Interest Is a Rate, or Ratio, between Present and Future, between Future Earnings and Present Price or Payment

Thus, Fetter was the first economist to explain interest rates solely by time preference. Every factor of production earns its rent in accordance with its marginal product, and every future rental return is discounted, or "capitalized," to get its present value in accordance with the overall social rate of time preference. This means that a firm that buys a machine will only pay the present value of expected future rental incomes, discounted by the social rate of time preference; and that when a capitalist hires a worker or rents land, he will pay now, not the factor's full marginal product, but the expected future marginal product discounted by the social rate of time preference.

As Fetter pointed out, interest is not, like rent or wages, an annual or monthly income, an income per unit time earned by a factor of production. Interest, on the contrary, is a rate, or ratio, between present and future, between future earnings and present price or payment.

--Murray N. Rothbard, introduction to Capital, Interest, and Rent: Essays in the Theory of Distribution, by Frank Fetter (Kansas City: Sheed Andrews and McMeel, 1977), 4-5.