• Unit 3: Time Preference

    The third unit focuses on Time Preference. Time preference is an important element of the Austrian School of Economics and is used to understand the relationship between savings, investment, and interest rates. Saifedean discusses the work of Bohm Bawerk, Mises, and Hoppe. You will explore Bohm Bawerk's Positive Theory of Capital and discover how interest rates are formed through the lens of human action. Following a discussion of Mises' criticism of Bohm Bawerk's work, we conclude the unit by introducing Hans Hermann Hoppe's work on time preference and discuss how it impacts our daily life and society as a whole.

    Completing this unit should take you approximately 2 hours.

    • Upon successful completion of this unit, you will be able to:

      • describe how money emerges from spontaneous order on the market;
      • explain why humans value present goods more than identical future goods;
      • differentiate between the productivity theories of interest and Bohm-Bawerk's Capital theory;
      • explain why humans inherently devalue goods in the future compared to the present;
      • express that interest rates emerge on their own because present goods are worth more than future goods; and
      • analyze the trade-offs between your present and future self and the important role this plays in life.

    • 3.1: Lecture

      • Lecture Page

        What is the time preference theory of interest rates? In Austrian economics, time preference theory explains interest rates based on people's spending preferences today versus in the future. In other words, time preference looks at how people value current consumption over future consumption. Some believe that consumers prefer future goods. For example, a person may crave ice in summer and not in the winter. In this situation, it is not the ice itself that is good and is being compared since the physical property of the ice does not change; rather, the satisfaction ice brings in different weathers.  In the video, Saifedean explains the concept of time preference and how it impacts all aspects of human life.

        Topics covered include:

        • Bohm Bawerk's Positive Theory of Capital
        • Time preference and how interest rates are formed
        • How time preference impacts your life and society
        • The importance of low time preference for prosperity in a society

        Key points:

        • Humans value present goods more than future goods
        • Interest rates form spontaneously from human action
        • Low time preference is crucial for prosperity in society
        • Trades between your present and future self are the most important trades in your life

    • 3.2: Discussion

      • Discussion Page

        Since you have watched the video lecture for unit 3, it's time to watch Saifedean moderate a discussion on the unit's theme by addressing questions asked by your fellow classmates. As you watch the discussion unfold, take notes to help you retain information. Make sure you watch the entire discussion seminar video; otherwise you may skip over important points. To get the best learning experience and mastery of the major concepts covered in this unit, you'll want to watch all videos in their entirety.

        Topics discussed include:

        • Hard money
        • Personal time preference
        • How banks create money through debt
        • Distinguishing between saving and investing