In his Theory of Money and Credit, Mises had based his analysis on the Wicksellian distinction between the natural rate of interest and the money rate. But this distinction was untenable in light of Mises’s work on economic calculation and on the non-neutrality of money. There is no such thing as a natural rate of interest, defined as the rate of interest that would prevail in a barter economy. And even if there were such a “natural” rate of interest, it would still be irrelevant for the analysis of a monetary economy. Money is not just a veil over a barter economy. It affects all economic relations. Prices, incomes, allocation, and social positions in an economy using money are completely different from what they would be in a society with no common medium of exchange. And so the interest rate in a monetary economy is necessarily different from what it would have been in the same economy if the market participants had decided to forgo the benefits of money. Even if one could hypothetically compare “natural” and money interest rates — which is not the case — it would not follow that intertemporal misallocations would ensue whenever the “natural” rate was higher than the money rate.
In Nationalökonomie, Mises gave a new exposition of his business cycle theory. He came up with a new benchmark to identify pernicious reductions of the monetary interest rate. The relevant benchmark was no longer the Wicksellian natural rate that would exist if the economy were a barter economy. It was rather the monetary interest rate that would exist in the absence of credit expansion.
— Jörg Guido Hülsmann, Mises: The Last Knight of Liberalism (Auburn: Ludwig von Mises Institute, 2007), p. 780.
Even if we discard Mises’ new theory of interest (a pure time preference theory of interest in a monetary economy — like Fetter’s?) as equally as untenable, what this particular excerpt from Hülsmann’s book implies (to me) is that the crucial aspect of Austrian capital theory is not the derivation of the rate of interest but, in Sraffian terms, the inducement of severe intertemporal resource misallocation. The underlining requirement for Austrian business cycle — and this is clear even in Hayek’s Prices and Production — is an increase in the stock of money representing savings and the distribution of this money to entrepreneurs. This is why, in Human Action, Mises gives more weight to fiduciary expansion than the rate of interest.
Even in Prices and Production, the emphasis is put not on the rate of interest, but on the prices of capital goods of different stages of production. What ultimately causes the structure of production to lengthen and widen are these price signals; the rate of interest is relevant only because Hayek (and Mises) recognized the loanable funds market as the main artery of intertemporal allocation and a relevant cost (the cost of borrowing theoretically reflecting the scarcity of capital goods). Why did Hayek use a concept of the rate of interest foreign to the England of 1931? I would say, because this was not what was really important in what he was trying to get across — he used it as a tool available to help illustrate his argument, similar to the use of the concept of equilibrium (in Profits, Interest, and Investment he makes clear that his real goal is to explain how monetary changes can cause changes in the rate of profit, more so than in the rate of interest).
This does not mean that rate of interest is unimportant; just that Austrian capital theory does not hinge on the concept of a “natural rate of interest.”