In the realm of economics, the subject of interest rates, though predominantly settled within the framework of capitalism, continues to attract diverse perspectives and unorthodox views. In this essay, we embark on a comprehensive exploration of the multifaceted concept of interest rates, guided by the seminal work of Eugen von Böhm-Bawerk, “Capital and Interest” (1884). Our commitment to precision and an appreciation for the subtleties of economic theory underscores the rigor of our scholarly endeavor.

  1. Böhm-Bawerk’s Insights: The prevailing acceptance of interest rates as integral to capitalist economies has faced intermittent challenges. However, Eugen von Böhm-Bawerk’s perspective offers a departure from some unconventional views. His magnum opus posits that interest rates are not mere tools of exploitation but rather a natural outcome of human preferences—an essential element of economic choice transcending dissent.
  2. Dispelling Misconceptions: While it is uncommon for economists, including figures such as Yanis Varoufakis, to cast skepticism over interest rates, their unconventional views have found limited resonance within established economic circles. They argue that interest-bearing financial instruments perpetuate inequality by profiting from interest payments. However, Böhm-Bawerk’s work challenges these notions by highlighting the indispensability of financing and lending within a complex, modern economy.
  3. Understanding Interest Rates: The fundamental question arises: What exactly are interest rates? According to Böhm-Bawerk, interest rates emerge independently of exploitation, driven by the innate human tendency to value present goods more highly than future ones. In an economic climate marked by stagnation or decline, adversity affects everyone, regardless of demographic background.
  4. Time Preferences: Böhm-Bawerk’s theory centers around the concept of “time preferences,” asserting that individuals naturally place a higher value on present goods compared to identical future goods. This innate behavior inevitably results in positive interest rates—an urgency to acquire desired commodities, even at the cost of paying interest.
  5. Technological Progress and “Roundabout” Production: Böhm-Bawerk emphasizes the pivotal role of technological advancement and “roundabout” production processes. These intricate, indirect production methods, such as constructing factories for manufacturing goods rather than manual craftsmanship, facilitate heightened future productivity, validating the concept of interest rates.
  6. Striving for Economic Equilibrium: Inspired by Professor Robert Shiller’s insights, we explore Böhm-Bawerk’s endorsement of modest interest rates, typically ranging between 3-5%. This endorsement may stem from his vision of a well-balanced economy where the growth rate harmoniously aligns with the interest rate—a scenario where the present value of a commodity outweighs its future counterpart.
  7. The Gravity of Economic Inquiry: Economics is a serious and intricate science, shaping the destiny of nations through the decisions of individuals and institutions. Thus, we must approach economic theories with a deep sense of responsibility and an appreciation for the field’s subtleties.
  8. Caution in Literature Selection: While the pursuit of economic knowledge is commendable, discernment in choosing information sources is equally crucial. Yanis Varoufakis’ work “Talking to My Daughter About the Economy” simplifies economic concepts and overlooks the profound insights of economists like Böhm-Bawerk. As aspiring intellectuals, we must favor rigorous economic texts that challenge our thinking and broaden our horizons.
  9. Nurturing Intellectual Curiosity: Intellectual inquiry is an essential element of our educational journey, involving both the pursuit of knowledge and the quest for a deeper understanding of ideas shaping our world. Our exploration of interest rates exemplifies the depth and breadth of economic theory—a field rewarding diligence and a relentless commitment to uncovering hidden truths.
  10. The Scholarly Legacy: Economists like Eugen von Böhm-Bawerk remind us that economics delves beyond a mere discipline—it’s a profound exploration of human behavior and societal interactions. Through Böhm-Bawerk’s insights, we gain a deeper appreciation for the complexities of interest rates, reaffirming our dedication to rigorous intellectual inquiry.

In conclusion, our examination of interest rates transcends surface-level economics. Böhm-Bawerk’s contributions encourage us to embark on a profound quest for comprehension, marked by precision and an unwavering commitment to unraveling the layers of economic theory. As aspiring citizens, we bear the responsibility of upholding the seriousness and depth of economic inquiry.

More on Eugen Ritter von Böhm-Bawerk:

  1. Böhm-Bawerk’s Critique of the Exploitation Theory of Interest
  2. Capital and Interest: A Critical History of Economical Theory
  3. Eugen von Böhm-Bawerk: Capital, Interest, and Time
  4. Bohm-Bawerk’s Theory of Interest: The Depoliticization of Political Economy?
  5. Eugen von Böhm-Bawerk on the Econlib
  6. Boehm-Bawerk’s Theory of Capital

Originally published on LinkedIn: This article was originally published on LinkedIn on September 26, 2023. In the article, I discuss my ideas on the Interest Rates with a glimpse on Marxist ideas. I encourage you to read the original article for more information and insights, and to connect with me on LinkedIn to continue the conversation.