Walter Block presents the Misesian understanding of time preference: if present goods were not apodictically preferable to future goods, then

we could never act in the present, for every action done now could have been done in the future. The fact that we choose to act in the present, when we could have waited, shows that we prefer the present; that we enjoy goods, the sooner, the better. But the future will present the same alternatives: action and non action.

Future action will thus also imply time preference for the present, paradoxically. By acting in the immediate future, instead of waiting for the even more distant future, we also show ourselves as present oriented.

The only way to illustrate a lack of preference for the present is never to act at all — a manifest impossibility for human beings. (39)

This account reflects Mises accurately but is still mistaken. Mises’ error lies in the fact that the (true) negation of (false) “I always prefer to consume later to sooner” is not “I always prefer to consume sooner to later” but “Sometimes I prefer to consume sooner to later.”

Mises’ proof amounts to saying that if a man has a motive, means, and opportunity to consume, then he will consume. He will not fail to consume for any reason, including by postponing consumption. This, however, is hardly interesting.

Again, while we act for the future, we enjoy and live only in the present, and so the statement that present goods are preferred to future goods turns out to be, according to the Mises’ interpretation of it, as perfectly analytic as that enjoyment is preferred to lack of enjoyment.

That all consumption by definition takes place in the present is true but toothless: yes, any enjoyment takes place in the now; so does any experience whatsoever; but it is not really because one prefers to enjoy now, but because there is no way to enjoy anything at any time other than now. One cannot either choose or renounce the impossible.

Let us therefore approach this problem differently.

Let Smith’s income be $100k per year. He is considering buying a house worth $240k. “Necessities” of life, as far as Smith is concerned, take up $20k per year; in other words, Smith adamantly refuses to spend less than this amount. He is particularly attracted to the following three choices:

  1. he saves $80k per year; or
  2. he saves $60k per year; or
  3. he decides against buying the house at all and spends the entire $100k each year.

Either way, the house will be unavailable to him for at least 3 years. This fact is studied not by economics but by arithmetic.

The difference between (1) and (2) is that in (2) his standard of living in the first 3 years is higher, but he has to wait an extra year to buy the house. The former is a benefit of choosing (2); the latter is a cost. Even if Smith chooses (2), the cost needs to be felt and given proper respect. This cost I term “disutility of waiting.” If he chooses (3), then the disutility will be perpetual. Again, this is a cost, and on his deathbed, Smith would have to reflect on his life and say: “Despite the fact that I never got to own a house, I have no regrets.”

It is a corollary of Misesian time preference that waiting, understood as the cost of a choice to save less and consume more, has disutility; and the longer the wait, the greater the disutility.

“Waiting” and the disutility thereof has two senses. First, there is a desire to bring closer or at least make reachable a definite future enjoyment, and relinquishing immediate consumption is a necessary evil resorted to in order to attain a greater good. Present sacrifices diminish disutility of waiting.

Thus, Crusoe has a choice of whether (a) to keep evenly rotating, catching fish with a rod, and “wait” for (1) a much superior net forever; or (b) to tighten his belt and make the net in 2 months; or (c) to barely subsist but make the net in 3 weeks. His choice constitutes the practical aspect of his own time preference.

Second, suppose Crusoe picks (b). But he would also like to make (2) a pen for his livestock. This task will occupy him for 1 month. He has to choose still further between (1b) and (2). The fact that he has to wait less for the pen as compared to the net is an advantage of the former, a reason pro of it. If Crusoe is to choose the net anyway, then the utility of the net has to outweigh the utility of the pen, even given the pen’s lower cost of the time input, to such an extent that the net’s overall psychic profit is higher than the pen’s psychic profit. This is the theoretical aspect of time preference as such.

For much more on time preference, see my book Summa Against the Keynesians.


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