Question: Is the Robinson Crusoe example supposed to communicate anything about the interest rate or is it simply supposed to illustrate that more roundabout production processes tend to be more productive? What exactly can be said about the interest rate (or even proto-interest rate) in the Crusoe scenario?
FOTH,
Sorry I haven’t responded to your earlier post. It’s on my to do list (I’ve been vaguely AWOL on these forums lately) and I only just realized that it’s been a week since your post. So I’ll answer your second question here.
In the Crusoe example the net is supposed to show the importance of taking time for production instead of consumption. The Interest rate is likened to his time preference, since this is the Austrian view of what interest signals within society. The question I’ve always had is what the saved fish are supposed to signify.
Edit
2400th post
No problem. Take your time. I took nearly a week to respond to your post.
In the Crusoe example the net is supposed to show the importance of taking time for production instead of consumption. The Interest rate is likened to his time preference, since this is the Austrian view of what interest signals within society. The question I’ve always had is what the saved fish are supposed to signify.
I can see how time preference, rate of savings, and production vs. consumption come into play in this example, but I do not think it communicates anything about the interest rate, or I should say, the real interest rate. I agree that more savings are necessary to undertake more roundabout processes of production. I think I even agree that time preference correlates to the rate of saving. But I do not think that the average rate of savings in a society necessarily correlates to the rate of interest, nor do I even suppose that there is a tendency for it to. We might introduce into the Crusoe scenario a second person who offers to lend Crusoe fish during the time he builds the net/pole. If the rate of interest is low, Crusoe might accept the loan, and we might then say that this loan funds the enterprise. But if the rate of interest is high, it doesn’t mean that Crusoe will no longer engage in the production process. After all, we already concluded that he would if he were by himself. Why would the presence of a lender now stop him from saving his own fish to fund the project as before? (BTW, I think the saved fish are supposed to signify capital funds, or production funds.)
This is just meant to clarify my previous post for when you have time to respond.