What Is Time Preference? Why Sound Money Rewards Patience

Time preference is the technical term, from the Austrian School, for how much you value the present relative to the future. A low time preference means you are willing to defer consumption today for a larger benefit tomorrow. A high time preference means you want it now, at the cost of everything else.

It is one of the most powerful explanatory variables in economics. It is also rarely discussed outside a small circle of Austrian economists and Bitcoiners. This is unfortunate, because it explains almost everything about how a society organises itself.

The Mechanism

When money holds its value over time, saving is rational. A unit of currency earned today will still purchase roughly the same goods in twenty years. There is no penalty for patience. Under these conditions, people tend to save, invest in long-term projects, marry, raise children, build businesses that take decades to mature, and plan for the next generation.

When money loses value over time, saving is irrational. A unit of currency earned today will purchase fewer goods every year you hold it. There is a penalty for patience. Under these conditions, people tend to consume now, borrow heavily, prefer short-term investments, chase yield, speculate, and discount the future aggressively.

This is not a moral observation. It is a response to incentives. Rational actors adjust their time preference to match the monetary regime they live under.

What Changed in 1971

Before the end of the gold standard in 1971, the industrialised West had been operating for about a century on a monetary system that rewarded saving. Long-term interest rates were low and stable. Household savings rates were high. Capital was patient.

After 1971, all of that began to shift. Savings rates fell. Household debt rose. Speculative finance expanded as a share of GDP. The average holding period of a stock fell from about seven years in the 1960s to less than a year by 2020. These are not unrelated trends. They are the natural response of a rational population to a currency that no longer holds its value.

Bitcoin and the Reverse

A currency that cannot be debased — one whose supply cannot be expanded at will — restores the incentive to save. If what you earn today will still buy the same amount ten years from now, there is no reason to rush to spend it. There is no reason to chase yield. There is no reason to take on debt for appreciating assets.

This is why Bitcoiners sometimes talk about Bitcoin "lowering time preference." It is not mystical. It is mechanical. A sound money regime produces patient behaviour because impatience no longer pays.

The civilisational consequences are large. Patient societies build cathedrals that take three generations to complete. Impatient societies build financial products that expire in ninety days. The currency determines which one you get.

Questions people ask

What is high time preference?

A strong preference for having things now: spending rather than saving, borrowing against the future, choosing quick returns over long projects. Everyone has some, and it varies with age, circumstance and the incentives around us.

What is low time preference?

A willingness to give something up now for more later: saving, learning skills, building things that take years. Low time preference is what makes saving and investment, and so rising living standards, possible.

How does money affect time preference?

If money holds its value, saving it is rewarded, so waiting pays. If money loses value every year, holding it is punished, which pushes people to spend now or take risks with assets. Over time, the money people use shapes the habits they form.

Who came up with time preference?

Austrian economists developed it: Eugen von Böhm-Bawerk in the 1880s, and later Ludwig von Mises, who made it the basis of his explanation of interest rates.