Study Guide to Man, Economy, and State with Power and Market

100 Study Guide to Man, Economy, and State with Power and Market
other technological advances, can allow for a continual rise in
the standard of living.
6. The Beneficiaries of Saving-Investment
When land and labor factors are invested in lengthier
processes, their physical output is greater, leading (eventually)
to higher per capita consumption. Net investment (and the
corresponding aggregate profits) allow for temporary gains to
the investors, but ultimately all increases in productivity will
be imputed to the land and labor factors (raising rents and
wages).
7. The Progressing Economy and the Pure Rate of
Interest
An increase (decrease) in gross investment can only occur
because of an antecedent drop (rise) in time preferences, which
will also cause a drop (rise) in the pure rate of interest.
8. The Entrepreneurial Component in the Market
Interest Rate
In the real world, market rates of interest reflect not merely
the underlying “pure” interest rate (due to time preference) as
it would exist in the ERE, but also the varying degrees of uncertainty
involved in a particular process. For example, a bank
might give a loan at 5 percent to a very large firm that has been
in business for decades, whereas it might charge 8 percent to a
smaller venture that is just opening. This isn’t because the
bankers have a higher degree of time preference in the latter
case, but rather because there is a greater likelihood that the
second borrower will default on the loan.