Originary Interest

Economics Economics Questions
1

Mises says: "Originary interest is not “the price paid for the services of capital.” […] Originary interest is not a price determined on the market by the interplay of the demand for and the supply of capital or capital goods. Its height does not depend on the extent of this demand and supply. It is rather the rate of originary interest that determines both the demand for and the supply of capital and capital goods. It determines how much of the available supply of goods is to be devoted to consumption in the immediate future and how much to provision for remoter periods of the future.

People do not save and accumulate capital because there is interest. Interest is neither the impetus to saving nor the reward or the compensation granted for abstaining from immediate consumption. It is the ratio in the mutual valuation of present goods as against future goods."

Isn’t this sort of confusing? Just a direct question: Is the interest rate determined exactly like how the price of apples or oranges (or any other commodity) is determined in the market?

2

No, interest is the price of time.

3

I thought interest was the price of money. Now I’m confused!

4

I thought time was money?

Or that interest is the price paid to use someone elses money where the interest charged reflects the risk taken by the lender.

But I’m new here so anyone else have a difinitive answer?

Best, Lee

5

The interest rate

just as 50c per apple is the exchange rate (price) for trading units of money for apple or vice-versa, and we typically refer to it as the (money) price of apples, rather than the (apple) price of money. If we did the same between present and future goods, we would say that the interest rate is the (present goods) price of future goods, the money interest rate is the (present money) price of future money.