Time preference is the economist's assumption that a consumer will place a premium on enjoyment nearer in time over more remote enjoyment. A high time preference means a person wants to spend their money now and not save it, whereas a low time preference means a person might want to save their money as well.

The time preference that an individual exhibits at any given moment is determined by both their personal values and external circumstances. Thus, if one "prefers" to save his money but cannot do so in the present, he is still considered to have a high time preference. One of the factors that may determine an individual's time preference is how long that individual has lived. An older individual will generally have a lower time preference (relative to what he had earlier in life) due to a higher income and to the fact that he has had more time to acquire durable commodities (such as a college education or a house), though this trend may reverse upon retirement.

The time preference theory of interest is an attempt to explain interest through the demand for accelerated satisfaction. This is particularly important in microeconomics. Microeconomics is a branch of economics that studies how individuals, households, and firms make decisions to allocate limited resources [1] , typically in markets where goods or services are being bought and sold. ...

In the neoclassical theory of interest due to Irving Fisher, the interest rate determines the relative price of present and future consumption. Time preference, in conjunction with relative levels of present and future consumption, determines the marginal rate of substitution between present and future consumption. These two rates must necessarily be equal, and this equilibrium is brought about by the relative prices of present and future consumption. Neoclassical economics refers to a general approach (a metatheory) to economics based on supply and demand which depends on individuals (or any economic agent) operating rationally, each seeking to maximize their individual utility or profit by making choices based on available information. ... Irving Fisher (February 27, 1867 Saugerties, New York — April 29, 1947, New York) was an American economist, health campaigner, and eugenicist. ...

Austrian School views

The Austrian School sees time as the root of uncertainty within economics. The Austrian School, also known as “the Vienna School” and as “the Psychological School”, is a school of economic thought that advocates the adherence to strict methodological individualism. ...

In his book Capital and Interest, the Austrian economist Eugen von Böhm-Bawerk built upon the time-preference ideas of Carl Menger, insisting that there is always a difference in value between present goods and future goods of equal quality, quantity, and form. Furthermore, the value of future goods diminishes as the length of time necessary for their completion increases. Capital and Interest is a three-volume work on finance published by Austrian economist Eugen von Böhm-Bawerk. ... Eugen von Böhm-Bawerk Eugen von Böhm-Bawerk (February 12, 1851 – August 27, 1914) made important contributions to the development of Austrian economics. ... Austrian School economist Carl Menger Carl Menger Carl Menger (February 28, 1840 – February 26, 1921) was the founder of the Austrian School of economics. ...

Böhm-Bawerk cited three reasons for this difference in value. First of all, in a growing economy, the supply of goods will always be larger in the future than it is in the present. Secondly, people have a tendency to underestimate their future needs due to carelessness and shortsightedness. Finally entrepreneurs would rather initiate production with goods presently available, instead of waiting for future goods and delaying production. An entrepreneur (a loanword from French) is a person who undertakes and operates a new enterprise or venture and assumes some accountability for the inherent risks. ...

Hans-Hermann Hoppe elaborates on time-preference as a gauge of the degree of civilization of a given society in his book Democracy: The God That Failed. Laws in a society in violation of property rights increase time-preference, whereas a tradition of respect for property rights decreases time-preference. Hans-Hermann Hoppe Hans-Hermann Hoppe (nickname Triple H) (born September 2, 1949) is an Austrian school economist, an anarcho-capitalist (libertarian) philosopher, and a professor at the University of Nevada, Las Vegas. ... Democracy: The God That Failed is a book by Hans-Hermann Hoppe, containing a series of thirteen essays on the subject of democracy, and concluding with the belief that democracy is a sign of decivilization sweeping the world since World War I and that it must be delegitimized. ... // Use of the term The concept of property or ownership has no single or universally accepted definition. ...

See also

• Time value of money

The time value of money (TVM) is a necessary concept of finance that allows us to equate (PV) the value of a dollar now to a future dollar : the value of a discount bond. ...

External links

• Hoppe, Hans-Hermann, Democracy: The God That Failed (Transaction, 2001).
• Hoppe, Hans-Hermann, Marxist and Austrian Class Analysis p. 81ff, The Journal of Libertarian Studies, Vol, IX, No. 2 (Høst 1990).