Theory of Interest

Mises grounded interest in time preference — the universal preference for present goods over future goods. Fekete argued this was insufficient. Interest, in Fekete's framework, is grounded in the marginal productivity of capital and follows a hyperbolic, not linear, curve.

The Geometric Framework

Fekete modeled interest rates using hyperbolic geometry. As rates approach zero, the curve does not flatten — it enters a regime where the normal arbitrage mechanisms break down. Zero interest rates are not “stimulus” — they are the destruction of the capital structure.

Why It Matters

If Fekete is right, central bank interest rate policy is not just misguided — it is structurally destructive. Manipulating rates below their natural level doesn't just misallocate capital; it destroys the price signal that capital allocation depends on.