Rate of Interest and Intertemporal Preferences in Multisectoral Frameworks: A Critical View

ABSTRACT This paper analyses a closure of Sraffa's price system found in some neoclassical literature, which involves equating the rate of interest with the rate of time preference. This closure aims to reconnect the rate of interest with individuals' intertemporal preferences. We identify two significant shortcomings of this approach: its reliance on the notion of capital as a single factor and the restrictions on individual preferences arising from intertemporal consumption choices. These limitations cast doubt on the plausibility of linking the interest rate to intertemporal preferences, particularly regarding the thriftiness of an economic system, thereby highlighting ongoing challenges in neoclassical capital theory.