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There is no such thing as a negative interest rate

There is no such thing as a negative interest rate

We Austrian economists are used to having terms corrupted, misused and redefined by statists and others who love and advocate strong central control of money and power. The term “inflation” is a prime example. We Austrians refer to “inflation” as creating new fiat money–as in inflation of the money supply. This is in sharp contrast to what we commonly hear in the mainstream media and from all Keynesian influenced economists, who use the term to describe a general increase in prices. Now nearly everyone thinks of inflation in this sense, so much so that we Austrians must always be careful to say “inflation of the money supply” whenever we use the term “inflation”.

Those of us of a libertarian political persuasion, which includes many (but not all) Austrian economists, likewise bristle at how modern statists have hijacked and corrupted the term “liberal”. Liberal is a term that is derived from the word “liberty”. Ludwig von Mises even penned a book titled “Liberalism“. Naturally, it contains not one reference to what today’s so-called liberals advocate; i.e., erosion of property rights and statist intervention in almost all aspects of life.

However, now we Austrian economists are faced with a term that is new. It is NOT a term that has had a prior meaning and has been corrupted and re-defined.. It is a new, made up and wholly fabricated term– “Negative Interest Rate”.

Interest is founded on time preference

The rate of interest is founded on an innate trait of the human condition. All other things being equal, humans desire goods and services earlier rather than later. Austrian economists refer to this human trait as “time preference”. Those who desire things sooner rather than later are said to have a high time preference. Likewise, those who desire things later rather than sooner are said to have a low time preference.

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