Theory of Interest

“The theory of interest passed from the mystical-divine sphere
to the para-scientific and to the scientific field”

Carlos A. Bondone

With the retrospective analysis of this text you can follow the historical evolution of the theory of interest, from antiquity up to the last formulation of the Theory of Economic Time (TET), at the beginning of the twenty-first century.

We will clearly show that recurring currency-financial crises, which belong “exclusively” to capitalism, draw on the unfortunate theories of interest and currency developed in the twentieth century.

Also, the reader will discover that the mistakes of the theories of interest and currency typical of twentieth century schools (Austrians, Keynesians, and monetarists) have the same origin in the unfortunate theoretical dichotomies of Böhm-Bawerk and Knut Wicksell, and their differences refer to secondary issues.

Thus we can see that TET answers the correct questions posed by these three giants of economic thought:

…Because Menger, far from welcoming that theory as a development of suggestions of his, severely condemned it from the first. In his somewhat grandiloquent style he told me once: “The time will come (the birth of TET?) when people (TET?) will realize that Böhm-Bawerk’s theory “is one of the greatest errors ever committed”. (Joseph Schumpeter, 1954, p. 847, note 8)

A good theory of interest… must offer a simple and unified explanation of the value of time, wherever it is manifest… (Frank Fetter)

We cannot be satisfied with the current state of monetary theory. (Friedrich A. Hayek)

Here TET clearly shows the reason for the disorientation of science regarding the diagnosis and treatment of recurring currency and financial crises that belong exclusively to capitalism. And it offers a concrete, consistent, and durable proposal for the current international crisis.

The text concludes with a proposed summary of economic thought, from the classics up to TET, and presents the foundations for new economic models that can help manage everyday issues (im = pm ó im ≡ pm; S ≠ I, etc.)

Buenos Aires, August 2011

Carlos A. Bondone

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