Interest rate is the effect, not the cause—at least in the evenly rotating economy ERE (ontologically). That is, the real income increase (in the sense of shifting of time preference schedule per se) doesn’t cause another round of saving—interest rates adjust immediately to reflect the shift of underlying time preferences in the economy, preventing recursive saving loops.
“Many economists have made the great mistake of believing that the interest rate determines the time-preference schedule and rate of savings, rather than vice versa.” – Murray Rothbard
“The intersection of the two curves—supply of present goods and demand for present goods—determines the equilibrium rate of interest—the rate of interest as it would tend to be in the evenly rotating economy. This pure rate of interest is determined solely by the time preferences of the individuals in the society, and by no other factor.” – Murray Rothbard
“It is this rate of interest that induces capitalists to save and invest present goods in productive factors.” – Murray Rothbard (p. 403)
Next:
- 13-5f1 You must evoke others to explain the interest rate
- 13-5g Do not confuse the effect for the cause—to explain the causality at play, you must explain what must have happened at first and what would have happened in the absence of change
Related:
- In reality
- The case on point: a man must consume—and in some cases his time preference will become infinite regardless of the rate of interest
- Price is also the effect—not the causedevelop
- Price is effect is most evident in barter
- 13-1a3a2e5.1 Money necessarily evokes prices in the past—in barter economy, this is not necessarily the case
- 13-1a3a2e7 Values (and also prices—to the extent that value scales can be ascertained only through them) are not concerned with the past
- 13-8a3 Money must evoke the past, but the demand for money lies in the future
- Yet price can be the cause—this note (i.e., 13-5f) is probably wrong (e.g., see 13-1a3.4 There are no objective or real costs that determine price)develop
- 3-1a4b3 Thomas Sowell - ‘Prices are important not because money is considered paramount but because prices are a fast and effective conveyor of information through a vast society in which fragmented knowledge must be coordinated.‘
- 10-2g3d1.1 Humans create their own cause
- 13-1a3a4a The actual market prices are the only ones that ever exist
- More precisely, knowledge can overdo preferences—because knowledge informs preferences:
- See Ludwig Lachmann Ch. III and VI
- Consumers’ spending does not induce capitalists to save and invest present goods in productive factors
- On saving
- Shift-of-curve ≠ Along-the-curve changes
- Recursive saving loop doesn’t happen because the rate of interest is the effect of time preferences (at least in the evenly rotating economy):revisit
“No, no, no revenue. Why would you go after revenue? If you go after revenue, people will start asking how much, and it will never be enough. The company that was 100x or the 1,000x becomes the 2x dog. But if you have you no revenue, you can say you pre revenue, your a potential pure play. It’s not about how much you earn. It’s about what you’re worth. And who’s worth the most? Companies that lose money. Pintrest, Snapchat, no revenue. Amazon has lost money for every fucking quarter for the last 20 fucking years and that Jeff Bezos is the king. No one wants to revenue.” – Russ Hanneman (Silicon Valley)
The Coastal Journal: “That line captures the market’s operating system for the past decade that followed 2009 recession. When interest rates were artificially low (0% for a decade plus), the price of time collapsed. Future cash flows didn’t get punished for being distant. Companies didn’t need to prove ROI because “tomorrow” was essentially free. Wall Street didn’t demand results. It sold potential pure plays to investors.”
Related:
- 3-1a4b4a Financial cycles ≠ Product cycles
- Artificially lowered interest rate malfunctions our ability to reason counterfactually, and will bring about malinvestment