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In the neoclassical theory of interest due to Irving Fisher, the rate of time preference is usually taken as a parameter in an individual's utility function which captures the trade off between consumption today and consumption in the future, and is thus exogenous and subjective. It is also the underlying determinant of the real rate of interest.
Fetter believed in the subjective theory of value, and thus supported a pure time preference theory of interest. Richard Ebeling wrote that Fetter "constructed a consistent theory of value, price, cost, and production in the context of emphasizing the time-valuational element in all consumption and production choices."
Time value of money problems involve the net value of cash flows at different points in time. In a typical case, the variables might be: a balance (the real or nominal value of a debt or a financial asset in terms of monetary units), a periodic rate of interest, the number of periods, and a series of cash flows. (In the case of a debt, cas
Capital and Interest (German: Kapital und Kapitalzins) is a three-volume work on finance published by Austrian economist Eugen Böhm von Bawerk (1851–1914). The first two volumes were published in the 1880s when he was teaching at the University of Innsbruck .
Exponential discounting yields time-consistent preferences. Exponential discounting and, more generally, time-consistent preferences are often assumed in rational choice theory, since they imply that all of a decision-maker's selves will agree with the choices made by each self. Any decision that the individual makes for himself in advance will ...
The General Theory is a sustained attack on the classical economics orthodoxy of its time. It introduced the concepts of the consumption function, the principle of effective demand and liquidity preference, and gave new prominence to the multiplier and the marginal efficiency of capital.
In macroeconomics, the Keynes–Ramsey rule is a necessary condition for the optimality of intertemporal consumption choice. [1] Usually it is expressed as a differential equation relating the rate of change of consumption with interest rates, time preference, and (intertemporal) elasticity of substitution.
Mr Keynes and the "Classics" was first published in Econometrica (April 1937) [3] and reprinted in 'Critical essays in monetary theory' (1967) and again in 'Money, interest and wages' (1982), this time with a prefatory note. Several of Hicks's other papers deal with the same subject.