From the Publisher January–February 2023

The value of time, i.e., time preference or the higher valuation of want-satisfaction in nearer periods of the future as against that in remoter periods, is an essential element in human action. It determines every choice and every action. There is no man for whom the difference between sooner and later does not count. The time element is instrumental in the formation of all prices of all commodities and services.
—Ludwig von Mises, Human Action

Mises’s great quote about time underscores one of the great axioms in economics: all things equal, we prefer present to future consumption.

Time is short, or at least it feels like it. Time is relentless and unyielding, and so we yield to it. We want stuff now, we want happiness now, we want that vacation or car or trinket now. This is simple human nature.

But we also have the capacity to plan and prepare for the future. This innate human desire to improve our material circumstances in the future is the driver of all economic growth, it drives capital accumulation and greater productivity.

Time explains so much. We know, for example, that people prefer buying their dream homes at age forty rather than ninety. We know “natural” interest rates must be positive because nobody would lend money for a period of years—with the attendant forbearance and risk of loss—only to be paid back less nominally.

And yet time is the missing ingredient in what we hesitate to call mainstream economics. Only Austrian economists truly stress the temporal element in human action. Time manifests inexorably: in our personal economic decisions, in interest rates, and in the very structure of production which brings us goods and services unimaginable to our grandparents.

At the heart of the structure of production is interest rates, which can only be understood relative to time. Our cover interview features Edward Chancellor, a writer and journalist who dedicated a long career both to understanding the various economic theories of interest and documenting how interest rates have worked across millennia.

The result is his marvelous new book, The Price of Time, praised by no less than our friend James Grant. I loved every page of it and learned quite a bit.

From the outset, the author frames the phenomenon of interest as rooted in Turgot’s proto-Austrian understanding of time preference. And like with all economic activity, there is always an insatiable political drive to control and shape interest rates.

Thus readers enjoy an opening vignette about an 1849 debate in the French assembly between Pierre-Joseph Proudhon and Frédéric Bastiat. Proudhon, echoing Marx, argued that charging interest on borrowed capital was nothing short of usury and theft. Bastiat countered that “time is the stuff of which life is made” and thus interest is “natural, just, and legitimate, but also useful and profitable, even to those who pay it.”

Proudhon’s arguments for a tax on capital (i.e., negative interest rates), a vast expansion of paper money to replace gold, and reduction of rates to near zero—all implemented by a nationalized “people’s bank”— certainly sound like modern central bankers today!

If you want to understand why natural, market-set interest rates are so important to a healthy society, and why manipulating them is so harmful, Mr. Chancellor’s book is indispensable. And as a bonus, you will find favorable treatment of Böhm-Bawerk, Mises, Hayek, and Rothbard!

Our Senior Fellow David Gordon is back with a review of Taxes Have Consequences: An Income Tax History of the United States, by Arthur Laffer. You may remember Laffer from his infamous “Laffer curve,” which demonstrated how tax collections increase when marginal rates are lowered to an optimal level. Laffer (and his two coauthors) is a supply-sider and disagrees with the Austrian monetary interpretation of the Great Depression. He identifies taxes, in particular the Smoot-Hawley Tariff passed by Herbert Hoover in 1930, as the real cause of that terrible economic downturn. Just as tax cuts in the early ’20s created roaring prosperity, Laffer argues, “huge, pangovernmental tax impositions” were the cause of the 1930s crisis. Laffer does not address business cycle theory, but he does correctly debunk the Keynesian claim that radical increases in government spending during World War II ended the Great Depression—when in fact the vast majority of Americans suffered a diminished standard of living during the war. But the book overall is a mixed bag, so David did the work of reading it for you!

As always, we thank you for your commitment to the Mises Institute and its mission. We wish you all the best for a happy and prosperous 2023.

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