The Theory

Abstract

No great mind had earlier placed the rate of interest in the context presented by Irving Fisher. He had taken a notion developed in 1834 — that capital accumulation and the interest rate interact to optimize human wellbeing at each moment of time — and tied together capital and interest with the concepts of mortality, wealth, foresight, family regard, and self-control. More than two decades after the publication of The Rate of Interest in 1908, Fisher revisited and rewrote the treatise in 1930. Retitled The Theory of Interest and redefining self-control as impatience, he redrew intertemporal choice in a way that has been applied in finance ever since.