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All people prefer a given end to be achieved sooner rather than later. This is the universal fact of time preference. The further in the future the attainment of the end appears to be, the less preferable it is. The less waiting time, the more preferable is the end.

It may be called the preference for present satisfaction over future satisfaction or present good over future good, provided the same satisfaction (or good) is compared over periods of time.[1]

Preference for future goods[]

It is sometimes objected, that future goods may be more preferred. For example, in winter a man will care little for ice, but will crave to have it in summer. But a good is not an item with certain material properties. The good "ice-in-the-summer" provides different (and greater) satisfactions than "ice-in-the-winter", they are different goods. In this case, different satisfactions are being compared, while the physical property of the thing may be the same.[1]

Savings and Time preference[]

To enjoy greater consumption, man must extend his productivity first. Since acquiring the increased productivity comes with a cost — namely, time spent away from using the old method of production and consumption — there must be some means of paying that cost. This is the role of savings. Some people have refrained from consumption in the past so that others can be sustained and create the new structure.

Savings remain key to this process of capital construction, and it is the time preference, that manifests itself in savings. Time preference is the extent to which people value current consumption over future consumption. If people enjoy current consumption so much, that the promise of an increased future consumption cannot bring them to save (and sacrifice the current level of consumption), the production will not be improved.

The thrust of the Austrian Business Cycle Theory is that credit inflation distorts this process, by making it appear that more means exist for current production than are actually sustainable. Since this is in fact an illusion, the endeavors of entrepreneurs to create a structure of production not reflecting actual consumer time preferences (as manifested in available savings for the purchase of producer goods) must end in failure.[2]


  1. 1.0 1.1 Murray N. Rothbard. "4. Further Implications: Time", Chapter 1-Fundamentals of Human Action, Man, Economy and State, online edition, referenced 2010-01-10
  2. Dan Mahoney. "Austrian Business Cycle Theory: A Brief Explanation", Mises Daily, May 07 2001, referenced 2010-01-10.

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