The present value of money is what a credit is worth when it is given. The future value of money at the time to come will be realised with a credit now, so the future value of money at the end of a credit period is already in the resources allocated to it at the beginning of the process. The future value is there, yet the process making it real has not been competed at the beginning but will be at the end. Thus, only when the future value of money for a credit is discounted with the present value of money for the credit, the interest rate can be calculated, and it depends on both the economic productivity and the likelihood of its realisation which is given in the expected value of money.
Historical Backdrop
• DAVID HUME Of Interest: accumulation.
• ANNE-ROBERT-JACQUES TURGOT Reflections on the Formation and Distribution of Wealth: the revenue is already in the capital lent.
• IRVING FISHER The Nature of Capital and Income: principle of present worth.
• KNUT WICKSELL Lectures on Political Economy: natural rate of interest.
