Comments on: Where do interest rates come from?

By: eric g

eric g — Fri, 24 Oct 2008 18:33:42 +0000

http://video.google.com/videoplay?docid=-9050474362583451279

youtube ‘where money comes from’

By: Dennis

Dennis — Tue, 06 Mar 2007 13:47:46 +0000

Michael,

My understanding is that Bohm-Bawerk, in “Capital and Interest” completely disproved, demolished the productivity theory of interest. But later in the same work, in addition to explaining (originary) interest with time preference, he also, inconsistently, used the productivity theory.

It remained for Fetter and Mises to consistently explain (originary) interest solely utilizing time preference.

By: Michael Woods

Michael Woods — Mon, 05 Mar 2007 10:28:46 +0000

I’m rereading Mises’s Human Action, and he has a throwaway commment on how Bohm-Bawerk proved the pure time-preference theory of interest… but having read BB’s Capital and Interest, I still see some ambiguity with regards to the marginal productivity of capital. Rothbard states that the orignary interest is solely derived from time-preference… so where does the marginal productivity of capital come into play? Would that also be one of the “additional factors” in going from originary interest to “market” interest?

By: Dennis

Dennis — Thu, 01 Mar 2007 08:01:50 +0000

I believe that when Mises, Fetter, and Rothbard refer to “interest” they are attempting to explain what Mises termed “originary” interest, which is solely determined by time preference, i.e., the higher valuation of present goods compared to future goods. Or in Mises own words from “Human Actionâ€:

“Originary interest is the ratio of the value assigned to want-satisfaction in the immediate future and the value assigned to want-satisfaction in remote periods of the future. It manifests itself in the market economy in the discount of future goods as against present goods. It is a ratio of commodity prices, not a price in itself.â€

Market rates of interest, which apply to specific credit transactions and which in economies characterized by indirect exchange are necessarily expressed in terms of money, can include an allowance for the risk estimated to be associated with the credit transaction.

By: Michael A. Clem

Michael A. Clem — Thu, 01 Mar 2007 05:24:22 +0000

I would agree, Nick, but it’s important to note that the market rate is an overall factor of the economy, while the premium based on risk factors is much more dependent upon the individual borrowers and loaners, and thus has no set or standard rate.

By: Nick Bradley

Nick Bradley — Thu, 01 Mar 2007 01:48:50 +0000

In a free market, interest rates are derived from (1) the time preference for money and (2) the risk involved in the loan, no?

Interest rates are the result of the owner’s willingness to part with his money, balanced by the recipient’s demand for money. The more likely the loan is to default, the higher the rate is.

By: David White

David White — Thu, 01 Mar 2007 00:49:42 +0000

Talk about lost. A distinguished analyst lays it on the line:

http://www.bullnotbull.com/archive/harry-2-2007.html

By: banker

banker — Wed, 28 Feb 2007 13:45:43 +0000

If only they taught this in school, people would not be so lossed when it comes to money matters. The basic premise is fairly simple. The problem now is that most people just quote Federal Reserve press releases when discussing about economic issues, even the so called economic experts.