory of Interest

by Jeffrey M. Herbener (Editor), Douglas E. French (Foreword), Murray N. Rothbard

It’s about time. Really! An entire book fleshing out the pure time-preference theory of interest has finally been assembled. The present crop of Keynesians play with interest rates believing they can create prosperity without a sound theoretical basis for how the market determines rates. It is the Austrian insight that present goods have a higher value than future goods, while the followers of Lord Keynes foolishly try to abolish human action.

Giants of the Austrian world have been assembled for the task, along with a fresh new introduction by Jeffrey Herbener. Rothbard, Mises, Garrison, Kirzner and Fetter systematically provide the underpinnings of a theory that, as Israel Kirzner writes, “for almost a century a particular theory of interest has been again and again discussed, refuted, defended, ignored, forgotten, and rediscovered; somehow it has managed to survive.”

Find out why!

From Douglas French’s foreward:

The following essays parse through the uniquely Austrian insight of the pure time-preference theory of interest, but more importantly go to the core of why modern central bank monetary engineering leaves the economy further from recovery while at the same time providing a Petri dish for speculation and malinvestment.

Genres: Economics

186 pages, Paperback

First published January 1, 2011

Reviews

[Parasuram Venkatesh · Rating 4 out of 5]

The Pure Time Preference Theory of Interest is a collection of essays on the titular subjected, collated and edited by the GOAT Jeff Herbener. In that respect, it is similar to the book Richard Ebeling edited, The Austrian Theory of the Trade Cycle. The essay by Kirzner is particularly enlightening amongst these, as it touches upon the intricacies of the Fisherian model and rhetorically demonstrates exactly why it is that the one-good model fails to capture the essence of the phenomenon of interest.

But the crowning jewel of the book is the lengthy introduction by Herbener himself, which provides a history of the theory as well as a response to critics of the PTPT. Capital and interest theory is a thorny topic, so I would highly recommend this book to anyone who wishes to pursue it further; reading the introductory essay itself is sufficient.

[Fábio Miguel Santos · Rating 5 out of 5]

Very insightful book on interest rate theory, a topic which continues to bewilder contemporary economists. This work represents a comprehensive treaty that helps elucidate so many of the faulty assumptions that account for the unsavoury monetary policy prescriptions we are currently observing. A mandatory read!

[Josh Schubert · Rating 5 out of 5]

Frank Fetter > Bohm Bawerk

[Zohair · Rating 4 out of 5]

I have been looking for a good explanation of interest. And the pure time preference theory does not disappoint. As always, the Austrian school goes to the logical root of the problem and explains how the phenomenon of pure time preference is both necessary and sufficient for interest. The book then details other theories of interest and highlights issues that leave those theories inferior to pure time preference, which seems to be rock solid.

The book is a bit hard to follow at times and I had to read sections twice to completely understand every detail. Definitely more of a scholarly work than a weekend read.