Hello brilliant people. I would love to get your advice on the way that I’m wording the concept of originary interest and how it relates to credit expansion. Here’s what I wrote down after reading HA today:
“Originary interest, or the price spread between future goods and present goods becomes increased as the distortion arrises through the aritifical lowering of the gross market rate of interest. In other words, more lengthy production processes are deemed profitable as the costs of the investment into these longer processes shrinks in relation to the future selling price of the eventual consumer good.”
Is what I’m saying above correct? More specifically, is the way I’m using the concept of originary interest and the gross market rate of interest correct?
By originary interest, do you mean the natural market rate as determined by time preferences, and by the gross market rate do you mean the actual market rate as determined by other factors? If so it sounds right to me, though I don’t think I’ve ever heard those terms used in that way before.
By originary interest (the way that I’m interpreting it) is the price spread that entrepreneurs make by selling present goods and buying future goods determined by time preferences. And by the gross market rate I mean the actual interest rate on the loan market determined by other factors (risk, supply and demand, ect)
I just want to make sure I’m not interpreting what Mises is saying in the wrong way.
In the Austrian framework the natural rate of interest is no different from the natural prices: It too is determined by risk and such. What Mises calls a distorted rate of interest is one caused by a nonmarket factor such as royal fiat or FRB.