Natural or Neutral: Real Interest Rates are Positive

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If we start from this simple, human premise and if we
concentrate on how the real-world individual is likely to
act rather than rushing to lose him in a faceless mass of
abstract mathematical symbolism, one very important
corollary soon follows; viz., that the widely perceived and
highly persistent requirement for a measure of compensa-
tion to be given for undergoing the psychic discomfort of
deferring the satisfaction of our wants and desires is the
fundamental source - the ontological root, we might say-
of the phenomenon of interest.
In that last paragraph, an Austrian would easily recog-
nise that we are arguing for what he would call
'methodological individualism' and that such a focus on
how we individuals actually conduct ourselves in every-
day life is entailed in the study of that purposeful Acting-
with-a-capital-A that Mises called 'praxeology'. He would
also readily identify with the concept that interest is a
matter of subjective, individual time preference - one
which would be expressed even in the absence of a medi-
um of exchange or a market for loans thereof.
As financial market participants, it is a hard fact that we
would nevertheless do well to acknowledge that the in-
terest rates we spend so much time analysing, predicting,
and comparing are not in any way primary. Even when
not being reduced to absurdity by the unrestrained mone-
tary quacks who people our latter-day central banks, we
should hold onto the idea that they are just the shadows
of a deeper truth being cast on that electronic wall of Pla-
to's cave which is our Bloomberg screen.
Rather, market interest rates are a close reflection of the
marginal degree of time preference being expressed in
their dealings by the relevant population of Acting Men.
Or at least that is what they best approximate when the
market is being left to function as it should.
That such a degree of happy concordance is in practice
more of a rare occurrence than we could wish is thanks
both to the rickety stage construction of our flawed insti-
tutions and to the uncomprehending folly of the political
actors who strut and fret upon it.
hindesightletters.com
THE CASE FOR POSITIVE INTEREST
An Austrian rebuttal to Summers, et al
THE TIME IS OUT OF JOINT
Over the years, any number of psychological experiments
have been conducted in order to validate - or at least to
give a veneer of academic corroboration to - a truth al-
ready well established by practical experience; namely,
that we humans must continually struggle to overcome
our basic animal instinct to seek instant gratification of
our wants.
Seen from a different perspective, it is just this capacity for
forward thinking that underpins, even defines, our very
humanity. As such, the idea that the phenomenon repre-
sents a major facet of our behaviour much should not be
in any way controversial.
In order for us to deny ourselves the pleasure of the mo-
ment, we generally need some form of reward - or at least
the prospect of one - in return for our abstinence. The re-
ward can, of course, be the negative one of not being pun-
ished and it can clearly also take spiritual rather than
purely material form.
It hardly needs to be said that that last motivation – essen-
tially the promise that we shall have cake for tea if we are
good little boys and girls in the meanwhile - is by far the
most prevalent one in everyday operation.
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This recurring disparity between the ideal and the ob-
served is the primum mobile in our long, sorry history of
booms and busts, for such cycles of mass delusion and dis-
abusement are principally brought about when falsified
market rates of interest lead successively more people to
act as if the world were a richer, less time-constrained place
than it really is. Only later, in the ensuing crash, is the true
horror revealed that those under the spell of the delusion
have all the while been making it poorer and more urgent
than it ever need have been.
Ironically, it is the case that the now poorer folk, with
fewer spare resources available to be devoted to schemes
for improving their future lot, must be closer to a bare
subsistence than they were before. Hence their time pref-
erence must have RISEN along with their degree of pre-
carity. Underlying, natural interest rates, then, must have
gone UP, not down, much as it does for those poor souls
who deliver themselves, in their hour of desperation, to
the pitiless clutches of the loan shark.
This inference tells us that knee-jerk policy moves to sup-
press firstly short-term, official and then, by contagion, all
other market rates of interest can only work to maintain the
debilitating incoherence between past and future which the
boom introduced, if with a different range of outcomes to
those observed when it was at its height.
And to be clear here, to say this is not unfailingly to en-
dorse a stony-faced, Old Testament rejection of all aid for
the 'sinners' amid the crisis, nor does it lead us to propose
that emergency interventions aimed solely - in the classic,
costly, tough love, Bagehotian style - at preventing the tug
and swirl of the fast-receding monetary floodwaters from
undermining the foundations of even the most sound of
our buildings should always be foregone.
What it does do, however, is insist both that any such
emergency aid is restricted solely to preventing the spread
of the blaze and that those saved from the flames should
entertain no doubts as to whether they will then be pre-
sented with a substantial firemen's bill. It should be made
categorically plain that it is no part of the duties of the res-
cue team to help those who have been playing with match-
es to keep themselves warm amid the embers of their delin-
quency, much less to aid them in rekindling a new confla-
gration on the site of the old.
In direct contravention of the guiding tenets of dear old
Walter's much cited (if, in fact, reluctantly adopted) ap-
proach, current practice is to lend cheaply, for lengthy peri-
ods of time, most especially to those possessing NO sem-
blance of sound collateral whatsoever. Thus it is the case
that many firms which are realistically in need of a merci-
fully swift liquidation are instead 'evergreened' and placed
in that 'twixt Heaven and Hell, run-them-for-cash category
populated by what we now refer to as ‘Zombies’.
Once that happens, the latest manifestation of an incompat-
ible market rate of interest is not now to be found in an
insupportable 'lengthening' of the productive architecture -
i.e., in entrepreneurs engaging in long-amortization, often
highly speculative, activities which presuppose an exces-
sive flow of capital, not just directed to such activities
themselves, but also into all manner of other, hazily-
conceived, but nevertheless essential, complementary un-
dertakings. Rather, too low rates now result in the inhibi-
tion of that over-extended structure's contraction back to a
healthier, more sustainable span, as well as in the retarda-
tion of its rearrangement into a more coherent, mutually
supportive set of interlinkages.
Similarly, in a world where credit is easily accessible not
just by producers but by all manner of exhaustive end-
users - whether private or, most egregiously of all, public
sector ones - the artificially lowered rates have as their mis-
guided purpose a stoking of the fires of Keynesian con-
sumption. In so doing, they only serve to militate against
the swift replenishment of the capital which has been lost
in the Boom by being locked into so many, now unprofita-
ble forms, both physical and organizational.
There may be many specific features at work both in pro-
moting any given Boom and in precipitating its ensuing
Bust - on top of which lies an entire bestiary of subsequent
responses and tail-chasing interventions - but it should not
be hard to recognise here the outlines of an explanation for
why this past eight years' unprecedented efforts to pre-
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Original Thinking.

serve the status quo ante and to frustrate the re-shaping
and re-allocation of both human and physical capital have
been accompanied by so meagre a recovery, or why debt
levels have continued to rise so alarmingly even as capital
investment has languished and official measures of
productivity have only flattered to deceive.
THE TRADE AND PROFIT OF THE CITY CON-
SISTETH IN ALL NATIONS
But, we digress. The issue at hand is for us is firstly to
achieve a better understanding of the phenomenon of inter-
est and then to examine the frankly illogical nature of
much current thinking on the issue. In order to do this, let
us step right back to the beginning as a way of providing a
solid underpinning for some of the concepts developed
above.
In even the simplest of barter economies it is the case that
the real price of anything we wish to acquire is the value of
whatever it is we next most urgently desire among the
things which, having only finite resources and limited time
allotted to us, we must give up in order to have it. In other
words, at bottom, price equals opportunity cost.
Stepping up to the next level of complexity, we now enter a
world where most of our transactions are indirect and
largely anonymous, rather than direct and face-to-face.
Here we have hit upon the felicitous idea of employing
mutually acceptable media of exchange in order to carry
out our traffic. (We shall here avoid all discussion of
whether this was a largely spontaneous, emergent happen-
ing or the fortuitous offshoot of certain proto-states'
attempts to gather revenue from and exercise control over
their subjects).
Once liberated from the narrow trust networks which must
have prevailed in pre-pecuniary times, the adoption of me-
dia of exchange allowed for a great flourishing of com-
merce and industry. Now, in this new world of multiple
potential counterparties, the market process could better
grade and sort the competing uses to which scarce re-
sources could be put according to the highest valuation
placed upon them by those with the means and the will to
make their assessment effective, even if these were people
of whom one knew nothing more than that they were in-
deed so furnished.
In such a system, in order to achieve his own aims, the
buyer must offer up something to the seller which this
latter prizes more than the good he has put up for sale. Ig-
noring for now the rare cases of physical good-for-good
swaps, this offer takes the form either of a final settlement
good (viz., money) or a deferred settlement one (credit)
which is essentially a pledge to provide a quantity of that
same money in the future.
Since, as we have just argued, future goods are generally
worth less to us (furnish us with less satisfaction) than pre-
sent goods, that deferred claim must include some incre-
ment to today’s settlement – an addition to which we refer
as ‘interest’ and which we should thus regard as being the
price of time or as an express delivery surcharge in reverse.
In the interests of avoiding confusion, here we should note
that that this contractually agreed increment typically in-
cludes a premium by which to account for additional risks
we run in postponing the final reckoning, whether these
are perceived to be due to the deferrer’s own particular
circumstances, to the general tide of affairs, or to the wider
hazards pertaining to a possible variation in the standard
of value in terms of which the bargain is being concluded.
Note that, if such risk premia are small enough and if we
were ever to suppose that the two apples which we de-
mand next month as payment for the enjoyment of one
apple on the spot are then expected to be had for a lower
overall monetary outlay then their sale might fetch today, it
might just be the case – rare to the point of non-existence
though such instances have been in practice on the unham-
pered market – that the arithmetical, pecuniary amount of
interest would be a negative numerical quantity.
Even this rare case, however, would still not alter the
deeper truth that the underlying real, natural rate of in-
terest - i.e., the one which remains after excluding such
expectations of change in money’s worth and so the one
which emanates solely from the workings of societal time
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preference - would remain incontrovertibly positive. The
compelling, Aristotelian logic to the proposition is that
our forthcoming two apples has been, is now, and ever
shall be a greater quantum of appleness than our contem-
porary one apple, however distributed in time is their
delivery.
Though this may seem trivial enough, there is one further,
deep implication of what we might call the Law of Jam To-
day, one which can be drawn as follows.
As we have seen, the market tends to allocate our limited
goods to those willing to pay the most for them and in the
promptest manner, too . Out of the near infinitude of possi-
ble uses to which it could be put by the teeming crowd of
would-be buyers, such a price can only be paid by those
whose past efforts to produce valued goods have met with
sufficient success as to now afford them the greatest means
to devote to such a purchase, or else by those whose credi-
ble plans to acquire such means in the future will do enable them
to issue some kind of acceptable IOU (and membership of
the first class is, naturally, the attribute most likely to as-
sure membership to the second).
Given that the production of future saleable goods in-
volves, by definition, the passage of time, for the process to
be worthy of the singular expenditure of effort, much less
for it to be repeatable, the maximum price which the entre-
preneur can rationally pay for the inputs which his produc-
tion requires (land and labour, process and capital goods)
is one which must not exceed today’s equivalent of the de-
ferred proceeds of their eventual sale.
At worst then (and, strictly, after assuming that the entre-
preneur's own subsistence is counted among the overall
cost of labour), the outlay must be equal to the sum of
those expected future receipts discounted back to today at
the prevailing rate of interest. This simple truth should be
enough to dispel the annoyingly persistent theory that in-
terest rates are determined by productivity alone, a shallow
half-argument which neglects the plain fact that the would-
be users of means will naturally pay more for those which
they feel will lead to more lucrative ends, an upward as-
sessment of value which leaves us with nothing else by
which to explain the ratio which comes to prevail between
these two prices, i.e., the interest rate.
This means that producer goods are effectively priced with
close regard to (in an ideal setting, exact correspondence
with) the net present value of the future net cash flows to
which it is assumed they will give rise.
Great Scott, Marty, they are, in effect, today’s material em-
bodiment of tomorrow’s as-yet unformed consumables!
THE NET THAT SHALL ENMESH THEM ALL
Now, the foregoing may be all well and good, but it is also
the case that any such consignment of goods is open to a
multitude of what economists call 'rivalrous' uses. If this is
not true for that rare, individual batch of highly purpose-
specific goods which we may have under consideration in
some particular instance it will nonetheless still hold for
the earlier, typically less use-constrained goods of which
that batch is partially comprised, as well as for the later,
more shop-ready goods to which it will in turn give rise
and whose own market valuation, as we have seen, will
help determine the price of their antecedents
Thus, it is the case that today’s producer good, needing to
be bid away from an alternative use, must be deemed to be
able to give rise to either a slug or a stream of future con-
sumables just greater in cumulative, time-weighted value
than it would in alternative hands, whether the last, most
eager man whom we outbid in order to secure them in-
tended them for a different productive end or for one in-
volving immediate, exhaustive consumption.
Stated like this, it may all sound all very abstract, so let us
try to illustrate it in more readily comprehensible terms.
Imagine that I come across a full-grown chicken, priced at
$10 today and I estimate that it will lay one batch of eggs
which I can sell one period later for at least $1.10. In such a
circumstance, I will not baulk at paying up to a 10% inter-
est rate for the loan of the money with which to buy the
chuck and thus to tide me over the egg production cycle.
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However, in order for me to do so, it also has to be the case
that the second most insistent bidder, the man whom I just
beat out at my bird’s auction, must not think he can make
chicken sandwiches which sell for more than that same
$1.10 or which he reckons can be made ready and deliv-
ered to his customer in a shorter time than it takes for the
hen to lay my own saleable eggs. If he does, he will outbid
me for the hen (or, indeed, outbid me for—pay more inter-
est for— the loan).
Nor can he be someone fancying the fowl for tonight’s din-
ner who values it more highly than the specimen weighing
10% more (or my eggs or my other rival’s sandwiches)
which might otherwise land on his table after an equivalent
period of delay. If he turned out to have such an ordering
of his appetites, he would at once cancel the new savings
he was previously intending to make, or liquidate the ones
he had made in time gone by, in order to make his pur-
chase of poultry immediate.
In fact, such a man might even be inclined to take the other
side of the trade from some fourth party—a person who
does still wish to defer consumption—and thus borrow,
against a specific promise of a future act of redemption, the
consideration he requires to see me off.
In each of these cases, my competitor – whether would-be
producer or aspiring end-consumer – would pay up and
exclude me from the market if he thought he could be more
productive of value within the same time-frame (or pro-
ductive of the same value over a shorter one), or if he were
more dismissive of future consumption opportunities in
comparison to current ones (i.e., if his subjective, individu-
al time preference were higher than mine).
Whether you look at it from the side of the finance being
taken up or from that of the bird for which I, too, have
sought to marshal the requisite monies, I may be driven
out of the market by those with differing intentions, leav-
ing all my budding entrepreneurial ambitions regrettably
unfulfilled. Were I not to face such constraints – because
the extension of credit was unchecked and its price was
thus unresponsive to demand – it is easy both to see that
the auction could get out of hand and that the linkage be-
tween present and future values would be sundered, with
potentially disastrous consequences for all.
Even absent that distortion, it is important to note that an
excess of consumptive zeal on the part of one of my rivals
has the potential to put paid not only to my endeavours,
but to those of other, would-be value creators, too. While it
is false to say this is inherently a bad thing - since end con-
sumption is, after all, both a child of necessity and a well-
spring of motivation to action - it nevertheless gives the lie
to the idea that the deliberate promotion of mass avidity
somehow 'calls forth' investment when the truth is that
such a 'stimulus' can all too easily co-opt the men and ma-
tériel neededto create value into activities which will extinguish
it utterly instead.
By pre-empting any move to develop bigger and better
means of production, it is therefore entirely possible that a
blind focus on end consumption can keep us both poorer in
substance and less prolific in our works than we need oth-
erwise be: an unlooked-for penury which will perhaps lead
our bewildered opinion-formers and policy-makers to des-
pair at the onset of what they will term 'hysteresis losses',
to fret about whether there are indeed any ‘gains to trade’
which remain to be had, and then to bewail our apparently
ongoing 'productivity paradox'.
Be that as it may - and moving beyond this narrow trade
in gallinaceous bipeds - it is important to recognise that
the continuing overlap between our activities as buyers,
sellers, spenders, savers, producers, and consumers is so
pervasive that we all incessantly interact on what is effec-
tively a single market; one on which we are constantly - if
often unconsciously - discounting back from (and con-
versely compounding up to) the anticipated price of fu-
ture goods.
This implies that the web of transactional possibilities, both
actual and potential (or, if you prefer, both realised and
counterfactual) which comes into being under the opera-
tion of the price mechanism is as intricately intertwined
and intertemporally connected - and almost as well-
explored - as the smeared-out pathway of possibilities ex-
perienced by an electron in a quantum experiment.
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I say 'almost' for it is the honourable role of the entrepre-
neur to discover and then gainfully to exploit the remain-
ing gaps in this web of implicit knowledge; to arbitrage
away any informational deficiencies; and to reallocate
scarce resources from lesser to more urgent wants. It is pre-
cisely for this service that he earns his profit - when that
vexatious line item is properly understood in an economic,
rather than in an accounting, sense - and it is precisely for
this reason that profit should not be seen as some kind of
zero-sum symptom of pervasive social evil.
Here we should also be aware that, as Hayek was at pains
to make clear, the economy, in all its complexity, is no uni-
directional assembly line. As a result, at any given instant
we might easily be contending with the 'rivalrous' elements
of that web which involve earlier, 'higher' stages of produc-
tion or later, 'lower' ones or with those occupying the same
cross-section as do we, ourselves.
Even this does not fully do the case justice, for the topology
of such exchanges is in no way fixed - especially in a dy-
namic, growing economy. Instead it is one which is con-
stantly evolving under the pressure of our own actions, an
unavoidable malleability which means that even as we
move to carry out our plans, we conspire to change the
very landscape in which we must try to realize their full,
remunerative intent. This long understood truth (see the
great Cantillon, writing all of two hundred years ago) has
its parallels in the elder von Moltke’s observation that ‘no
plan of operations extends with any certainty beyond the first
contact with the main hostile force’. It is also the phenomenon
which, craftily rebranded as the new concept of
‘reflexivity’, gave that faux philosopher, George Soros, an
off-the-shelf reputation as a deep thinker
All of these factors mean that, if that market is deep
enough to ensure the Law of One Price is observed hori-
zontally between substitutable present goods, it also im-
poses the Law of One Price Ratio vertically between pre-
sent and future ones, i.e., it gives rise to a single, natural
rate of interest which, let us re-emphasize, our core human
instincts will ensure is always positive.
NO REMEDY IN THIS CONSUMPTION OF THE
PURSE
But this sort of reasoning is alien to much of today’s main-
stream, many of whose members succumb to the long-
dispelled, circular fallacies of the productivity argument.
Yet more of them adhere to what Dennis Robertson wick-
edly derided as Keynes’ Cheshire Cat theory of ‘liquidity
preference’ under whose rubric ‘...the rate of interest is
what it is because it is expected to be other than it is. But if it is
not expected to be other than it is, there is nothing to tell us why
it is what it is… [it is] a grin without a cat’.
Otherwise, espousing no theory at all, but instead mum-
bling a few half-digested phrases of Wicksell by way of an
incantation, they resort to the blunt force trauma of macro-
econometrics to ‘prove’ that this, that, or the other interest
rate—now grandly entitled ‘r-star’—must be ‘natural’ (or
sometimes merely ‘neutral’) if their particular choice of
statistical architecture happens to suggest that its imposi-
tion is all that is needed to ensure that that bastardized
modern form of ‘price stability’ (which is actually a low-
level, chronic inflationary creep) will once again prevail or
alternatively that that other nebulous concept of ‘full em-
ployment’ will ensue.
In practice (and for all the droning to that end of speechify-
ing central bankers), it has not been so much an abstruse,
cabbalistic calculus as an impatient, heuristic groping
which has determined the market rates – as implausibly
low as they have turned out be – which have been imposed
upon us as these theories have taken root. There may have
been widespread disappointment that these nostrums have
failed to elicit the predicted response, but none of those
administering the snake oil have been in the least willing to
admit their fundamental error – much less to seek out and
eradicate all other impediments to sound finance, individu-
al enterprise, and healthy market clearing as a more likely
path to a cure.
Rather than subjecting themselves to the anguish of the
soul-searching that would entail – and readily afflicted by
the latest mutation of that gloomy millennialism to which
large numbers of the frustrated intelligentsia have habitu-
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Original Thinking.

ally fallen prey - they have instead sought their excuses in
the mischief being wrought by that figment of their imagi-
nation – that diabolus ex machina - which is nothing but a
rehashed version of the first-generation Keynesians’ re-
soundingly disproven theory of ‘secular stagnation’.
From a vantage point on the more respectable wing of this
particular sect of pessimism, the belief has brought the
likes of Larry Summers belief to muse upon the existence
of a ‘negative, real rate of interest’ as the corollary to our
current economic sluggishness – a proposal which all of
our forgoing examination should strongly suggest to the
reader is a logical impossibility.
Meanwhile, at the more irresponsible, if not to say extrem-
ist, end of the cult, the Krugmans, the Haldanes and the
Buiters have been busy cooking up much more Swiftian
scenarios - ones filled with helicopter drops, cash bans, se-
rial bubbles, and even wars on Mars (sic) as a means to
jump-start economic vitality.
If there is one field in which the world we truly does face
an ineradicable over-capacity, it is surely in the produc-
tion of dangerous enthusiasms by those who hold ten-
ured chairs in the Faculty of Fatal Conceit.
It is an irony that such men who, when holding forth in
matters of which they have no especial expertise, tend to
subscribe to the stultifying ecological fearfulness of the
‘precautionary principle’, are the same monetary Doctor
Frankensteins for whom no new assault upon economic
reason or institutional tradition is too wild-eyed or too un-
predictable to essay.
Similarly, though among them are men who gravely try to
assure us that no amount of government debt is too great -
since we only ‘owe it to ourselves’ – these are also those
most given to loud, public lamentation over what the build
-up of that mountain of illusory self-obligation will entail
for a State which will soon only be able to levy the sums
demanded for the service of this Everest from a demo-
graphically less numerous posterity.
The only consolation the promoters of indebtedness can
take from their self-contradictory fears is that it furnishes
them with the perfect excuse for yet further indulgence in
half-crazed experimentation of the type exemplified by the
rapidly unravelling farce of ‘Abenomics’ or by the yet to be
unleashed scourge of ‘helicopter money’ and the orgy of
public sector ‘infrastructure’ mega-projects this will finance
now that the ‘social dividend’ of these gleaming White Ele-
phants has supposedly fallen below the artificially sup-
pressed interest rate.
If even that fails to usher in a new commercial and indus-
trial Renaissance, perhaps they will consider staging the
meretricious jonglerie of the Olympics every four months,
instead of every four years, or running the printing presses
simply in order to build factories in which to make yet
more printing presses. Expenditure – even of the circenses
et panem kind- is, after all, the watchword of the disciples of
a man who thought he was helping alleviate the woes of
the Great Depression by soiling extra table linen in his high
-end hotel rooms.
These savants, having evidently crossed beyond the nar-
row threshold separating them from genius, we shall leave
to the metaphorical padded cells with which their ivory
towers appear to come equipped. But we would seek to
dispute matters with former-Secretary Summers – a man
whose heavyweight reputation should not blind us to the
fact that he has contributed in one capacity or another to
several of the more debilitating financial upsets – as well as
to one or two of the outright economic debacles - which
have plagued us these past twenty years. Does the reader
still fondly recall our Seer’s eve-of-crash hyperbole about
the prodigies being delivered by ‘tieless’ Tech executives,
back in early 2000, we wonder?
Regardless of his record in office, we would firstly remind
Summers the Thinker that the default position of that in-
sistent little devil on our shoulder is that we should yield to
each passing temptation without qualm and treat the to-
morrow when we must pay the price of our surrender as a
day that never dawns. On that account, we must always be
offered some little sweetener to go against his urgings. That
‘something’ is interest and given that the concept of a nega-
tive sweetener is somewhat nonsensical, in real terms,
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therefore, such interest is always positive.
The man who most often offers to pay us that interest (and
certainly the one who most fruitfully does so) is the pro-
ducer-entrepreneur who has a plan to carry out but who
lacks enough savings of his own to be able secure the in-
puts and to feed and clothe himself and his workers while
he does so.
Moreover, unless our man works in some idealized prima-
ry industry and uses nothing whatsoever previously pro-
duced by any other human agency, he must, by extension,
also make a proportionate contribution to the workers at all
those other firms which sequentially combine to provide
him with his stock of components and raw materials and
who therefore do not themselves add to the immediate en-
dowment of end-consumables of which we and they alike
have need.
Naturally, our entrepreneur acts in the expectation that his
use of present goods will give rise to an even more valua-
ble future supply of goods; i.e., that his project’s own con-
sumption will be productive of value, not exhaustive of it.
Individually, he may turn out to be mistaken in that lauda-
ble estimation, of course, but when we consider his motiva-
tion and the reason he therefore contracts to pay interest, it
is the intent and not the outcome which matters.
In reality, of course, the path of human material progress
shows that the successes tend to outnumber (or at least to
outweigh) the failures, if by a narrower margin andin greater
concentration than one might be led to suppose. Those re-
grettable occasions when this is NOT the case have their
roots in some form of social calamity, whether that entails a
natural disaster - such as fire, flood or famine - or a
manmade one such as bad government, or war, or that all-
too frequent, systemic scrambling of price signals which
arises from the generation of too much 'fictitious capital'
under conditions of artificially low market interest rates
and the overly elastic provision of credit.
When he first sets about his venture, our entrepreneur has
no wish to emulate the weary patience of a Robinson Cru-
soe while he painstakingly marshals the necessary re-
sources for it. It may also be the case that the scale of his
vision puts it beyond the capabilities of any one man to lay
in a sufficient stockpile, whether of goods or money.
If, therefore, he can persuade some thrifty group of Men
Fridays to provide him, on demand, with the necessary
means instead, he knows what he is really acquiring from
these, his lenders, is TIME. We have alluded to this above,
but it is important enough to re-iterate: interest is NOT the
price of 'money' - much less is it that of those cash hoards
whose existence Keynes conflates with ‘liquidity’. It is the
price of time; the time saved in acquiring a magazine of
employable (or enjoyable) present goods beyond the capac-
ity of one’s present income or past accumulated savings.
With that in mind, if we now imagine that we live amid the
distortions of Summer’s House of Mirrors, the negative real
natural rate which he imagines to prevail there can only
mean that we have come to prefer future consumption to
consumption today and that therefore we must now pay a
man not to postpone his breakfast, as in the everyday
world, but rather to call off the hunger strike upon which
he bizarrely is thought to be only too willing to embark
each morning.
That is convoluted enough in itself, but what Mr. Summers
does not explain is what happens when tomorrow becomes
today and the day after becomes the next tomorrow. Surely
our abstemious one will be minded to repeat his act of ab-
stention and then, as the heavens turn relentlessly in their
circle about him, to do so again, and again, and again, un-
less he is continually prodded and paid to act against these
most perverse of inclinations and actually USE something
up?
But here we run into a paradox, for what will our dedicat-
ed ascetic do with the reward we have given him? Being
intrinsically a current good (for that is what money is), he
will again wish to defer its use and so he will presumably
set it, too, aside, building up a sterile hoard until he and his
whole race die of inanition and inaction like the fictional
inhabitants of Joss Whedon’s Planet Miranda in the film,
'Serenity'.
And while this folly of self-denial is unfolding, what of the
hero of the Modern Age, the enterpriser, the man who lives
Bulletin Board
Original Thinking.

at hazard, enriching himself by giving us whatever it is we
wish to have and on better terms than those extended to us
by his competitors?
Well, it only takes a moment’s thought to see that the ex-
consumer, now wishing only to be rid of the embarrass-
ment of his present goods, will pay our man to take them
away. But since future goods trade at a premium to current
ones in this topsy-turvy world, this latter no longer has the
duty to husband them and nurture them in order to bring
about the increase from which he hopes both to discharge
his contractual obligations and make his living.
To the contrary, he can idly or deliberately waste some por-
tion of these goods and still be ahead in the game. We will
thus be paying him not to fructify his capital but to despoil
it. To complete the ‘Serenity’ metaphor, the entrepreneur
will become a Reaver - a destroyer, not a creator.
TOMORROW, AND TOMORROW, AND TOMORROW
So, one last time and in the hope of eliminating all remain-
ing obscurity, let us reprise the argument developed above
for it is a pivotal one and therefore one which must be well
understood if we are to challenge the very substance of the
perilous theorizing of our Lords and Masters.
With positive real rates – which, we must again emphasize,
simply imply that the instantaneous price ratio between
goods today and goods tomorrow is greater than unity –
the primal temptation is for the consumer to eat as much as
he can, even including his seed corn, and so to yield to the
pleasures of the moment in disregard of the needs of the
morrow.
Too much of this and the inveterate consumer - whether a
willing spendthrift or some unfortunate piece of human
flotsam washed away by an inflationary tide severe enough
to shut off all access to the future (as well as to dissolve
many of the mutually-enriching interconnections of the
present) - can only end up bereft of all capital, deprived of
everything which leverages up his puny human strength in
the face of a pitiless Nature, and so be reduced to foraging
for his existence in what is likely to be more of a Bolivarian
purgatory than a blissful, Rousseauan paradise.
Faced with this underlying proclivity, the producer must
tempt his neighbour temporarily to spare some part of his
right to consumables by giving a credible promise of re-
turning a greater, a better, or a more highly-prized alterna-
tive quantity after enough time has elapsed for the former’s
entrepreneurial transformation to be completed. Here we
must hope that there exist sound enough institutions with-
in which do so – the rule of law, certainly among them, but
also that fundamental respect for property rights which
utterly precludes a deliberate adulteration of the monetary
standard in whose terms the contracts which buttress them
are written.
If such an offer fails to be sufficiently persuasive, the pro-
ject will be much-delayed, if not actually stillborn. The pro-
ducer is thus paying to save himself the time he would oth-
erwise require to set aside the resources necessary to his
undertaking out of the fruits of his own, ongoing efforts - a
task which may of course be utterly beyond his solitary
capacities to discharge.
Conversely, where he does secure to himself the requisite
means, he must then strive to generate enough surplus val-
ue from his efforts in as short a time as possible, not only to
meet his obligations to his creditor, but also to earn his own
reward on top - which residual sum is the profit which
marks out his success as a creator of value. Had he no ade-
quate expectation of future profit as the due reward for his
present toil, he would of course not stir himself to act in the
first place. Here, then, is a further manifestation of a posi-
tive real rate of time discount at work.
With Summers’ imagined negative rates, however, this all
goes into reverse as the ratio between present and future
goods ratio falls crazily below parity.
Now the common urge will be to starve to death, obses-
sively squirrelling away the forest acorns or planting only
the slowest growing among them; prizing the glacial pace
at which the mighty oak will one day emerge to spread a
fluttering shadow over the early grave of its soon to be
famished planter.
Bulletin Board
Original Thinking.

The producer will be paid (in goods or coin which he, too,
will try to lock away in some needlessly long-lived format)
to overcome his own distaste and take the acorns away. Far
from being commissioned to fructify or multiply them as
much and as rapidly as possible, he will be asked to give
only some fraction of them back as long afterwards as pos-
sible.
He will thus be enjoined to waste time, not to economize
on it. He will have his reward regardless of any poor stew-
ardship of the goods in his charge – not that he will want
that bounty, of course, since he, too, will wish to defer in-
definitely his enjoyment of the goods over which its receipt
will give him command. In fact, in contrast to the business-
man in our Non-Summers world, he would be more than
happy to have his reluctantly-tendered invoices languish
long unpaid, his payment terms arbitrarily extended, and -
at the extreme - would even heartily welcome the disem-
barrassment of gain which ensued from an outright de-
fault.
Faced with such a blizzard of paradox and acutely wary of
the impenetrable tangle of malign consequences which it
conceals from our gaze, all we can say is: No, Larry! Real
natural interest rates cannot ever be negative!
Sean Corrigan
Bulletin Board
Original Thinking.

Disclaimer
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