Murray Rothbard's Greatest Contribution to Capital Theory Was to Unify Jevon's Approach and Hayek's Approach

The shortcoming of Jevons’s presentation is that he did not include in his trapezoids detailed factor payments. He only analyzed interest payments in the investment process. The shortcoming of Hayek’s presentation is that his trapezoids are focused on the distinction between capital goods and original means of production, while interest payments are omitted. Rothbard’s greatest contribution to capital theory was to unify both approaches and place them in the context of the marginal-pricing process. A table developed by him decomposes all spending into the earnings of all the factors of production, intermediate and original ones, by including interest alongside labor and land. We have no reason to exclude any of them, especially if we want to construct a complete micro- and macroeconomic framework of the economy.

Rothbard’s Trapezoid

--Mateusz Machaj, Money, Interest, and the Structure of Production: Resolving Some Puzzles in the Theory of Capital, Capitalist Thought: Studies in Philosophy, Politics, and Economics (Lanham, MD: Lexington Books, 2017), 52.

Murray Rothbard Thinks Abstinence Theories Are Close to Pure Time-Preference Theories of Interest and He Develops His Bargaining Theory of Interest Formation

Rothbard in his framework adhered to what he called pure time-preference theory. Despite this classification of his own, we may see some important differences between him and his Austrian forerunners. First, in his history-of-thought textbook, he does not agree with Böhm-Bawerk’s arguments against all abstinence theories. He actually says abstinence theories are quite close to pure time-preference theories since their main focus is the passage of time. Time preference accounts for the disutility of waiting. One can therefore state that Rothbard saw himself as a presenter of the broader tradition of analyzing interest. . . .

Rothbard starts to develop his bargaining theory of interest formation in the market, and in this lies his great contribution to interest theory: treating interest like any other price formed purely by actors in the market.

--Mateusz Machaj, Money, Interest, and the Structure of Production: Resolving Some Puzzles in the Theory of Capital, Capitalist Thought: Studies in Philosophy, Politics, and Economics (Lanham, MD: Lexington Books, 2017), 28.