Time Preference

Categories: Home -> Economics

This article is part of the Basic Course on Libertarianism and the Austrian School of Economics-> Module 5: Austrian Economics and Free Market

Last updated: 2026-05-01

Definition

Time Preference is:

the proportion of value that an individual assigns to a good in the present compared with that same good in the future.
the natural and universal human tendency to value present goods more than identical future goods.

“Time preference” is a topic developed by the Austrian School, especially Eugen von Böhm-Bawerk.

1. The base: “A bird in the hand…”

All else equal, we all prefer to satisfy a desire now rather than later. This is not by whim, but for two logical reasons:

The finitude of life: The future is uncertain and we do not have life guaranteed. A good today is a reality; a good tomorrow is a promise.
The scarcity of time: Time is the only resource we cannot recover. Postponing a satisfaction is, technically, losing time of enjoyment.

Every human being, in every time and place, prefers to satisfy his needs as soon as possible, because the future is uncertain and life is finite.

2. High vs. Low Time Preference

Here is where economics becomes interesting, since each person has a different “degree” of preference:

HIGH Time Preference (Present orientation):
- The individual wants immediate satisfaction.
- He is not willing to wait; he prefers to consume today even if that means having less tomorrow.
- Result: Little saving, little interest in long-term projects, and a greater tendency toward indebtedness.
LOW Time Preference (Future orientation):
- The individual is capable of postponing his gratification.
- He is willing to sacrifice a pleasure today because he values more the security or growth of tomorrow.
- Result: High saving, investment in capital goods (tools, education, machinery), and sustainable economic growth.

Why does time preference exist?

Böhm-Bawerk gave three deep reasons:

Present needs are more urgent
Today’s hunger hurts more than tomorrow’s hunger.
Uncertainty of the future
No one knows whether he will be alive tomorrow (mortality, risks).
Subjectivism + Marginal Utility
The marginal utility of a good diminishes with time. A future good always has lower subjective utility than the same present good.

3. The process of Civilization

From the Austrian point of view (especially authors such as Hans-Hermann Hoppe), the history of civilization is the process of lowering time preference.

The hunter-gatherer has high preference: he consumes what he hunts that day.
The farmer has low preference: he stores seeds, waits months for the harvest, and builds granaries. That sacrifice of “not eating the seed today” is what generates the wealth of tomorrow.

4. Connection with interest and saving

Interest is the price of time.
It is the compensation the saver demands for renouncing present goods.
Saving is the voluntary act of lowering time preference: postponing consumption to free real resources.
That saving allows longer productive processes:
Example:
- Without saving: you fish with your hands (short process).
- With saving: you manufacture a net (longer process) → you fish much more afterward.

The lower a society’s time preference, the longer and more productive its capital structure.

5. What affects our Time Preference?

It is not static; it changes according to the environment:

Legal Security: If you believe your savings will be stolen tomorrow (through taxes, inflation, or insecurity), your time preference rises (you spend everything today because tomorrow you may not have it).
Stability of Money: * If money loses value (inflation), people prefer to get rid of it quickly. Inflation artificially raises society’s time preference. * People think: “money is devaluing → better spend today.” This destroys saving and generates economic cycles.
Stage of life: Generally, children have extremely high time preference (they want everything now), while mature adults usually have it lower, thinking of their retirement or their children.

Visual summary

Low Time Preference = Saving → Investment → Capital Goods → More Wealth.
High Time Preference = Total consumption → Debt → Decapitalization → Poverty.

In summary, time preference is the filter through which we decide whether we act for the “me of today” or for the “me of tomorrow.”