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.

It Is for His Service in Paying Factors Now That the Capitalist Earns an Interest Return, a Return for Time Preference

If we assume, for example, that there are no business loans but only stock investment, this point is easier to understand. When a man saves and invests in a productive process, he pays workers and other factors now in exchange for services that will yield a product, and therefore an income, at some future time. In short, the capitalist-entrepreneur hires or invests in factors now and pays out money (a present good) in exchange for productive services that are future goods. It is for his service in paying factors now, in advance of the fruits of production, that the capitalist normally earns an interest return, a return for time preference. In sum, every factor of production (whether labor, land, or capital goods) earns, not its marginal value productivity, according to the current conventional explanation, but its marginal productivity discounted by the interest rate or time preference; and the capitalist earns the discount.

--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), 11-12.