The Natural Rate of Interest Is a Theoretical Construct and It Can Be Thought of As the Direct “Price of Time”; Banks Exist to Trade Time

Since Wicksell, the natural rate of interest has been understood to be the rate that directly reflects actors’ underlying time preferences, i.e., the degree to which they discount the future. The natural rate is a theoretical construct and unobservable in the market. It can be thought of as the direct “price of time.” Because we cannot exchange time directly, financial intermediaries such as banks have evolved to trade time in the form of money. The supply and demand for loanable funds correspond, respectively, to a desire to part with time by pushing consumption to the future and a desire to acquire time by pushing consumption into the present.

--Steven Horwitz, "Monetary Disequilibrium Theory and Austrian Macroeconomics: Further Thoughts on a Synthesis," in Money and Markets: Essays in Honor of Leland B. Yeager, ed. Roger Koppl, Foundations of the Market Economy (London: Routledge, 2006), 174-175.

Roger W. Garrison Gives Three Answers to the Cantabrigian Question: “So Why Is the Aggregate Production Function Still Widely Used in Neoclassical Macro Economics?"

It is not difficult to imagine substantive answers to the confrontational question posed by Felipe and McCombie (“Why is the aggregate production function still widely used . . . ?”). Three such answers suggest themselves: (1) The alleged paradoxes are not so paradoxical once the particulars of the trumped-up instances of them are fully understood. (2) The particular temporal profiles of reswitching-prone techniques are sufficiently quirky as to warrant neglect in setting out fundamental supply-side principles – a mode of argument that has its parallel in the neglect of the Giffen good in setting out fundamental demand-side principles. (3) No actual instances of the paradoxical supply-side phenomena have ever been identified by the Cantabrigians – there not being even so much as a suspected instance to parallel the suspected upward-sloping demand for Giffenesque potatoes in Ireland during the mid-nineteenth-century famine.

--Roger W. Garrison, "Reflections on Reswitching and Roundaboutness," in Money and Markets: Essays in Honor of Leland B. Yeager, ed. Roger Koppl, Foundations of the Market Economy (London: Routledge, 2006), 188.