Thursday, December 29, 2016


Time is of the essence when it comes to deciding the actual agio of a good. The agio, mark up, rate of return or interest rate are all decided by the difference between the buying and selling prices of goods.

In order to understand how an agio is formed, one must first grasp the concept of time. Everything exists within time. Time is scarce and man must economize his time accordingly. Man subjectively values the time in which his actions are rendered, or in which he will exist.

Moreover, man always values money now more than he values money in the future. Rothbard would point out that one tends to discount future goods at a higher rate than present goods. The inverse can be stated as one garners a higher premium for present goods as compared to future goods.

Everything is dependent upon time, and points in time are indeed subjective. Present time is manifested in one's action, when they make their choice on their value scale. The Future exists at any later point in time, it is the action not undertaken.

Thus, as mentioned in my previous blog post about the rate of interest manifesting itself in an individual's choices by using their income, one can also see this confection in the structure of production.

Let us recapitulate, present goods are tantamount to those entities being consumed, in example, the monetary unit of exchange. One sells money, and buys a television.

Future goods are tantamount to those entities being bought or wielded, wherefore, savings (consumption withheld) will be money used in the future. It is hoarded.

Transferring this basic Austrian theory to the structure of production, a Capitalist will advance factors to the various stages of the production process. The Capitalist will use savings, selling money to purchase future goods. These future goods are capital goods.

The Capitalist will hold these goods for a period of time, mixing them with land and labor until a final consumer's good is produced in the future. This consumer's good is then sold at a mark up or rate of return.

Recollecting the common theme of subjective value, we find that for one actor a consumer's good is a present good and for another actor, a capital good is a future good.

Accordingly, savings is also a subjective construct. Holding money in one's pockets is outside of the savings-investment process, whereas money held in demand deposits is still considered savings. Here we arrive at a new discussion of assets withheld earning an agio, and those which are consumed. I believe I have just gone full circle.

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