The trouble with time preference.

“Time preference” is a concept used in Austrian economics to rationalize usury in general, so it is useful to take a look at it and whether it holds any water.

In general, time preference represents how much people value receiving a certain amount of goods today as opposed to receiving it later on. Low time preference means that one values getting the goods later, while high time preference means that one values getting the goods right now. Here is an example of Austrian propaganda made on this basis:

Whatever the particular form, decadence is always a manifestation of extremely high time preference—of the desire for immediate gratification and euphoria at the expense of important longer-term aspirations. As such, decadence is antithetic to moral values, which are rooted in orientation towards long-term prosperity and happiness. Such values are the conceptual embodiment of low time preference, which is manifested in characteristics of thrift, diligence and long-term self improvement, all of which involve forgoing immediate satisfaction in anticipation of gains in the future.

People with high time preference are naturally hostile to moral and intellectual ideas that are designed for long-term planning and welfare. Their focus on the immediate moment means that moral virtues such as rationality, independence, productivity, honesty, and integrity are anathema to them—rather than assisting their endeavour for immediate gratification, these virtues only inhibit them, and are therefore discarded. Similarly, ideas such as objectivity, reason and volition are implicitly hostile to their destructive conduct, and these too are discarded.

The basic Austrian principle is simple: low time preference = good, civilized, productive, high time preference = bad, criminal, waster.

You may already have realized the main problem here. Whether you have low or high time preference is heavily influenced by your socio-economic condition. The poorer you are, the higher time preference you will have. So time preference is, like a lot of capitalist doctrine, another attempt at putting guilt on the poor. It’s their fault that savings have gone down and debt has gone up, if we could only do something about all those stupid poor people, and so on.

This brings us to the subject of this entry, Per Bylund (whom I used to look up to, sadly, although I’m used to disillusionment by now), and his article called The Trouble With Socialist Anarchism. In it, he argues that the trouble with Anarchism is that we don’t take into account time preference:

The analysis, however, is fundamentally wrong, and it is so simply because socialists don’t understand time preference. It is of value (but not necessarily monetary value) to many a worker frequently to receive a fixed amount of pay for invested labor instead of taking the risks of producing, marketing, and selling a product in the market place (even if the enterprise is not carried out individually but in cooperation with other workers).

It is also true in reverse: the “capitalist” values money now more than money later; thus, profits at a later time need to be greater than labor costs now to “break even.” The point here is that if a worker would voluntarily choose between multiple different alternatives there is reason to believe employment is sometimes (or, in perhaps often) an attractive choice.

The reason this is so, is because of division of labor, risks in the market place, and so on. But it is primarily because of time preference, meaning a worker might value a fixed wage now and at predetermined intervals more than investing his labor now and gain the full value later. The laborer could therefore be in equilibrium when investing labor generating $100 worth of products a month from now even if he is paid only $95 now.

To some people less money now than more money later is indeed usury, but that is only a fact that strengthens the theory of time preference as put forth by Austrian economists. People have different perceptions of value and do value different things at different times, and therefore one individual may very well find employment is to his benefit while other individuals cannot for the world accept such terms. And the same individuals might think very differently at a different point in time.

I quoted the argument in full because I want to make clear that this is all it is. There is no further complexity to Bylund’s argument beyond “most people prefer to submit to usury (in a capitalist system) because it is more convenient (in a capitalist system) therefore usury is justified (universally).”

This is a clear case in point of the profound subjectivity of capitalism. Bylund seemingly believes that people’s time preference overturns facts. To Bylund, it is “fundamentally wrong” to believe that usury is invalid because some people may prefer usury to the current alternative. But what does that have to do with it? You cannot counter facts with preferences!

Suppose I counter evolution by saying that “the analysis [by scientists], however, is fundamentally wrong, and it is so simply because scientists don’t understand centrality preference. It is of value to many a believer to know for a fact that the human race is central to the universe’s purpose and design, instead of learning more about the world and finding cures for genetic diseases.” How did I address the facts of the matter? The mass of evidence for evolution is not denied by the fact that many people may prefer other avenues of belief.

You may say that this is an unfair comparison, but I don’t think it is. In both cases, preferences are taken to trump facts. To Bylund, we socialists only believe usury is wrong because we have lower time preference. But this is complete nonsense (although this creates an inconsistency: if low time preference is good, doesn’t that make socialists innately better than capitalists?). I believe usury is wrong because it is factually wrong, not because I prefer to get goods later rather than now. There is such a thing as socialists who don’t save their money, or even, Heaven forbid, poor socialists (and yes, you should read this sentence very sarcastically).

I may prefer for usury to be justifiable, as that would make the world appear far less evil to me, but that does not make it justifiable. I may prefer to put myself under the yoke of usury, because I have no other viable option, but that does not make it justifiable, any more than a victim complying with an armed robber means that the victim supports armed robbery as justified.

Time preference is not a proof that usury is valid or justified. Time preference is, at best, a way to look at the time frame of people’s goals, but it is important to remember that this time frame is dependent on socio-economic and psychological factors. Therefore it is pointless to use time preference as a universal principle, and it fails as a proof that socialism is invalid.

In his next section, Bylund confirms the profound subjectivity of his argument by outright stating that all value is by nature subjective:

Values are subjective in the sense that the individual alone makes the assessment and makes it according to his or her individual preferential hierarchy. Thus, subjective value does not depend on what is being valued, but rather on how it is perceived!

Therefore, a laborer’s analysis of whether employment is beneficial does not only involve the monetary value of invested labor and received payment, but also everything else he values. Employment could be of great value to a risk aversive individual, since the risk of losing money is very low, whereas the same deal for someone else, who perhaps gets a kick out of taking risk, is nothing but outright slavery. People are different.

Some people will have high time preference for certain values, while others will have low time preference. Some people will be able to use their time and skill to create a lot of value to others (assessed subjectively), while others create value only recognized by a few. And individual choices will always be individual choices, the decisions made depending on the individual’s subjective assessment of values he chooses to identify.

Socialism, as commonly defined by the socialists (of both anarchist and statist varieties), fails to realize this fact and therefore categorically dismisses market solutions, functions, and institutions that arise voluntarily and spontaneously.

You can see that this is merely the same argument from before, repeated two more times, peppered with the voluntaryist fallacy (see my link above). Everyone’s different, some prefer usury to the alternative, therefore usury is valid. Still complete nonsense.

It is, on the whole, ridiculously easy to defeat capitalist theories. They are all predicated and founded upon complete subjectivism. This is an ideology of mysticism and complete intellectual chaos, where the endless variation of preferences is taken as more primary than the actual material causes of preferences (which is convenient for the power elite, which manipulates preferences through many channels).

All that one must do to dispel this confusion is to point out that reality works on the basis of principles and laws, and that we can discover those principles and laws. Value is not subjective; it can be determined and measured, and we can evaluate people’s actions on that basis. We can indeed say that usury is ethically undesirable. Preference has little to do with establishing what is true and what is false, except the agent’s own epistemic preferences.

Also see db0’s entry Exploitation cannot be obscured in time.

14 thoughts on “The trouble with time preference.

  1. n8chz June 8, 2011 at 00:35

    If the time value of money had any validity, prepaid services (say, $ell phones) would be cheaper than their postpaid counterparts, instead of what we can readily observe, which is the exact opposite. Methinks the phenomenon has less to do with time preference than with having a captive market. And I’m sure contract feudalism has something to do with it, too. Savings is, by definition, income that exceeds the cost of necessities. Maybe high time preference can lead to living hand-to-mouth, but the latter invariably leads to the former.

    • Francois Tremblay June 8, 2011 at 03:06

      I don’t follow your argument regarding prepaid v “post”paid cell phones. Could you make it more explicit?

      • n8chz June 8, 2011 at 15:32

        This page pretty much sums up the major product differences. Pre-paid debit cards are another rip-off for the “non-credit-worthy” In general, in theory, paying for anything in advance should be treated as lending, since buy-now-pay-later is treated as borrowing, but there are surcharges on either end, it seems.

  2. David Gendron June 8, 2011 at 11:18

    I’m not sure that the “Bylund-2011 version” totally agrees with his 2006 version. He seems to be more sympathetical to mutualism now, with his “Use-Right” version of property-possession.

  3. Db0 June 8, 2011 at 13:09

    I’ve countered the time preference nonsense before, but this post of yours made me realize exactly why the time preference theory was so frustrating to me. It’s just another variation of the familiar and flawed concept of “the poor are just lazy”.

    • Francois Tremblay June 8, 2011 at 15:16

      Thank you db0, I will link to your entry also.

  4. rloy June 8, 2011 at 15:51

    “It is of value (but not necessarily monetary value) to many a worker frequently to receive a fixed amount of pay for invested labor instead of taking the risks of producing, marketing, and selling a product in the market place”

    Like most apologists for neoliberalism, Bylund doesn’t understand the difference between an entrepreneur and a capitalist (two distinct categories that neoliberals like to conflate).

    I had my own debate with so-called libertarians recently and they couldn’t refute a single one of my points:

    • Francois Tremblay June 8, 2011 at 16:01

      I find it ironic when capitalists use I, Pencil as an argument, since I, Pencil is actually the best argument for socialism ever written, if you think about it for more than a few seconds.

    • Francois Tremblay June 8, 2011 at 16:04

      Also, good job on destroying the laughable conceit of “capitalist [so-called “free market”] environmentalism.”

  5. Derek June 9, 2011 at 12:16

    I want to point out that Keynes’ liquidity preference theory of interest is opposed to time preference theory. Proudhon held an identical theory, anticipating Keynes in this respect. This is described in Dudley Dilliard’s article “Keynes and Proudhon.” Interest is simply rent that must be paid to access the credit commons. It amounts to a kind of enclosure of the commons. It is also nonsense given an endogenous money supply (detailed in AFAQ).

  6. […] the myth of the heroic entrepreneur who is “rewarded” by the market for eir downright ascetic self-denial in saving enough money and eir skillful exploitation of eir fellow humans by ever-increasing profit […]

  7. […] are natural!”, “Greed is part of human nature!”, Against Psychological Egoism and The trouble with time preference (I may have written other entries that relate to this topic, but they are not coming to my mind at […]

  8. […] have high time preference and that entrepreneurs are rich because they have low time preference. I have demolished such beliefs before. But given the general importance of the concept of savings in capitalism, I am […]

  9. […] Some interesting ideas about time preferences by Francois can be found here. […]

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