Hello Javier,

Thank you very much for: expanding the discussion, informing the piece with the writings of Fisher, and expressing your opinion so clearly. All of the preceding is met with appreciation.

I have not read the Fisher discourse that you reference. However, I have spent a lot of time thinking about the risk-free rate of return and have several responses to what you have shared:

* I am not certain whether or not you read my first piece on the risk-free rate of return, in it I expressed that to talk of "risk-free return" in the same framework that says that return is the inducement for taking on risk creates an oxymoronic situation.

* In the previous piece I also said that the notion of a bedrock rate of return, as opposed to "risk-free" is an intelligent notion. That admission allows for discussion about what would serve as an appropriate proxy for bedrock return.

* I agree with Fisher that productivity is not an interest rate, but neither is the "risk free rate of return" an interest rate. Instead, the risk-free rate of return is a concept. So that then shifts the context of the discussion to whether or not it is a valid concept. As I said above, I don't think it is a valid concept. Instead I favor a bedrock rate of return. If this concept is agreed to be existentially valid then it makes sense to quantify the value of the bedrock rate.

* I agree with Fisher's example of the bushel of wheat. Recognition of this same issue is why I suggested two things: multifactor productivity, and multifactor productivity over long swathes of time.

* Multifactor productivity recognizes the value of a new idea, as well as better use of land, labor, and capital.

* "Multifactor productivity over time" recognizes that there are revolutionary ideas and inventions that can create short-term explosions in productivity, as well as productivity blind alleys during recessions and depressions.

* I disagree with Fisher that his "bushels of wheat" example is scalable to the whole economy. First, bushels of wheat are a subset of the overall economy and its overall collection of ideas, inventions, businesses, use of factors (like wheat), willingness to work, etc. that compose the entire economy. Some factors see explosive growth in productivity, and some shrinking. This is why I began my discussion above with how to capture, at a minimum/bedrock, economic growth - the goal of investing. Yet, an economy, as measured, can also represent too much money supply, too many mouths to feed, and other distortions. Interest rates also reflect many of these same distortions. That interest rates fluctuate so massively over time is proof that they reflect distorting factors and therefore cannot be relied upon as a bedrock rate of return.

At the end of the day, investing relies upon one fundamental transaction, those with a surplus of resources, but a deficit of ideas working with those with a surplus of good ideas, but a deficit of resources to find a way to get more from the same set of resources, or the same from a smaller set of resources. The economy at its core is the collection of all of the choices individuals make, both good and bad.Rates of return are call options on innovation. So rates of return are dependent on the economy expanding and not the other way around. When we invest we seek to capture the benefits of innovation for ourselves. Rates of return are contingent on this. Fisher seems to have framed it in the reverse. Put another way, the human desire to make one's life better seems to be undistorted through time, and a more bedrock concept than interest rates which reflect the supply and demand of money. The supply and demand of money does reflect productivity/innovation, but it also reflects other factors such as monetary policy, irrational exuberance, and other distortions that create volatility.

* Last, if I were asked to bet on a two horse race, where the winner would not be known for one hundred years, I would bet on the productivity horse every time, and not the constant maturity treasury horse.

* Okay, second last, sorry...please feel free to reject any of the above, what matters is your opinions of the world working for your view of the world.

Jason