Property, Interest, and Money: Is Heinsohn and Steiger's Property Premium a Determinant of Interest?
TLDR
This paper refutes Heinsohn and Steiger's claim that a "property premium" replaces time preference as the primary determinant of interest rates.
Key contributions
- Refutes Heinsohn & Steiger's "property premium" as a replacement for time preference in interest rate theory.
- Demonstrates that arguments against time preference (Hahn, Keynes) fail on standard microeconomic grounds.
- Clarifies the property premium's role as a risk premium in ordinary collateralized credit.
- Identifies H&S's genuine contribution: a novel "third term" for money-issuing banks with real redemption obligations.
Why it matters
This paper critically re-evaluates a significant challenge to established interest rate theory. By refuting the property premium's claim to replace time preference, it reinforces foundational economic principles. It also isolates a unique contribution regarding money-issuing banks, prompting further research into non-standard financial mechanisms.
Original Abstract
Heinsohn and Steiger's "Eigentum, Zins und Geld" (1996) proposes the property premium as the foundational determinant of interest, replacing time preference. This paper examines whether the replacement succeeds. It does not. The two arguments against time preference, the savings-inelasticity claim after Hahn and the portfolio-shift claim after Keynes, both fail on standard microeconomic grounds. With time preference intact, the property premium sits within the standard decomposition of the interest rate. In ordinary collateralized credit it coincides with the risk premium. Only when the lender is a money-issuing bank with a real redemption obligation does a third term enter the decomposition that standard asset-pricing theory does not articulate. That third term is Heinsohn and Steiger's genuine contribution. The paper discusses its apparent disappearance or disguised operation after 2008, and the circularity of a property anchor measured in money.
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