It's my second time here, but I'm nevertheless excited and a bit nervous.
I would like, of course, to thank Professor Salerno, the director of this event and the
Mises Institute for providing me with this opportunity.
It's a great experience.
Browsing my presentation the other night, I said to myself, it looked better before.
But nevertheless, after having traveled for 20 hours or so to get to this point, you will
not be spared.
So my paper is entitled A Note on Two Ironious Ways of Defending the Pure Time Preference
Theory of Interest.
And the plan of my presentation is the following, after a few introductory remarks, I will just
go straight into those defenses that I previously thought were good, I used them quite a lot,
and now I am not so sure.
I would like to confess from the very beginning that I am a supporter of the pure time preference
of Interest, and of the time preference theory as such, as a praxeological theory.
So I'm very much interested in the toughest arguments to defend this theory.
And I think that lately, in the last decade, more or less, we have a track of papers that
might suggest papers that might suggest that we are in another round, so to speak, of this
debate on interest. How substantial, I don't know, we will just have to see. I might add
to that list of papers some recent papers by Professor Hulsman, which is, as opposed
He goes to his first article on interest in 2002, he's attacking, so to speak, the pure-time preference theory from the other end by judging the structure of production and showing that it can be thought in ways incompatible or at odds with the pure-time preference theory of interest, so the list is even longer than that.
And to my mind, the issue has tremendous consequences, because as I see things, one of the victims of, let's say, of a possible conclusion that the pure time preference theory of interest is wrong,
apart from capital, Austrian capital theory in general, would be the Austrian business cycle theory in its standard version, so to speak.
The temporal distortion, inter-temporal distortion of production, becomes way less significant if interest is underscored by other fundamentals.
So, the consequences are important.
You can even see some of these consequences in various ways of laying out the theory of the crisis,
crisis either in terms of inter-temporal distortion or in terms of moral hazard.
But more on that maybe in the question section, if it is the case.
A quick reminder, although that might not be necessary here, I'm sure it's not necessary
for time preference and I'm relying on Mises.
So first, Mises defines time preference as other things being equal satisfaction in a
nearer period of the future is preferred to satisfaction in a more distant future.
And he also defines time preference in terms of goods, present goods are more valuable
than future goods, so both satisfaction and goods, and he links directly with no problems
whatsoever interest to, time preference to interest, saying that time preference manifests
presents itself in the phenomenon of originary interest, which right on is the discount of
future goods as against present goods.
And he says that always and everywhere, all instances of interest are underspinned by
this fundamental aspect.
There would be one important issue, very important issue, but it is not crucial to my specific
argument today. Do we obtain significant differences if we judge the time preference in terms of
goods, future goods versus present goods, as opposed to satisfactions, future satisfactions
versus present satisfactions, because this seems to be quite an issue in a few of the
I will not get into this here, but after thinking a bit about it, my opinion, my take on it is that it's a fake issue, because at least for consumption goods, in the end it is the actual satisfaction that they provide that really counts.
So, making a distinction, a tough distinction between satisfactions and goods would push
us into some sort of a materialistic view of things.
So I think if we stick to the setter disparibus, to the other things equal assumption or way
of thinking, there is no difference between the two ways of laying out the theory of interest.
Although I know we could have quite a lot of debates here.
So let me proceed right on to the first defense
of the pure time preference theory of interest,
which I very much liked previously.
I thought this is the toughest way of defending
time preference as a praxeological category,
not just as a contingent element in human action.
And briefly put, the argument is a reductio ad absurdum, so let's suppose that we have the opposite of time preference, let's suppose we do not prefer always the present to the future.
And the immediate conclusion of this type of defense of the pure time preference theory of interest says,
well, then consumption would disappear, men would never consume, or in another variety, action altogether would just disappear.
Appear, so if you do not always prefer the present, it means you always prefer the future,
so therefore indefinite postponement, so just a standstill of a freezing of things.
And this would be the way I would defend it while presenting the problem to my students
and when I would debate with friends.
A very smart friend of mine, which is also my son-in-law, a bright mathematician, and
keen on these logical aspects, once said to me, you're not reasoning right, but first
let me show you some instances in which this argument is present.
First, the standard fragment from Mises.
I will just go to the main points, so Mises is trying to convey the idea that time preference
is a categorical requisite of human action, so it's always present in every action.
And the crux of the matter is he says not to prefer satisfaction in a nearer period
of the future, to that in a remote period he would never consume and so satisfy ones.
And he says in about three versions this in Human Action.
I also search from some equivalent assertions in terms of interest, not in terms of type
preference.
But I will not get into them here because they will take quite some time.
Rothbard also takes over this type of argument in defense, this deduction at absurdity.
If other things being equal, man did not prefer satisfaction in the present to that in the
future, he would never consume.
But never consuming is an absurdity, so on and so forth.
Professor de Soto also uses this argument, but then he uses it sticking with the broader
category of action, not only of consumption, this being an issue in itself, whether we
look at time preference in terms of consumption as a consumption-based principle or as an
action-based principle, important issue again, again I think not crucial to my specific argument.
And of course, Professor Block's way of conveying this same defense.
The only way to illustrate a lack or the opposite of time preference is never to act at all.
This would be the sharpest and more general way of putting it.
And of course, this possible topic of discussion, I will not get into it here.
Again, I think the defensible view of the pure time preference theory of action is the one who considers time preference as a category of action, not only of consumption, of all action.
And in this sense, Mises is a little bit misleading. It uses both concepts.
Now, my main problem with this is the following, as pointed by my bright son-in-law.
He said, let me try to put it more simply, you say you always prefer the present.
And when I ask you why, you try to make a reduction at absurdum.
If that were not so, then I would always prefer the future.
But he says this is just not right.
Because the negation of a universal proposition is not the other universal.
So if the negation of the proposition that all A's are B's is not that therefore if
this is not true all the B's should not be A, but just the particular sum, you have to
find some of the A's which are not the B's.
So, if we try to apply this to the time preference principle, the ever postponing of action is
not the expression of the opposite of time preference.
The opposite of time preference has to look somewhat different.
And I kept thinking about it, what is the opposite of time preference actually, okay?
Can we conceive what would it look like?
And okay, I'm on shaky grounds here, I just proposed to you this experiment in thinking.
I think that the logical opposite would be to try to think this to the end, other things
If things equal, present satisfaction is at least once or sometimes less valuable than future satisfaction.
If at least one time, for one small slot in time, we could think and then see in practice that men, for five minutes or for three minutes,
So, we could conceive men as preferring other things to equal the future satisfaction to the present one,
then we would have a falsification of the pure time preference, of the time preference principle.
But what, again, let's push the matter as far as possible.
If we try to think the opposite of time preference through the final logical conclusion, what does it look like?
And the only way I can think of it is we would have to devise a concept of conscious non-action,
which I think in the end can be argued that is contradictory.
It's self-contradictory if we judge it praxeologically.
And when I first thought of this idea, I would say, ah, that would be easy.
I think I will find textual evidence in Mises in no time.
Because my first impression was that Mises actually defines action as purposeful and
conscious behavior.
And that would just be it, if by definition, actions is conscious behavior, so you cannot
have conscious non-action.
Why do I say that we must have an interval, a small, at least a small interval of conscious
not action?
You would have to be conscious because your state would have to express preference, the
opposite of time preference, so you would have to be conscious.
But again, you would have to not be acting in that time interval because if you would
Act, like, so I want to eat the egg, the egg is my, one egg is my first need, and I just
want to postpone it, if I were to express the opposite of time preference, I cannot do
something else in the meantime, otherwise I would contradict the assumption that the
egg is my most important need, okay?
So I have to be conscious because it has to be preference, but I must not do anything
which will be qualified as action, because then what would be the purpose of that action
done in the meantime, so time preference would be still present there, in that instance of
action.
But Mises is not necessarily and straightforwardly helpful in this matter.
He seems to consider and define even action as conscious behavior, although he doesn't
do it directly, he considers action as purposeful behavior and he considers that conscious and
purposeful are pretty much one and the same.
But again, in some places he seems to allow for the existence of moments of conscious non-action.
Not straightforwardly of course, but when he says for instance that action is not simply
giving preference.
If you just say and think that you prefer sunshine instead of rain, that's not action.
He sometimes says the absence of action is not only the result of full satisfaction.
It can no less be the corollary of the inability to render things more satisfactory, like hopelessness.
So you could imagine a state of hopelessness which is not conscious, non-action, let's
say.
He sometimes speaks as if action is preceded by thinking.
So thinking is to deliberate beforehand over future action as if,
okay, maybe I'm too picky on him, I agree,
but he might suggest that first you think and then you act,
and then you have a previous period of thinking in which you're conscious
because you're thinking, but you might not be acting.
Nevertheless, he again has strong assertions pushing in the direction that man always acts.
So if the opposite of time preference never appears, then man must always act.
We have to have continuous action, continuous action.
And he has this sort of suggestions that the most passive type of behavior is still action
because you could at least interfere with the following course of events and you don't
do it.
Indulgence in a routine which could possibly be changed is action.
So then, to my mind, it's not clear what could not, what realistic state of a man could be qualified, of a conscious man, could be qualified as non-action.
Rothbard is way more straightforward on this. He's from the very beginning of the opinion that man must always act.
Okay, he's always in a position to improve his lot.
So, if I'm right then, admitting the possibility of the opposite of time preference,
we would have to admit the idea of conscious non-action which is contradictory.
and if OTP, if the opposite of time preference is indeed contradictory, then time preference is, let's say, praxeologically, logically established.
May I obtain two or three more minutes just to... okay, thank you, thank you very much.
The second erroneous defense, and I won't do justice to it in two minutes, but I will try just to present it,
is this idea, which I also used quite a lot, that in a sense, money interest proves or demonstrates or isolates time, pure time preference.
and the great book edited by Professor Herberner recently brings many good,
a treasure of good arguments in favor of the pure time preference of interest,
but I'm not convinced by this main, main, main point.
The crux of it is that the discount of future money relative to present money is interest
and determines the pure or time preference rate of interest.
The rate of interest reflecting pure time preference emerges in the exchange of present
money for future money.
The most complete way of conveying the argument is the second quote here because the moment
in time that a unit of money is held does not affect its usefulness.
Money serves as a common denominator in inter-temporal as well as present exchanges.
And then the exchange of present money for future money therefore isolates the time discount
of pure time preference factor and permits the emergence of a pure rate of interest.
And why I am not convinced.
The crux of the matter is that the argument implies that non-money goods always suffer
from the problem of timing, and money never suffers from the problem of timing, as I see
things.
And I will not get more into it, but to my mind, the main argument in favor of the idea
that money never suffers from the problem of timing is that that particular usefulness,
the use of as media of exchange is preserved through time.
And I think this is not satisfactory because I think I can think of this difference.
When do I need to have exchanges now or around my wife's birthday?
and I see that we might have a timing problem there too.
I stop here even though I didn't do justice
to this particular point.
Thank you very much.