Anne Robert Jacques Turgot, in his criticism of usury laws, described the concept of time-preference and its role in lending at interest. Time-preference refers to the discounting of the future, and the concomitant placing of a premium upon the present. If this rate of discounting is high, the time-preference is high. If the discounting rate is low, the time-preference is low.
Since we prefer a present good to an equivalent amount of the good at some point in the future, lenders will demand, and borrowers will accept, an interest on a loan. Interest is the price of time-preference.
Higher time-preference leads to higher consumption, higher prices, lower savings, higher interest rates, and lower investments. Lower time-preference has the opposite effect: lower consumption, lower prices, higher savings, lower interest rates, and higher investments.
References
- ARJ Turgot, Paper on Lending at Interest (1770).
- Murray N Rothbard, Economic Thought Before Adam Smith (1995), Chapters 2, 14.