Prague Economic Papers 2016, 25(2):203-220 | DOI: 10.18267/j.pep.555

Fisher and Mises on Zero Interest: A Reconsideration

Pavel Potužák
Department of Economics, University of Economics Prague, Czech Republic (pavel.potuzak@vse.cz).

This article demonstrates that the pure time-preference theory of Ludwig von Mises is inconsistent. A productivity element is studied in the Fisher model, and it is shown that time preference is neither a necessary nor a sufficient condition for the existence of interest. An attempt is also made to reconcile the Austrian theory with the neoclassical theory of interest. It is suggested that the key difference lies in the definition of interest as such, and it is concluded that the Austrian theory is only a special case of a more general neoclassical framework.

Keywords: zero lower bound, time-preference theory, theory of interest, productivity of capital, Mises, Fisher
JEL classification: B25, B53, E43

Published: January 1, 2016  Show citation

ACS AIP APA ASA Harvard Chicago IEEE ISO690 MLA NLM Turabian Vancouver
Potužák, P. (2016). Fisher and Mises on Zero Interest: A Reconsideration. Prague Economic Papers25(2), 203-220. doi: 10.18267/j.pep.555
Download citation

References

  1. Böhm-Bawerk, E. von [1884] (1890). Capital and Interest. New York: McMillan and Co.
  2. Böhm-Bawerk, E. von [1888] (1891). Positive Theory of Capital. New York: G. E. Stechert & Co.
  3. Block, W. (1978). The Negative Interest Rate: Toward a Taxonomic Critique. Journal of Libertarian Studies, 2(2), 121-124.
  4. Brown, H. G. (1913). The Marginal Productivity versus the Impatience Theory of Interest. The Quarterly Journal of Economics, 27(4), 630-50. Go to original source...
  5. Cwik, P. (2004). A Defense of the Traditional Austrian Theory of Interest. Mimeo. [2014-8-22] Dostupné z: https://mises.org/journals/scholar/cwik.pdf
  6. Fisher, I. (1930). Theory of Interest. New York: The Macmillan Company.
  7. Garrison, R. W. (1979). In Defence of the Misesian Theory of Interest. Journal of Libertarian Studies, 3(2), 141-150.
  8. Garrison, R. W. [1988] (2011). Professor Rothbard and the Theory of Interest, in Herbener, J. M., ed., The Pure Time-Preference Theory of Interest. Auburn, AL: Ludwig von Mises Institute, pp. 159-72.
  9. Ghez, G., Becker, G. S. (1975). A Theory of the Allocation of Time and Goods over the Life Cycle. NBER Chapters, National Bureau of Economic Research, pp. 1-45.
  10. Hayek, F. A. von [1927] (1984). On the Problem of the Theory of Interest, in McCloughry, R. K., ed., Money, Capital and Fluctuations: Early Essays. Chicago, IL: Chicago University Press, pp. 55-70. Go to original source...
  11. Hayek, F. A. von (1941). The Pure Theory of Capital, Chicago, IL: Chicago University Press.
  12. Herbener, J. M. (2011). Introduction, in Herbener, J. M., ed., The Pure Time-Preference Theory of Interest. Auburn, AL: Ludwig von Mises Institute, pp. 11-58.
  13. Herbener, J. M. (2013). Comment on 'A Note on Two Erroneous Ways of Defending the PTPT of Interest'. The Quarterly Journal of Austrian Economics, 16(3), pp. 317-330.
  14. Hülsmann, J. G. (2002). A Theory of Interest. The Quarterly Journal of Austrian Economics, 5(4), 77-110. DOI: 10.1007/s12113-002-1007-6. Go to original source...
  15. Kirzner, I. [1993] (2011). The Pure Time-Preference Theory of Interest: An Attempt at Clarification, in Herbener, J. M., ed., The Pure Time-Preference Theory of Interest. Auburn, AL: Ludwig von Mises Institute, pp. 99-126.
  16. Knight, F. H. (1941). Professor Mises and the Theory of Capital. Economica, 8(32), 409-27. DOI: 10.2307/2550107. Go to original source...
  17. Lewin, P. (1997). Murray Rothbard on Interest and Capital: An Exercise in Theoretical Purity. Journal of the History of Economic Thought, 19(1), 141-59. DOI: 10.1017/s1053837200004727. Go to original source...
  18. Mises, L. von [1949] (1996). Human Action: A Treatise on Economics. 4th Ed. San Francisco: Fox & Wilkes.
  19. Murphy, R. P. (2003). Unanticipated Intertemporal Change in Theories of Interest. PhD. Thesis, New York University.
  20. Olson, M., Bailey, M. J. (1981). Positive Time Preference. Journal of Political Economy, 89(1), 1-25. DOI: 10.1086/260947. Go to original source...
  21. Phelps, E. S. (1961). The Golden Rule of Accumulation: A Fable for Growthmen. The American Economic Review, 51(4), 638-643.
  22. Phelps, E. S. (1965). Second Essay on the Golden Rule of Accumulation. The American Economic Review, 55(4), 793-814.
  23. Rothbard, M. N. [1962] (2004). Man, Economy, and State. Auburn, AL: Ludwig von Mises Institute.
  24. Seager, H. R. (1912). The Impatience Theory of Interest. The American Economic Review, 2(4), 834-51.
  25. Topan, M. V., Păun, C. (2013). A Note on Two Erroneous Ways of Defending the Pure Time
  26. Preference Theory of Interest. The Quarterly Journal of Austrian Economics, 16(3), 299-316.

This is an open access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY NC ND 4.0), which permits non-comercial use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.