Balancing Now and Forever—Time Preference

Why Hyper-Prioritizing the Present will Lead to Our Demise

How do you spend your free time? Are you obsessing over the news, watching series all the time and binge drinking every weekend or do you work on yourself by reading, lifting weights, and eating healthy food? Are you focusing on today by consuming or are you building monuments for a better future. Your behavior reflects your time preference. Time preference reflects to which degree you are just enjoying yourself and neglecting everybody else—high time preference behavior—as opposed to working towards your children’s children having a great life—low time preference behavior.

An Unknown Concept

Imagine you're offered two options: a crisp $100 bill right now or a magical money tree that will yield $1,000 in a year. Which do you choose? Your decision reveals your time preference—the rate at which you value present versus future rewards. It's the tug-of-war between instant gratification and delayed satisfaction.

Although few people struggle with understanding this idea, it is not present in many philosophical discussions. Any political issue can be investigated with regard to how it affects people’s time preference. Interest rates—the price of money—reflect and influence time preference. If interest rates can form without government intervention, they show a population’s time preference. If, however, Central Banks suppress interest rates, the people are forced to spend or invest their money. This situation drives their time preference up.

Ignoring Historical Precedence

Eugen von Böhm-Bawerk was the first influential economist investigating the concept of time preference in a detailed manner. He explained how interest rates (forming freely) reflect that people value 100$ obtained today more than 100$ obtained in a year. Concretely, interest rates display how much the future sum needs to be raised to be preferred to 100$ today. Recently, Saifedean Ammous emphasized how people’s time preference and, hence, behavior is influenced by a hard or soft money in his book “The Bitcoin Standard.”

Explaining historical events through the lens of time preference gives us a new perspective. About a decade ago, the Weimar Republic experienced tremendous inflation after World War I. The idea to print the country out of its reparation payments led to people carrying money in wheelbarrows just to buy a loaf of bread. As people needed to spend their money as fast as possible, they were very short-term oriented—they had a high time preference. This is not only a recent phenomenon, though. One and a half millennia earlier, devaluing the Roman denarius contributed to the empire’s downfall. Perishing societies are characterized by a high time preference. A high time preference leads to the downfall of societies and individuals alike.

Societal Impact

The impacts of living in a society with high time preference can be clearly recognized today by just looking around. People are hyper-focussed on the present, which can be observed, for instance, in very promiscuous behavior by many instead of a search to find a partner to raise a family with. Another example is your grandfather’s coat that you can still wear today—market competition ensured a high quality—while you cannot expect to be able to wear your new coat five years from now. People being very unhealthy despite our good understanding of how to achieve and maintain health can also be explained by their high time preference. Increasing violence, people violating the Non-Aggression Principle and foregoing a prosperous future through cooperation, is a further reflection of high time preference.

Monetarily, artificially low interest rates lead to increasing malinvestment, as many investors look for a quick buck instead of a sustainably profitable investment. This is what creates business cycles. Fortunately, we do have alternatives to saving in a money losing its value forcing us to consume or invest it: We can save in gold, the historic store of value, or Bitcoin, the future store of value. If you save in a money that will appreciate, you think twice before spending it. When you buy an item, you want it to be of high value and durable. You will want to be using it for a long time. This phenomenon can be observed with bitcoiners. Looking at the community, you will find many orienting their life towards the long-term: building a family, living below their means, building their health.

Harnessing Time Preference

Personally, you can harness this knowledge, first of all, by exiting an inflationary monetary unit, since this will lower your time preference automatically. Start using Bitcoin or gold as your base unit and see yourself valuing the future more. In investing, that means you only invest in opportunities bringing an actual return measured in this base unit. You will see your tendencies towards buying worthless products decrease dramatically, because you don’t want to spend your appreciating money.

In consumption decisions, ask yourself what the long-term effect of what you consume is going to be—ponder instant versus delayed gratification. Maybe three donuts are appealing in the moment, but tomorrow you will thank yourself if you ate a decent steak instead. Your senior-self is going to thank you for an additional retirement investment instead of a new video game. Build long-term relationships, stop sleeping around, choose the cheaper car, and start lifting weights. Preferring your long-term well-being does not mean completely abandoning all fun in the present. If you feel like it, drink and party from time to time—but not every weekend. Fundamentally, you are acting with low time preference by working on yourself.

The Clock Is Ticking

As the clock ticks, remember: Every choice you make is a vote for or against your future self. So, choose wisely, invest patiently, and think long-term. Emergent societies are characterized by a low time preference, so if you want to contribute to everybody’s well-being, focus on the long-run. However, even if you only care about yourself, acting with high time preference will come back to you sooner rather than later. You can only live a sustainably good life by cherishing the future today. Where do you experience high time preference in today’s environment?

Think for yourself and question everything, my fellow liberty people!