 You may remember yesterday in our time together we talked about the economic theory of price and we showed that the determination of price is based upon preferences that people have and then demonstrate and making bids to buy things and making offers to sell things and how in markets we get the clearing of the market and the efficient or economizing allocation of consumer goods and producer goods. You also learned about the the same approach of pricing with respect to money in the lecture given by Dr. Sandy Klein where she explained how the purchasing power of money is determined in the same way by this process of preferences and voluntary exchange and so on. Now all of these prices that we talked about yesterday then the prices of consumer goods, producer goods and money were what Murray Rothbard would call cash transaction prices by which he means that the two parties engaged in the trade fulfill their obligation in the trade at the same moment in time so there isn't any inter-temporal dimension to these prices. So what we want to do in our time together today is talk about the inter-temporal price of money. What happens in pricing when one party in the exchange fulfills his or her obligation in the exchange sooner and the other party fulfills his or her obligation later and so here we get the inter-temporal aspect of action. Now in order to assess this or to think about the inter-temporal nature of pricing we need to set it in the broader context of time in human action more generally and so that's where we'll begin. We'll start with some fundamental principles of time or the temporal aspect of human action and then we'll move to a brief description of the two different ways in which persons value their action with respect to time and the first of these Joe Salerno likes to call time placement and this refers to the timing of action or what we talked about again yesterday the chronological aspect of action so yesterday we talked about the logic of action but now we can talk about chronology when our actions taken is this begin just haphazard or is there an economizing structure to decisions that people make about the timing of actions so we'll deal with that briefly but that consideration has nothing to do with the interest rate which is our main topic right this has to do with the second way in which people value their actions with respect to time which I've already mentioned is the inter-temporal aspect what happens when they start an action sooner and end it later than what you know how is economizing done with respect to the inter-temporal dimension and then and then we'll get to the theory of interest once we have all of that as background so to begin let me again refer to what we talked about on Monday there we focused on the finitude of the human condition that were finite beings in a finite world and as such we distinguish between ends and means and then given that basic distinction we worked out the the various relationships between means consumer goods and producer goods and the the process of valuing and imputing value and then pricing and so on and so forth with respect to that aspect of human life and what we want to do today and thinking of the inter-temporal aspect is to of course focus on the fact that we're temporal beings that we exist in the stream of time and therefore time is an ever-present consideration for us when we think about our actions and its temporal beings we the basic distinction we make is between sooner and later and so everything is built upon that particular distinction just like everything we talked about on Monday was built upon the distinction we make as finite beings between ends and means now some of the basic principles with respect to sooner and later we've already seen a little bit and I'll just mention those first and then we'll get to the main part that we need to focus on we know that action always exists in a sequence of steps so it's always started at one moment in time we begin an action let's say we want to produce an automobile and then have the automobile as a consumer good we start by mining iron out of the ground and then producing steel and then right and then forming parts for the car and then assembling the parts and so on and so forth and then we have the car and then we use it and so on you know through time and so this is what we're pointing out that every action always has the same inter-temporal structure to it we start the process of production we decide yes we're going to act in this respect and then we start the process of production and then we produce the consumer good and then we begin to use the consumer good to satisfy our ends and this is this implies then some of the things that were talked about yesterday for example Dr. Peter Klein talked about entrepreneurship and entrepreneurship of course is centered around the fact that the future is uncertain when we make decisions about action but the but the reason the future is uncertain when we make the decision to act is because as temporal beings that are finite we don't know and can't perfectly predict the future stream of events we can only anticipate how the realization of our end will work out at the moment that we're deciding to act in a particular way and so you've already been introduced a little bit into this question of the temporal nature of things but what we want to focus on is a different aspect and this is the duration of action so every action has a duration it has a beginning point and an ending point and of course this duration is always set within the stream of time at a particular point and so there's always the time before an action begins and then the time during an action again from the start of the process of production to the end of the usefulness of the consumer good in generating its services and then there's the time after action so this is the you know a general categorical structure of the duration of action and the duration of action I've been speaking about already these two parts but we can break the duration of action always into these two parts right the period of production the time from the start of action to the beginning of the attainment of the end is the period of production and the period of production has further subdivisions like working time so I mentioned this again with an automobile if you want to produce an automobile you have to extract rubber out of rubber trees and then to go through this process of producing the rubber and then forming it into tires and then once you have the tires you ship them to the auto plant and then you assemble the tires onto the other parts of the car so on right you have this period of you have working time as a period of production and with an automobile you also have maturing time because the body parts will be painted and once they're painted the paint has to cure and there you're just sitting there right twiddling your thumbs while the paint cures now it is true that in human action the the economizing investments will be made to adjust these processes of production right we can we can lengthen them out or shorten them you can auto entrepreneurs can you know use technology that where the curing process is shorter right they can have capital goods that that cure the paint faster or something like this right so the point is that these processes these time periods and processes within them are subject to human choice they're subject to economizing and so but there's always a period of production right and it always at least in principle has these subcomponents and then there's a duration of serviceableness of the consumer good and some consumer goods of course are perishable you get a you get a you know burrito at hothead burrito and eat it and that's it you get a car and it lasts for 10 years or whatever right and so when once again these durations of serviceableness will be structured by entrepreneurs in a way that is economizing the way that people prefer right though they'll try out different configurations more durable less durable automobiles or houses or whatever it is and and with it with an attempt to satisfy more fully the preferences consumers have for this aspect of of a good whether it's more or less durable and then the other thing to notice about duration is that not only are these component parts of the duration of an action subject to human choice and therefore economizing so is the time placement of the action itself and and that's what we want to turn our attention to here let's say we have this timeline the timeline from the left to the right and the action any particular action can be placed in this timeline according to whether or not the value of the action would be greater at one moment in time as opposed to another so let me just use this example my wife and I will be celebrating our 40th wedding anniversary on November 17 1983 so so those those very appropriate applause go only to my wife you know she had me to put up with me all these years so but 40 years and so you know it's it's possible for us as human persons my wife and I to agree to you know celebrate our 40th anniversary tomorrow that like the left side of the timeline right we could do it any day of the year but it's going to be more valuable to us if we do it on November 17th that's just an illustration of exactly what we're speaking about this this is a general principle then of any action any action could have a different value depending upon we the time that a person chooses to take it and as Mises like to put this time is an irreversible flux that is the moments of time are not homogeneous with respect to action because as the moments in time progress on the timeline they they entail different circumstances in which action could be taken and therefore the action could have different value or costs associated with it in these different moments in time right just like my celebration with my wife of of our wedding anniversary so this again is a generalizable generalizable principle about about action and so what we try to do of course then is economize with respect to this fact this you know realistic fact about action we take this into account right so when it's appropriate we we would we would have a time placement of our action at that moment in time we would start the action and stop it at the moment in time or across the moments in time when we think the value of it would be enhanced or again the costs would be lowered now if this is true for action itself it's also true for the goods that could be used in the action right and so there's a time placement of goods as well that follows out from the time place time placement of the action itself so the value of a good can vary the same exact good right could vary depending on when it's applied in action and of course if that's true then again the persons who possess these goods will pay attention to that fact and take into account you know having the good at the moment you know or providing it at the moment in the market when its value is the highest think of a case like oil so we have you know spot prices for oil and we have forward prices for oil and their entrepreneurs who are producing and refining oil and so on are interested in anticipating what the price of oil will be in a month or two months or six months or you know with these future dates because it will impact their their profitability of their operations and so obviously it follows out then that as a condom minding condomizing human beings these traders would be interested in making exchanges that reflect that right and these exchanges are called forward transactions and forward transactions are just when the two parties making the exchange agree to make the exchange at some date at the future you know the future date at which they agree on the delivery of the good and the price and you'll notice that this exchange is still a cash transaction this is not an intertemporal exchange one party isn't fulfilling obligations under contract sooner and another later they're agree instead of doing the cash contract today in what's called the spot market they agree to do a cash transaction at some future date six months from today three months from today something like that and if the forward price is you know significantly higher for oil than the spot price today then there can be a better allocation into different temporal moments of oil oil could be reallocated from the present where the price is low to the future date where the price is higher and as that happens the prices will come together and so this is just the arbitraging activity that we see across people and across places and now across time right this consideration has nothing to do with the interest rate right we're just sort of setting the stage for discussing this sometimes people conflate these but they're actually conceptually quite separable elements so let's turn to the consideration of the interest rate oh I'm sorry we got the as I mentioned the forward price material that that I already mentioned so we get this efficient we might call this temporal allocation right this efficient time placement allocation of some particular good as opposed to just you know using it willy-nilly with respect to when it will be used so then we move on to the question of the interest rate and here we're talking about not time placement as a way of valuing our action with respect to time but what economists call time preference and time preference is referring to this intertemporal dimension and it works in the following way suppose we have an action now in the timeline that's already placed in its economizing time placement it's already the start and the stop is where the person wants to do the action in time so we've set that consideration aside so the action now is where the it's economized getting its greatest value with respect to that starting point and that stopping point time preference then refers to what happens within the duration it doesn't it isn't talking about what happens in placing the duration in one point or another and what what the consideration is so we have this fixed place time placement and we see the two parts of the action the period of production and the duration of serviceableness what what time preference refers to then is the preference to begin the satisfaction the duration of serviceableness part it's a preference to begin that part closer to the start of the action there is always a conceptual preference to shrink the period of production because the period of production with respect to time is again just waiting time we're just we're going through this process of production we're no no satisfaction is coming to us we don't have the car yet we don't have the you know the the experience of going going out and having a nice meal on my wedding anniversary we don't we don't have that yet we're just in the preparatory part right the production part and with respect to time this is just this is just waiting and as Mises likes to put it we as temporal beings have a disutility of waiting we don't that's just just waste right to wait we prefer in other words to if this is again a production of an automobile let's say we prefer to just shrink that period of production so that we just snap our fingers and have the car right we don't have to go through the mining and the extraction and production of intermediate goods and all that all that rigmarole it would be better if we could just boom have the car right shrinking the period of production and bringing the duration of serviceableness closer to the start of action now again you can see the way the diagram exposes this you could see that whether or not there's a time placement element in when the action starts or stops we've already settled that issue right so suppose in other words that the duration of servo service ableness this person has said they want the duration of service service ableness to start at the point in where the middle bar is the middle blue bar is they want that moment to for the good to be in their hands and for whatever reason that that's preferred well then time preference means the start of the action we prefer to be closer moved to the right towards that middle bar right but what what would happen if the start of the action is preferred at the left hand side where it says start well then we would prefer the the middle bar to be moved to the left toward the start of the action right you see these are two separate aspects of action time preference and time placement they're not intertwined conceptually okay so there's this disutility of waiting now that's the background most of the time when you see in the literature a discussion of time preference you'll see it defined this way which is perfectly fine if you understand this background is perfectly fine way to put it right so time preference is often defined this way the satisfaction some particular satisfaction is preferred sooner as opposed to the same satisfaction later that's the way time preference is usually defined and that's perfectly okay to define it that way again as long as you're not conflating that with time placement which could be done right if you're you know if you just see this statement it could be that you would conflate the two but again that it's quite clear in Mises's writing that these two things are entirely distinct now another thing to mention about time preference is something we mentioned about preference yesterday this is a logical category of action this is apodictic it's essential there isn't any possible action that finite beings can take in the face of the scarcity of means it doesn't involve preference preferring one thing to another choosing and preferring one thing to another with temporal beings there isn't any possibility that we could ever engage in action that has this significant temporal dimension without making a distinction between sooner and later and therefore having time preference right when we talk about preference we're not talking about as dr. Hoppe put it on Sunday night we're not talking about the empirical magnitude of how people experience the intensity of their preference or the intensity of their time preference we're not speaking about that right that's an empirical question that will vary from one person to another and you know for one person at different moments in time they'll have different degrees of time preference or preference for one thing and as opposed to another and so on that's not we're talking about we're speaking about the theory of the framework conceptual framework within which we're trying to understand action as a general category right so we don't want to conflate time preference with the idea that you know this is like the impatience of waiting psychologically the impatience of waiting is just referring to the intensity of a person's time preference if a person's impatient they may have higher time preference rates than a person who's not impatient but a person who's patient still has time preference because it's a requisite category of all intertemporal action so that that's something to consider as we think about this now there's a couple of implications that we can draw out of this definition this concept of time preference and you'll see some of this in the in the lectures following out today especially about capital and the business cycle things like this and the first of these is the intertemporal production choices so we have alluded to this already right that as human beings we can have different links of production processes we can extend production processes out in further out in time or we can shrink them and again it's another fact of reality about the human condition that the very shortest periods of production that we can engage in as finite beings do not satisfy very many of our ends because the shortest production processes we can imagine are just immediate extraction of a consumer good out of nature you pick berries off a bush or you right you gather apples under an apple tree and eat them and well okay so not too many of our desires or our ends can be satisfied in this way but time preference means then that as we begin to lengthen out production processes it must be the case that we're anticipating that they'll produce either more goods for us or goods that we cannot produce by mere extraction out of nature like an automobile right or a computer obviously we can't produce with a with extremely short production processes and so the idea of time preferences it's our time preferences that regulate the extent to which we're willing to engage in longer production processes remember in that period of duration of the action in order to get something more valuable a consumer good that's more valuable to us you know after the period of production so we are we are willing to engage in longer production processes as long as the payoff in terms of the duration of service about me right the consumption services that we get from the consumer good are worth it to us but they have to overcome our time preferences and so we don't immediately start to engage in the longest possible production processes right after the fall of Rome people you know in in the outlying areas of the old Roman Empire didn't immediately begin to try to produce computers right or right or you know some some production process that would take them a long period of time no no they just they just engage in you know production processes are feasible for them and then we progress slowly over time as a as a civilization we we progress to the point you know building on the capital structure that's built up by our previous generations into these longer and longer production processes that give us more and more valuable consumer goods in the end so that's one consideration and hopefully you can see right away that this will have a great impact on the question of the business cycle so in the business cycle the the basic problem is credit expansion through monetary inflation of the central banking system and fraction reserve banks extends the length of the capital structure in a way that's unsustainable because it's not consistent with time preferences and the underlying rate of interest that will eventually be reasserted by people as they trade in markets and then and then of course the other thing that we want to focus on now is the rate of interest and here again there there's some nuances and so we have to be careful to proceed in a way that's expository of you know exactly what the arguments are and so we talk about the pure rate of interest and the pure rate of interest is as I got on the slide it's the time preference premium of present money over future money this is the pure rate of interest and the pure rate of interest as we'll show in just a minute is based upon nothing but time preference we're not saying that that's the only consideration people need to make in discussing the value of money in their hand versus money the prospect of money in some future period it's not the only consideration but it's the fundamental one and so we start here and then we'll build a few toward the end of our time together we'll build a few other considerations in into this so the pure rate of interest follows out from time preference present money allows the period of production to be shortened so you know the classic example of this is you get married you're newlyweds you're earning some income but you're living in a rental apartment and you want to buy a house well you could just you could cut back your expenditures relative to your income and you could save 10 years later you can have the fun to buy a house you could do that or you could borrow the money and if you borrow the money the period of production is shortened by 10 years right and that's why people do it they borrow the money and then they and then they pay principal plus interest back over this time because because they want to shift the the duration of serviceableness closer to them closer to the start of this action so so this is again a generalizable principle of of intertemporal activity in in human life and in this way we get the efficient by doing this by lending and borrowing we get the efficient intertemporal allocation of goods these potential homeowner is willing to pay the interest in order to get the present money and whoever the lender is is willing to accept the future money payoff which is larger than the present money in order to part with their sooner consumption activity right they're giving up their funding and so it's mutually advantageous trade generates this more efficient allocation of the funding away from those who value it less relative to future money towards those who value it more with respect to present gratification right present goods that they could use to satisfy their ends okay so that gets us to the argument itself the the economic theory itself and I juxtapose the the bottom row where we're talking about the argument with respect to time preference against the top row which we talked about on Monday remember on Monday I have this this bigger schematic where we had the illustration of price theory from consumer goods down to producer goods well this is just the top three rows of that previous chart that I have now on one row at the top right it's just that the argument is that what fundamentally determines prices of consumer goods is just our preferences we just have we just have different preferences for things you know we possess certain goods and then some people wish to acquire these goods and willing to pay prices that the people who possess the goods are willing to accept an exchange and then we get the market and we get market clearing prices and so on and so forth but the whole thing is is resolves back into just our subjective valuations of the ends that we can attain through these two different possibilities right I own a good and I can attain certain ends with it but if I sell it I can get money and then I can use the money to attain other ends that I value more highly when I sell the good right or vice versa if I buy the good if I buy the good I'm surrendering ends that I could attain with the money but I'm acquiring the ends that I can attain with the good and I value those ends more than the ones given up and so that's the argument right it's exactly the same with time preference exactly the same structure it's just that now what's being traded as present money for future money as we suggested already we just have those who are demanding to acquire present money in exchange for paying future money and those who are willing to supply the present money to the demanders their lenders who are willing to lend to the borrowers and who are willing to accept the future money which will be of greater amount right because of the interest payment in exchange for giving up the present money why do they do this well because they have a future in that they that they think that accumulating the fund will allow them to acquire that's more valuable to them than the present ends that they could they could engage in with the money that they have so so it's exactly the same argument right and then the other thing to note about this just to stress this one more time is that this exchange is always in terms of money and never in terms of goods that is lending and borrowing is always in money we have a monetary economy it's always in money and not in goods and the reason for this is because if we were to trade in goods if we were to lend and borrow in goods then the outcome of what happened in the future would be an intermixing of these two valuation processes of time placement and time preference they would not be just based upon time preference this is because goods have consumptive value or value as producer goods and the value as we've already said right the value of a consumer good or producer good can vary depending on the circumstances that change from moment to moment over time but the circumstances of consumption and production don't affect the usefulness of units of money to perform the function of the medium of exchange the medium of exchange function is is ongoing for any both across people and across places and across time this is what economic calculate will elaborate on this in just a minute if you're not convinced just by just by this claim I'll show why this is so in just a minute but but the basic point again is that if you think about using a particular let's say ten dollar bill to buy lunch it doesn't matter which one you use right they're interchangeably useful it it there wouldn't be any difference and the same so it so it doesn't matter you know you give one ten dollar bill or another to the to the seller the seller would be indifferent between them right wouldn't care they're equally useful as a medium of exchange it doesn't matter what the consumptive changes are you know going on in the minds of one person and another production changes or anything like that and this this of course it also works then we can see this right away across space right if i buy something remotely from someone else across space then it doesn't matter it doesn't matter which you know if i have two bank accounts it doesn't matter which one i transfer my you know debit account claim from right if it's a hundred dollars it's it's a hundred dollars it's performing the same exact medium of exchange function there's no difference it doesn't matter what the consumptive and productive considerations are between the two people in the different places that that's not it has no effect and so what we're saying is that because we have intertemporal exchange and we have an interest rate the same thing is true intertemporally same thing is true if you take money today and you and you trade it for money in the future we can show that the that there's an equivalence between the two right whereas we could not show this with goods precisely because goods value can be different depending on the consumptive or productive conditions for using the good in the future but the medium of exchange is independent of those conditions as long as it's a medium of exchange it's going to be useful regardless of the consumptive and productive circumstances that people find themselves in so this is the this is the argument that that we make here and once again i i stress this a little bit because there's some there's some ambiguity in the way in which terms are used in this field of interest that messes people up with respect to exactly what we're referring to when we talk about time preference and the expression of interest and so on conflating money and goods and and all sorts of things that i won't go into detail about all right so now let's just go through the logistics of that the details and the logistics of that trade so here i've i've posed two different people just again so we can see how interest would emerge from preferences that people have in the left hand side we've got person a who notice would accept a well person a prefers a thousand dollars today to a thousand dollars in one year right you can see the preference rank of a thousand today is above a thousand in a year and we're assuming for the sake of our argument at this point remember the pure time preference element so we're saying that the purchasing power of the thousand dollars is going to be the same so we're setting that consideration aside we'll get to that later and so there there would be a hundred dollar premium that person a places on having maintaining a thousand dollars a day versus getting eleven hundred dollars a year from today but that person would lend the thousand dollars a day at at an interest rate of ten percent or above right if somebody came and offered twelve hundred dollars to person a in exchange for the person a giving up a thousand today person a would be a lender but if a person came to a person b or some other person c i guess would come to a and say i'll give you one thousand fifty dollars uh a year from today for a thousand today person a would not lend right that's what that preference rank says person b on the other hand uh has a higher premium on present money than person a it would take three hundred dollar premium for person b to lend his one thousand dollars today and uh person b would be happy to pay uh up to uh two hundred ninety dollars that would be the maximum buying price as we say for obtaining the thousand dollars from person a um person b has a more urgent uh end to satisfy with this present money and so economizing social economizing would mean that the present money ought to go to b because b has a more valuable uh end to which he or she's going to put this present money relative to a with respect to the present money right with respect to what's being exchanged and so that's exactly what would happen um the maximum buying price for obtaining a thousand dollars for person b is twelve hundred ninety the minimum selling price for person a to to supply the one thousand dollars is uh one thousand one hundred dollars right and so they can come together and negotiate settle on some particular interest payment let's say a premium of two hundred dollars and the interest rate would be twenty percent you can see how the pure rate of interest is just set by preferences there isn't anything else you know all the other considerations the circumstances of life uh uh have their impact on the interest rate through human judgment that that's the argument we're not saying that conditions of human life don't affect um interest rates or or prices you know consumer goods prices and producer goods prices we're saying the effect is always through human judgment and this is the filter if you will through which people express their demands and supplies and therefore prices emerge okay then then the only other thing we need of course is the market so just like we did with consumer goods there'll be a market uh it won't be just two isolated people making this exchange right there'll be all sorts of uh potential borrowers you remember the data point here is point a i looked this up yesterday if we want a particular example the two-year uh treasury note interest rate yesterday was four point eight one percent that's what we're talking about that's the r zero why is it four point eight one percent and economists say it's four point eight one percent because that interest rate cleared the market yesterday for trading in uh you know supplying and and um and demanding uh these these funds right through trading this this uh this claim that's what we're talking about so the the blue line the light blue lines are just conjectures this is just the logic of action right just what must happen if uh instead of being four point eight one percent interest someone were to offer a treasury a two note treasury at an interest rate that was five percent well the person wouldn't find a buyer right and you know and and vice versa for interest loans right loan rates of interest that were below this there'd be excess demand then and excess demand and excess supply are avoided by participants in the market since their preferences aren't satisfied when that particular uh result occurs okay so what we see from this just in summary is that just like with uh preferences for goods for consumer goods time preferences determine jointly or or singularly determine two effects one is the pure rate of interest just like preferences that people have for bags of apples determine the price of apples and the quantity of bags of apples traded so time preference determines jointly the rate of interest and the amount of lending and borrowing that occurs or we could say the amount of saving and investing that that occurs time preference time preference determines them both right again this is sometimes a point of ambiguity that trips people up in this field so that's important to stress and now let me get to this uh claim that um once we have a time market where there's trade of present money for future money and an interest rate that emerges the the uh the time market interest rate makes present money and future money equivalent for economic calculation so this is what you all learned about uh you know if you take in business classes about or classes in finance about uh how interest uh can be compounding or discounting of present money in the first case or future money in the second case right so if i take a thousand dollars and i lend it out on interest at 10 percent uh for one year then at the end of the year i'll get a payment of eleven hundred dollars i'll get the principal back plus the interest payment of a hundred dollars and if i enter into a contract whereby i'm going to receive eleven hundred dollars a year from today then the present value of that eleven hundred dollars just by simple arithmetic right or simple algebra is a thousand dollars it's eleven hundred dollars divided by this interest rate term of uh one plus the interest rate so in other words through the time market these two amounts of money a present money of a thousand dollars and money in one year of eleven hundred dollars are equivalent i can have either one and therefore i can do economic calculation using the interest rate right because the interest rate is making the it possible for me to have either the present sum of money or that calculated future sum of money and so they're equivalent and so the economic calculation is in fact preserved uh intertemporary through uh through the time market that is through through uh lending and borrowing now in order to get to the nuance we we need to introduce the complications that i mentioned earlier and this is uh as mary rothbard likes to put it this is the distinction within the time market of credit markets and in the capital structure and with credit markets we have a credit transaction that i alluded to before where one party is the lender fulfills his or her term of the contract sooner and the other party is the borrower who fulfills his or her term of the contract later and these credit transactions then could be either for consumer loans and then the consumer loans could be subdivided into the various consumer goods that are bought so houses we have the mortgage lending markets and for cars we have auto loan uh market for general merchandise we have credit card markets right and we have a different interest rate for each of these different kinds of consumer loans we don't see a uniform interest rate right we see this we see this variation and uh the the other part of the of the time market is the whole entire structure of production because here the entrepreneurs are fronting present money to the owners of the factors of production in anticipation of producing a good and selling the good and receiving revenue from the consumers at some later date and in order for them to make this loan in order for them to you know suffer the opportunity cost of foregoing just lending the money that they have today out on interest and earning a rate of interest if they if they plow the money into the production process by buying factors of production they need to account for the interest return that that investment is commanding right when they sell the output and receive the revenue from the from the consumers and so that's the other part of the time market and now since I'm uh almost out of time I'm going to run just to the end of this now I always do this why do I always why do I always do this so so in any case it's a period of production is too long so so in any case uh given that we have the this variation right different kinds of loans that are made in different contexts right we can then see what the other factors are besides time preference that I've called here sources of the market rate of interest so the time preference element right if people have higher time preference interest rate structures will be higher and if they have lower time preference interest rates on that account would be lower but there's also entrepreneurial uncertainty and so if the if there's greater entrepreneurial uncertainty in particular kinds of lending that's why we get get subprime mortgages let's say or you know junk bond interest rates right then the interest rate will be higher to compensate the lender for the possibility to fault and other uncertainties involved and if the uncertainty is is less intense then the interest rate structure would be lower for that kind of loan and then there can be price premiums that emerge from uh you'll learn about this again later today from what are called cantillon effects that occur when the monetary relationship has changed so when there's a monetary inflation the earlier receivers of money will see the prices of things that they're buying they will bid up the prices of things that they're buying right and the sellers of these things will see a premium in their in their net income that other producers will not who receive the newly created money later when the price structure and the economy has moved up and so that too would enter in right to that would enter into the rate of return in certain lines of production as an interest return and then finally there's what again you learn from Dr. Klein Dr. Peter Klein yesterday about dealing with uncertainty the unanticipated changes in the ppm and the predictions that entrepreneurs are making with respect to whether the whole purchasing power structure of money will be higher or lower so this is what we've seen of course in the last few years as price inflation has picked up right the interest rate structure moves up and I'll end on this note the the weird inversion of the yield curve that's been going on for a very long time is partly a reflection of the fact of these expectations that investors have about the about the transitory or non transitory nature of the heightened price inflation right this is why two-year interest rates are above 10-year because apparently investors in these fields don't think that the price inflation is going to stay that high for 10 years and so they're not willing to you know engage in transactions at the higher interest rate where they think that yes price inflation is going to be pretty high for the next few years all right thank you very much for your kind attention thank you