TOMORROW, AND TOMORROW, AND TOMORROW

So, one last time, let us lay out the argument developed above in the hope of eliminating all obscurity, for it is a pivotal one and therefore one which must be well understood if we are to challenge the very substance of the perilous theorizing of our Lords and Masters.

With positive real rates – which, we must again emphasize, simply imply that the instantaneous price ratio between goods today and goods tomorrow is greater than unity – the primal temptation is for the consumer to eat as much as he can, even including his seed corn, and so to yield to the pleasures of the moment in disregard of the needs of the morrow.

Thus, the inveterate consumer – whether a willing spendthrift or some unfortunate piece of human flotsam washed away by an inflationary tide severe enough to shut off all access to the future (as well as to dissolve many of the mutually-enriching interconnections of the present) – can only end up bereft of all capital, deprived of everything which leverages up his puny human strength in the face of a pitiless Nature, and reduced to foraging for his existence in what is likely to be more of a Bolivarian purgatory than a blissful, Rousseauan paradise.

Faced with this underlying proclivity – and given sound enough  institutions within which do so – the producer must tempt his neighbour temporarily to spare some part of his right to consumables by giving a credible promise of returning a greater, a better, or a more highly-prized alternative quantity after enough time has elapsed for the former’s entrepreneurial transformation to be completed.

If such an offer fails to be sufficiently persuasive, the project will be much-delayed, if not actually stillborn. The producer is thus paying to save himself the time he would otherwise require to set aside the resources necessary to his undertaking out of the fruits of his own, ongoing efforts – a task which may of course be utterly beyond his capacities to discharge.

Conversely, where he does secure to himself the requisite means, he must then strive to generate enough surplus value from his efforts in as short a time as possible, not only to meet his obligations to his creditor, but also to earn his own reward on top – which residual sum is the profit which marks out his success as a creator of value. Had he no adequate expectation of future profit as the due reward for his present toil, he would of course not trouble himself in the first place. Here, then, is a further manifestation of a positive real rate of time discount at work.

With Summer’s imagined negative rates, however, this all goes into reverse as the present:future goods ratio falls crazily below parity.

Now the common urge will be to starve to death, obsessively squirrelling away the forest acorns or planting only the slowest growing among them; prizing the glacial pace at which the mighty oak will one day emerge to spread a fluttering shadow over the early grave of its soon-famished planter.

The producer will be paid (in goods or coin which he, too, will try to lock away in some needlessly long-lived format) to overcome his own distaste and take the acorns away. Far from being commissioned to fructify or multiply them as much and as rapidly as possible, he will be asked to give only some fraction of them back as long afterwards as possible.

He will thus be enjoined to waste time, not to economize on it. He will have his reward regardless of any poor stewardship of the goods in his charge – not that he will want that bounty, of course, since he, too, will wish to defer indefinitely his enjoyment of the goods over which its receipt will give him command. In fact, in contrast to the businessman in our Non-Summers world, he would be more than happy to have his reluctantly-tendered invoices languish long unpaid, his payment terms arbitrarily extended and – at the extreme – would even heartily welcome the disembarrassment of gain which ensued from an outright default.

Faced with such a blizzard of paradox and acutely wary of the impenetrable tangle of malign consequences which it conceals from our gaze, all we can say is: No, Larry! Real natural interest rates cannot ever be negative!