Property, Interest, and Money: Is Heinsohn and Steiger's Property Premium a Determinant of Interest?

TL;DR

This paper critically evaluates Heinsohn and Steiger's property premium theory of interest, concluding it does not replace time preference and clarifying its role within standard interest rate decomposition.

Contribution

It demonstrates that the property premium does not replace time preference and introduces a third term relevant for money-issuing banks, clarifying its economic significance.

Findings

The property premium does not replace time preference.

In collateralized credit, the property premium coincides with the risk premium.

A third term appears only with money-issuing banks with redemption obligations.

Abstract

Heinsohn and Steiger's "Eigentum, Zins und Geld" (1996) proposes the property premium as the foundational determinant of interest, replacing time preference. This paper examines whether the replacement succeeds. It does not. The two arguments against time preference, the savings-inelasticity claim after Hahn and the portfolio-shift claim after Keynes, both fail on standard microeconomic grounds. With time preference intact, the property premium sits within the standard decomposition of the interest rate. In ordinary collateralized credit it coincides with the risk premium. Only when the lender is a money-issuing bank with a real redemption obligation does a third term enter the decomposition that standard asset-pricing theory does not articulate. That third term is Heinsohn and Steiger's genuine contribution. The paper discusses its apparent disappearance or disguised operation after 2008, and the circularity of a property anchor measured in money.