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Just a brief note. In both American and Austrian economics, there was a kind of
subjectivist revolution occurring toward the end of the 19th and early twentieth century.
In the U.S. Frank Fetter and Herbert Davenport represented a view that time preference
should be paramount in any discussion of interest. The material conditions of society were
secondary, even on the demand side of the loanable funds cross, to human knowledge of the
way factors of production could be used to satisfy time-specific wants.
 
>From this point of view, the effect of the rate of growth of any particular kind of tree
on the rate of interest would depend on knowledge about the wants that could be satisfied
with the trees at various stages of maturity at different times in relation to how they
could be satisfied by other factors of production. Whatever the biological imperative
happened to be, the important point is that the "true facts" had to be filtered through
entrepreneurial minds that were interested in profits generally and not only profits that
could be earned from owning forests.
 
>From this point of view, it would be out of the question to try to identify a kind of
natural rate of interest based on scientifically determined tree growth rates unless one
had reason to believe that the materials derived from mature trees were needed to
satisfying _all_ wants. On the demand side of loanable funds cross, knowledge of the
natural growth of trees had to be balanced with such factors as the changing exchange
value of the trees, of the land on which the trees were grown, of any other factor of
production used in the process of managing the forest, and knowledge of the exchange value
of other resources that are totally unusable in tree production. The latter two factors
open the door to the panoply of elements that entrepreneurs take into account in
appraising all of what they come to regard as the factors of production. Also on the
demand side are the preferences of people with high time preference. On the supply side
are the preferences of  people with low time preference. Of course, people do not have
time preference in some abstract sense. Time preference is expressed by their demands for
goods at various times.
 
Beyond this, Davenport's loan fund theory of interest incorporated a theory of money into
interest theory by recognizing that people may create purchasing power if they believed
that existing purchasing power was not available to finance what they believed would be
profitable ventures. If they were correct.
 
The point of writing this message is to suggest that those thinkers who conceived of a
natural rate of interest based on tree growth were out of step with what was, at the time,
considered progress in economic thought by leading Americans and Austrians.
 
Pat Gunning 
 
 
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