The Price of Time: The Real Story of Interest

This book is about the role of interest in a modern economy. It was inspired by a Bastiat-like conviction that ultra-low interest rates were contributing to many of our current woes, whether the collapse of productivity growth, unaffordable housing, rising inequality, the loss of market competition or financial fragility. Ultra-low rates also seeme

traditional view that charging for loans was inherently unjust.

Interest exists because loans are productive, and even when not productive still have value. It exists because those in possession of capital need to be induced to lend, and because lending is a risky business. It exists because production takes place over time and human beings are naturally impatient.

For Turgot, the world of finance was a mirror held up to the world, with real and financial assets exchangeable for each other. Since land, buildings and factories produce income, so money must yield interest. This important insight is too often overlooked by modern economists.

connection between nature’s productivity and interest was suggested by nineteenth-century German economist Karl Arnd, who claimed that the interest rate was regulated by ‘the proportion, in which the timber in European forests is augmented through their annual growth … at the rate of 3 or 4 to 100. As a result interest in these countries cannot fal

The argument of this book is that interest is required to direct the allocation of capital, and that without interest it becomes impossible to value investments. As

Interest is the wage of abstinence, said Senior.

Yet our modern monetary mandarins never stop to consider Bagehot’s warnings about the adverse consequences of easy money – how interest rates set at 2 per cent or less fuel speculative manias, drive savers to make risky investments, encourage bad lending and weaken the financial system. One wonders whether any of them has actually opened the pages

‘Paradoxical as it may seem, the riches of nations can be measured by the violence of the crises which they experience,’ opined the nineteenth-century French economist Clément Juglar.13 Once creative destruction is taken into account, Juglar’s observation doesn’t appear so puzzling.