Chapter 30: Time and Interest
Updated: 5/6/20
Then the servant who had received one talent came and said, ‘Master, I know that you are a strict man. You reap where you did not sow, and you harvest where you did not scatter. I was afraid, so I went away and hid your talent in the ground. See, you have here what belongs to you.’ But his master answered and said to him, ‘You wicked and lazy servant, you knew that I reap where I have not sowed and harvest where I have not scattered. Therefore you should have given my money to the bankers, and at my coming I would have received back my own with interest. Therefore take away the talent from him and give it to the servant who has ten talents. For to everyone who possesses, more will be given—even more abundantly. But from anyone who does not possess anything, even what he does have will be taken away. Throw the worthless servant into the outer darkness, where there will be weeping and grinding of teeth’ (Matthew 25:24–30).
This is a section in Jesus’ parable of the talents. I have discussed this at length in Chapter 47 of my commentary on Matthew. The parable tells the story of a businessman who goes on a journey. He called in three stewards. To one steward, he gave five talents, which were monetary units. To the second steward, he gave two talents. To the third steward, he gave one talent. When he returned from his journey, he demanded an accounting. The first steward had doubled his money. The second steward had also doubled his money, but less money. The third steward had made no profit at all. He had buried his talent. He returned it to the owner.
In condemning the third steward, the owner insisted that the steward could have given the talent to the money lenders. This would have produced an increase on the investment that the owner had made in the steward. The increase would have been in the form of an interest payment. This parable categorically affirms the legitimacy of interest. It also affirms the legitimacy of banking. Because the risk-averse steward had buried the coin, the owner received nothing in return. He had done without the use of the talent through the entire period of the journey, and now he found that he was no better off than he was when he had begun the journey.
Consider two facts about this parable. First, it acknowledges that interest-taking is legitimate. God eventually comes to every person and demands a positive return on whatever had been entrusted to him by God. The master had done without the use of his funds during his absence. He is therefore entitled to a minimum return: interest. Second, the parable clearly distinguishes between profits and interest. The other two stewards each produced a profit of 100%. They received the greater praise and greater visible rewards. The minimum required performance was an interest payment. The slothful servant had been unwilling to take even the minimal risk of handing the money over to specialists in money lending, who would have sought out entrepreneurs to lend the money to, entrepreneurs who would then pay a competitive return to the money lenders on this passively managed investment.
The master’s capital was supposed to enable the servants to become productive. Each steward either had to become an entrepreneur or else had to seek out an entrepreneur who would put the money to economically productive uses. The talent was not to sit in the earth; it was to perform a socially useful function.
The economic agent who is on the cutting edge of both prediction and production is the entrepreneur. The first two men in the parable were entrepreneurs. They went out and found ways of investing the master’s money that produced a positive rate of return. As the parable presents it, this rate of return was higher than what could have been earned by depositing the money with money lenders. Thus, the entrepreneur is understood to be someone who bears much greater risk than someone who deposits money in a bank. The economist calls this form of risk uncertainty. It cannot be estimated in advance. It involves guesswork, unlike the depositor who is promised a specific rate of interest when he deposits his money. The future is uncertain to men. We do not know it perfectly. We barely know it at all. We see the future as though we were peering through a darkened glass (I Corinthians 13:12). Nevertheless, all of life involves forecasting. There is no escape. We must all bear some degree of uncertainty. But some people are willing to bear more of it than others, and of these, some are more successful in dealing with it. In economic terminology, some people produce greater profits than others. Profit is a residual that remains, if at all, only after all costs of the business have been paid, including interest.
The only way that the banker can afford to pay out a promised return is because he successfully seeks out borrowers (entrepreneurs or customers) who produce an even higher rate of return. The banker makes his living on the difference between the interest payment which the borrower pays to him and what he in turn pays to the depositors. The banker is able to offer a special service to investors. He can diversify depositors’ individual uncertainty by lending to many people—people who, like the servants in the parable, have performed successfully in the past. They have “a track record,” to use the language of horse racing.
By lending out money to many borrowers, the banker thereby converts a portion of the depositors’ uncertainty into risk: from the statistically incalculable to the statistically calculable. The banker is like an insurer. What does an insurance company do? Its statisticians (actuaries) calculate the likelihood of certain kinds of undesirable events in large populations. These unpleasant events cannot be statistically calculated individually, but they can be calculated collectively if the population involved is large enough. The seller of insurance then persuades members of these large populations to pay periodic premiums so as to “pool” their risks. When one member of the pool suffers the event that has been insured against, he is reimbursed from the pool of assets. Hence, some of life’s inescapable and individually incalculable uncertainties are converted to calculable risk by means of diversification: “the law of large numbers.”
The same is true of banking. Borrowers will seldom all go bankrupt at once. Most borrowers will repay their debts as specified in their loan agreements. Bad loans are more than offset by the good ones. Thus, the banker can offer a fixed rate of return to depositors. In almost all cases, depositors will be repaid as promised because most of the borrowers repay their loans as promised.
The master in this parable protects his funds in much the same way. He seeks out a group of potential entrepreneurs. He gives each of them an amount of money to invest. He makes predictions regarding their future performance based on their past performance, and then he allocates the distribution of his assets in terms of this estimation. He protects his portfolio by diversification. The master is not an interest-seeking banker, however. The money he invests is his own. He is not acting as the legal agent of other depositors. He legally claims all of the profits. He does not contract with borrowers who agree in advance to pay him a fixed rate of interest. The entrepreneurs are strictly his legal subordinates, unlike the relationship between banker and borrowers.
There is no question that the master not only approves of taking interest, he sends the servant to the nether regions for not taking it. This is strong imagery! The interest payment belongs to the master. By having refused to deposit the master’s money with the money lenders, the servant has in effect stolen the master’s rightful increase. The servant was legally obligated to protect the master’s interests, and interest on his money was the minimum requirement. He failed. The master’s judgment of the servant’s past performance had been accurate; he was entitled to only one talent initially, for he had not demonstrated competence previously. Had he been given more, he would have wasted more.
All men are stewards of God’s property. There is no escape from personal responsibility of this economic stewardship. It is built into the creation. It is an aspect of the dominion covenant. The parable of the talents is the clearest statement in the Bible regarding the nature of this responsibility. The owner transfers wealth to the stewards. He then departs. But he will return and demand an accounting. He expects to receive more in return than he transferred. Why is this? In the parable, the lazy steward accused him of morally improper action. “Then the servant who had received one talent came and said, ‘Master, I know that you are a strict man. You reap where you did not sow, and you harvest where you did not scatter. I was afraid, so I went away and hid your talent in the ground. See, you have here what belongs to you’” (Matthew 25:24–25). Was the steward accurate in his assessment of the moral character of the owner? He was not. The owner had reaped where he had sown. He was the owner of the property. He had legitimate title to that property. He therefore had a legitimate legal and moral claim on any improved value of that property.
He handed over property to the stewards. He expected to reap. On what basis? Did he sow? Yes, he did. He allocated responsibility for the management of his property to men who were under his jurisdiction. They owed him a positive rate of return. The first two stewards understood this. The third steward did not. Therefore, the owner took the talent from the lazy steward, or risk-averse steward, and handed it over to the most successful steward, who had doubled the number of the larger number of talents.
The lazy steward claimed that he was returning what was owned by the owner. But he was not returning all of what was owned by the owner. He was returning only what he had been handed. He had refused to invest on behalf of the owner. He therefore reaped nothing on behalf of the owner. He returned the same coin to the owner, but this coin was worth less than the coin had been worth to the owner when the owner had transferred it to him. The owner would have preferred to retain ownership of his coin rather than receive the same coin back, and nothing more, after his journey. He could have taken the coin with him. He could have assigned the coin to one of the other stewards. Instead, he transferred to the risk-averse steward something of greater value than he later received back. The owner had nothing to show for his trust of the steward. He was therefore outraged at the steward’s performance.
Imagine that you have unexpectedly won a contest. You did not buy a lottery ticket. You walked into a business, and because of a contest that you did not know about, you became a winner.
You are told that you have won ten one-ounce gold coins. You are then given a choice. You can receive your coins immediately, or else you can wait for one year to receive your coins. Which option will you select? You will select immediate payment. You will choose not to receive coins in the future. Why is this? The coins you receive today are identical to the coins you will receive in one year. Why not wait a year? For that matter, why not wait two years? Why not wait five years?
You might think this: “I could die in the interim. I would never get the benefits of the coins.” The difference between the value to you of the coins today compared to a year from now has to do with your mortality. There is a statistical risk that you might die. You would therefore never gain any of the benefits of owning the coins.
1. A Category of Human Action
I want to make the argument stronger. I want to discuss it as a category of human action, not simply in the era after man’s fall, but before the fall and also in eternity. I want to discuss it as a category of finitude, not simply a category of the special curse of mankind after the fall: death. So, let us assume that this took place before the fall of man. You would not be facing death. Would you then accept immediate payment or deferred payment? You would accept immediate payment. Do you know why?
The reason for this is that you do not impute the same economic value to coins in the present vs. the same coins in the future. They are the same physically. They are not the same economically. The coins that you can receive immediately have greater value to you than the same coins received in the future. You understand this. Anyone would understand this. But can you explain it?
There is a biblical answer for this. When you receive the offer of coins today vs. coins in the future, you have a responsibility to make a decision. You own a choice: coins now or coins in the future. You are the owner of this choice. It has value. How do you maximize the value of this choice? Are you supposed to maximize the value of the choice? According to the parable of the talents, you are required by God to maximize the value of this choice.
Why is the present value of the coins related in the future value of the coins? Because the coins convey opportunities to you. You are responsible for allocating responsibilities in the present vs. the future. There is a time sequence to this allocation. This is the result of the laws of creation. God created the world in six days. He did not create the world in a moment of creativity. He established the model of creativity: step by step. Creativity is governed by the sequence of time. The dominion covenant is an extrapolation of this principle of sequential creation. Men are to improve the value of the assets that God has transferred to them. They must do this on his behalf economically: stewardship. They must do this in his name: trusteeship. There is no escape from this twofold responsibility.
You owe a tithe of 10% to your local congregation: one coin. You must then decide how to allocate the other nine. To explain the existence of the discount, I will use two categories: immediate production and immediate consumption.
2. Immediate Production
As soon as someone receives anything of value, he has a responsibility to put that asset to work on behalf of God. He must make a decision regarding the highest potential value of whatever it is that he has received. The sooner that he can put this asset to productive use, the sooner that he, and therefore God, will experience a positive rate of return on the asset. It is more profitable to God to receive a compound rate of interest beginning immediately than to receive back later only what He had transferred originally. The steward can put this asset to productive use. If he cannot do this directly, as the first two stewards did, then he can transfer control of the asset for a period of time to specialists who are skilled in making such investments. We call these people bankers.
As stewards, we must exercise judgment. The dominion covenant demands a lifelong process of improving our judgment in history. Judgment is an aspect of point four of the biblical covenant: sanctions. This judgment involves economic judgment, although it is not limited to economic judgment.
The coins are economic assets. The responsibilities associated with the coins are also economic assets. From the moment that you become an owner of the coins, you become responsible for their allocation. From the moment that you have the option of becoming an owner of the coins, you become responsible for their allocation. Allocation is point two of the categories of economic theory (Chapter 7). It is closely related to point four of the economic covenant: the subjective imputation of value (Chapter 9).
Built into the dominion covenant is temporal succession. Here is a fundamental law of economics: sooner, not later (at the same price). This law is an aspect of the requirement that men improve the economic value of whatever has been transferred to them. It is better to receive this responsibility early rather than later. Because God has transferred something of value to you, you are ready to exercise responsibility. He is in charge of allocation. Allocation is not random. Allocation is covenantal. It begins with God; it extends to man. This concept of God’s providential allocation is inherent in Christian economic theory. This is an important concept of economic theory that distinguishes Christian economic theory from humanistic economic theory, which pretends to be value-free.
The value of an opportunity in the future is less than the value of the same opportunity in the present. That is because the value of the opportunity in the present can be put to immediate productive use. The sooner that God becomes the beneficiary of compound economic growth, the more rapidly that His allocation of resources will become exponential. The goal is dominion sooner rather than later. The goal is therefore compound economic growth sooner rather than later.
3. Immediate Consumption
You may decide that you wish to consume your windfall. Because you accepted payment immediately, you now can lawfully allocate nine coins to consumption. ()one coin pays your tithe.)
The nine coins enable you to choose from a wide variety of available consumer goods and services. If you allocate only one or two coins for immediate consumption, you can then place the remaining coins with a banker. The banker will then lend out the money. Somebody will gain access to that money immediately. You will be paid a rate of interest for having forfeited the use of the money in the meantime. Because you will receive an additional payment, you will be able to use this money for other consumption purposes.
If you choose to wait for a year, you will gain no immediate benefit from the money. In contrast, the person who offered you the money will be able to invest this money at a bank. He will gain the interest that this deposit will generate. Because you have delayed your gratification, he will increase either his consumption or his use of the money in his business. One of you is going to benefit from the money. You decide who is to benefit when you make the decision either to accept the payment of the money immediately or else wait for a year. If you decide to wait, you will be transferring the value of that money to the person or the company that offered you a choice of receiving the money now or a year from now. It is to the other person’s advantage that you defer acceptance of the money. He gets the use of it in the interim.
This is why you will take the money. You will pay your tithe, and you will use the coins for whatever purposes you want. You have a list of priorities of potential consumer expenditures, and you will use the money to achieve these goals. The money is immediately beneficial to you because you will be able to allocate the money to achieve these goals. If you do not take possession of the money, you will not achieve these goals. You will have to wait a year or longer to achieve these goals.
Because human action is sequential, resource allocation in the present must consider how the resource will be spent over time. There is an inescapable cost of time. As with every other resource, the cost is the value of the most important thing forgone. Whatever you could have done with the money, but did not do because you waited a year, is your cost of your decision to delay reception of the money. You will receive nothing of value as a result of your delay. Whoever would have transferred the money to you will receive this value. We are back to this economic principle: something is better than nothing. This is why you place a discount on the economic value of identical goods in the future. That discount is the value to you of whatever you will have to forgo as a result of the delay.
All people are present-oriented. There are degrees of this present-orientation. Everybody would rather have his desires gratified immediately rather than later. Sooner is better than later, at a fixed price. People who are intensely present-oriented are unwilling to give up present consumption for the sake of expected future consumption. This outlook is the mark of the lower-class individual. This was the insight of Edward Banfield, a professor of political science at Harvard, in the late 1960s. He defined class in terms of time orientation. People who are future-oriented are upper-class people. They are willing to forgo present consumption in favor of only marginally larger future consumption. They are savers, not borrowers, at a specific rate of interest.
Ludwig von Mises called this difference time preference. Some people have high time preference, so they pay high rates of interest on money they borrow. Other people have low time preference, so they lend money at low rates of interest. The free market brings these people together. The rate of interest is the rate of exchange between people with low time preference, who are lenders, and people with high time preference, who are borrowers.
In what we call the money market, the structure of competition is the same as it is in all other markets. Lenders compete against lenders. Borrowers compete against borrowers. Out of this competition comes an array of objective prices associated with present money versus future money: interest rates. The interest rate is the price of present money vs. future money.
People get what they are willing to pay for in a competitive market. A present-oriented borrower wants immediate gratification. He is able to purchase this, but only at a price. The price is a high rate of interest that he will have to repay to the lender. He will be poorer in the future than he is today. But this is what he prefers. On the other side of the transaction, a future-oriented person is willing to defer immediate gratification for the sake of a relatively small increase in wealth in the future. He discounts the value of future wealth, but he discounts it at a much lower rate than the present-oriented person does. He lends money to the present-oriented person. He receives greater wealth in return in the future. He gets what he wants. The present-oriented person gets what he wants. The free market’s system of voluntary exchange enables both of them to achieve their goals.
It is clear why a present-oriented person will tend to get poorer over time than a future-oriented person. The present-oriented person does not increase his ownership of capital. He consumes it. The Bible recommends that covenant-keepers become lenders. This increases their dominion over the earth. They will have greater capital over time then present-oriented people will. “The Lord will open to you his storehouse of the heavens to give the rain for your land at the right time, and to bless all the work of your hand; you will lend to many nations, but you will not borrow. The Lord will make you the head, and not the tail; you will be only above, and you will never be beneath, if you listen to the commandments of the Lord your God that I am commanding you today, so as to observe and to do them” (Deuteronomy 28:12–13). [North, Deuteronomy, ch. 70]
An officially neutral humanistic economist does not recommend capital creation as a matter of ethics, but Christian economics does. It is a moral responsibility for the covenant-keeper to accumulate capital. This is an aspect of dominion. Because humanistic economists do agree on one thing, namely, that economic growth is a blessing, they believe in capital creation, which is the source of economic growth. But this outlook is inconsistent with their self-professed ethical neutrality regarding economic theory.
The market’s interest rate is the product of two other factors. One factor is the risk of default by the borrower. Someone who is considered more likely to default will be required by a lender to pay higher rates of interest. This is the risk premium of a loan. A second factor is the possibility of either price inflation or price deflation during the period of the loan. If the purchasing power of the monetary unit is expected to rise (prices fall), lenders will accept a lower rate of interest from borrowers. The money they receive from borrowers will buy more. There is an advantage to this: they will not have to pay income taxes on any increase that is the result of increased purchasing power. Their nominal rate of return will be low, but their real rate of return will be higher in terms of purchasing power. This is a disadvantage for borrowers. On the other hand, if the purchasing power of the monetary unit is expected to fall (prices rise), lenders will demand a higher rate of interest. They will receive back money of decreased purchasing power.
Is interest-taking morally legitimate? This debate has been going on since at least the days of Aristotle, who regarded money as sterile and interest as unnatural. But if money is sterile, why have men throughout history paid lenders interest in order to gain access to its use for a period? How are so many people fooled into paying for the use of a sterile asset? Besides, interest is a phenomenon of every loan, not just loans of money. Modern economics teaches this; so does the Bible. In contrast, Aristotle wrote: “For money was intended to be used in exchange, but not to increase at interest. And this term interest, which means the birth of money from money, is applied to the breeding of money because the offspring resembles the parent. That is why of all modes of getting wealth, this is the most unnatural” (The Politics, I:9).
It is obvious that the phenomenon of interest is not confined to money. Aristotle was incorrect. The phenomenon of interest applies to every scarce economic resource. We always discount future value. Whatever we use in the present is worth more to us than the prospect of using that same item in the future. The present commands a price premium over the future. The present is now. Our responsibility is now. We must deal with our responsibility now. God holds us responsible now. We make all of our decisions in the present. We enjoy the use of our assets in the present. Wise people plan for the future by purchasing expected streams of income. How? By purchasing assets that they expect to produce net income over time. They purchase these hoped-for streams of income at a discount. The rate of discount that we apply to any stream of expected future income is called the rate of interest. Interest is a universal discount that we apply to every economic service that we expect to receive in the future. We demand a discount for cash.
The ownership of the asset offers him an expected stream of income: psychological, physical, or monetary. If it did not offer such a stream of income, it would be a free good. It would therefore not command a price. The owner expects to receive a stream of income. He chooses the degree of risk that he is willing to accept, and he then refuses to lend the asset for less than the interest rate appropriate to this degree of risk.
A person who lends money at zero interest is clearly forfeiting a potential stream of income. He will seldom do this voluntarily, except for charitable reasons. The Bible commands this. “If your fellow countryman becomes poor, so that he can no longer provide for himself, then you must help him as you would help a foreigner or anyone else living as an outsider among you. Do not charge him interest or try to profit from him in any way, but honor your God so that your brother may keep living with you. You must not give him a loan of money and charge interest, nor sell him your food to earn a profit” (Leviticus 25:35–37). [North, Leviticus, ch. 28] “You must not lend on interest to your fellow Israelite—interest of money, interest of food, or the interest of anything that is lent on interest” (Deuteronomy 23:19). [North, Deuteronomy, ch. 57] These are charitable loans. I discuss this in Chapter 50.
The most famous promoter of a world without interest is John Maynard Keynes. He was quite clear about the legitimacy of such a world. He wanted to see it come into existence. Because it is such a crackpot scheme, his followers rarely mention the following. Keynes actually earned only a bachelor’s degree in mathematics. He never took a graduate degree in economics or any other subject. His father, Cambridge University economist John Neville Keynes, got him a job teaching economics a Cambridge by putting up the money to pay his salary. From that privileged pulpit, he began to make his international reputation.
In his book, The General Theory of Employment, Interest, and Money (1936), Keynes taught that “Interest to-day rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital” (p. 376). Keynes recommended the writings of Silvio Gesell, a true monetary crank and socialist, whom he referred to as “the strange, unduly neglected prophet” (p. 363). He spent several pages of the General Theory praising Gesell. Referring to the preface of Gesell’s Natural Economic Order (1916), Keynes said that “The answer to Marxism is, I think, to be found along the lines of this preface” (p. 355). He went on: “He argues that the growth of real capital is held back by the money-rate of interest, and that if this brake were removed the growth of real capital would be, in the modern world, so rapid that a zero money-rate of interest would probably be justified, not indeed forthwith, but within a comparatively short period of time” (p. 357).
But can the money rate of interest be reduced to zero? Of course, Keynes said. He praised Gesell’s plan for the government to issue paper money with a date stamped on it; to keep the money legal, the users would have to get their money re-stamped each month. There would be a stamping tax on the money. Keynes highly recommended this scheme. “According to my theory it [the stamping tax] should be roughly equal to the excess of the money-rate of interest (apart from the stamps) over the marginal efficiency of capital corresponding to a rate of new investment compatible with full employment” (p. 357). Keynes also taught that the marginal efficiency of capital could fall to zero “within a single generation. . .” (p. 220). In fact, he said that it would be “comparatively easy to make capital-goods so abundant that the marginal efficiency of capital is zero. . .” (p. 221). Thus, when the marginal efficiency of capital falls to zero, then there will be no economic reason for the rate of interest not to do the same. Just tax interest and rents out of existence! In short, under his system of economics, “the rentier would disappear. . .” (p. 221).
The European Central Bank set its key rate below zero percent in June 2014. In the summer of 2019, the euro equivalent of $15 trillion in European government bonds traded below zero percent. This had never before happened in recorded history. Was Keynes correct in 1936? In nominal terms, yes. In terms of economic value, no. Bond buyers were purchasing what they believed was a government-guaranteed return of their money. They were paying the economic equivalent of a sales commission for what they regarded as an insurance policy for guaranteed returns.
The New Testament is clearly favorable toward lending by bankers. The businessman who gave his risk-averse steward money to invest expected at least the rate of return available by placing the money in the possession of bankers, who would then lend out the money at a positive rate of interest.
Men apply a discount rate to future goods and services that are physically identical to present goods and services. The future goods and services are not equally valuable. This is not just a matter of the risk of default on the part of the borrowers. It is a matter of human action. It is an inherent aspect of the human condition. This is because of the dominion covenant. God has delegated to man economic assets. He expects a positive rate of return on these assets. The minimal positive rate of return is whatever the prevailing rate of interest is in the competitive marketplace for loans.
Here is what the money market really is: a market for time. Time is precious. It is a valuable resource. It is not given to mankind free of charge. God expects a positive rate of return on the time He gives to individuals. He holds them accountable for a positive rate of return. Because God demands a positive rate of return, people with money to lend are in a position to fulfill their obligations to God.
When people borrow money to buy consumption items, they are placing themselves as subordinates to lenders. “Rich people rule over poor people, and one who borrows is a slave to the one who lends” (Proverbs 22:7). [North, Proverbs, ch. 67] In the long run, this willingness to accept debt in order to purchase consumer goods is a mark of a slave. It is a curse. Moses warned: “The foreigner who is among you will rise up above you higher and higher; you yourself will come down lower and lower. He will lend to you, but you will not lend to him; he will be the head, and you will be the tail. All these curses will come on you and will pursue and overtake you until you are destroyed. This will happen because you did not listen to the voice of the Lord your God, so as to keep his commandments and his regulations that he commanded you. These curses will be on you as signs and wonders, and on your descendants forever” (Deuteronomy 28:43–46). [North, Deuteronomy, ch. 70]
Covenant-keepers must cultivate future-orientation. They must teach it to their children. This is an ethical matter. This is not neutral economics. There is no such thing as neutral economics. God’s goal is dominion by covenant-keepers. One way to do this is for covenant-keepers to make consumption loans to covenant-breakers. What appears to be a voluntary transaction in which both parties benefit is in fact a strategy of dominion of covenant-keepers over covenant-breakers. The lenders profit from the present-orientation of the borrowers.
Attentive readers may recognize that I have not adopted Mises’ approach to explaining interest as a category of human action, what he called the originary rate of interest. This is because Mises adopted equilibrium analysis to explain the discount for time. He called this analytical approach the “evenly rotating economy.” He compared the real-world economy to a hypothetical economy based on man’s omniscience. I offer my critique of his approach in Chapter 41, Section D: “Equilibrium.” On the conceptual error of all equilibrium analysis, see Chapter 54 in the Teacher’s Edition.
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