5 - Making Monetary Wealth Circulate

Summary

Together with money and the discount rate, the long-term interest rate represents the third variable to which Del Vecchio anchored his theory of circulation: he treated it with the same marginal approach as applied to the other two but eventually worked out a rather eclectic theory. This supposed originality did not diminish the crucial role played by the interest rate in Del Vecchio's monetary equilibrium, as expressed by the fact that the interest rate precedes the value of money without the latter influencing it. This means that a theory of money implies an existing theory of interest, not the contrary. In this regard, Del Vecchio was in good company: the already-mentioned Böhm-Bawerk, Wicksell, Fisher, Adolphe Landry, among others.

Already in the first paragraphs of his long essay ‘General Outlines of the Interest Theory’ (‘Lineamenti generali della teoria dell'interesse’) focused on this topic, Del Vecchio spoke of a subjective long-term interest rate presented as the ratio between the utility of current goods and the utility of future ones, where, evidently, changes in the utilities signify interest rate changes. This simple definition immediately recalls Böhm-Bawerk's theory that interest is an agio between current and future goods. In effect, Del Vecchio started from Böhm-Bawerk's future premium to arrive at Fisher's more subjective conception of the interest rate, but conceiving the latter as a relationship between current and future value, not as revenue from a specific production factor, as stated in Böhm-Bawerk.