In any real economy, it’s obvious that interest rates will shape people’s saving decisions, is it not? So doesn’t this means that an individual’s “time preference” is shaped by the thing it is supposedly meant to explain?
Quoting economist Joan Robinson:
“But there may be some savers who have the psychology required by the text books and weigh a preference for present spending against an increment of income (interest, dividends and capital gains) to be had from an increment of wealth. But what then? Each individual goes on saving or dis-saving till the point where his individual subjective rate of discount is equal to the market rate of interest. There has to be a market rate of interest for him to compare his rate of discount to.”
Does the “Marginal Value” Theory of Prices Not Involve a Circularity?
In any real economy, it’s obvious that prices will shape people’s buying decisions, is it not? So doesn’t this means that an individual’s demand schedule is shaped by the thing it is supposedly meant to explain?
Each individuals time preference is unique and subjective.
The market rate of interest may never equal an individual’s subjective rate, if only for a moment in time perhaps. Some folks subjective rate will tend to be higher than the market rate while other folks subjective rate will tend to be lower.
Robinson is flawed in assuming that “each individual goes on saving or dis-saving till the point where his individual subjective rate of discount is equal to the market rate of interest” since she assumes the 'market and subjective rates to be fixed over time and not vibrantly dynamic as they are in a free market.
I’m not exactly sure what comparison you’re trying to make here. Mises’ response to this was the money regression theorem—but what does that have to do with interest?
Basically that prices do not alter the demand-schedule of an individual. Any change in price will of course alter the quantity demanded, but this is a move along the individual’s demand curve, not a shift in it.
Your time preference is your preference to having money now to having money in the future. So if the interest rates are low, most people will have higher time preferences since their choices will be having money now to having slightly more money in the future. But if interest rates are high, most people should have a lower time preferences, since their choices would be having money now to having a lot more money in the future.
So no, there is no circularity involved. What is involved is how prices effect human behavior to coordinate resources.