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The Price of Time: The Real Story of Interest

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Review : A comprehensive and profoundly relevant history of interest from one of the world’s leading financial writers, The Price of Time explains our current global financial position and how we got here  In the beginning was the loan, and the loan carried interest. For at least five millennia people have been borrowing and lending at interest. The practice wasn’t always popular—in the ancient world, usury was generally viewed as exploitative, a potential path to debt bondage and slavery. Yet as capitalism became established from the late Middle Ages onwards, denunciations of interest were tempered because interest was a necessary reward for lenders to part with their capital. And interest performs many other vital functions: it encourages people to save; enables them to place a value on precious assets, such as houses and all manner of financial securities; and allows us to price risk. All economic and financial activities take place across time. Interest is often described as the “price of money,” but it is better called the “price of time:” time is scarce, time has value, interest is the time value of money. Over the first two decades of the twenty-first century, interest rates have sunk lower than ever before. Easy money after the global financial crisis in 2007/2008 has produced several ill effects, including the appearance of multiple asset price bubbles, a reduction in productivity growth, discouraging savings and exacerbating inequality, and forcing yield starved investors to take on excessive risk. The financial world now finds itself caught between a rock and a hard place, and Edward Chancellor is here to tell us why. In this enriching volume, Chancellor explores the history of interest and its essential function in determining how capital is allocated and priced. Read more

 

Review : This book is well-written, and is pretty-well suited to a non-professional audience. The author makes a strong argument that when central banks peg interest rates too low, it damages the economy in a number of ways, even if the central bankers manage to avoid triggering consumer price inflation, as the US Federal Reserve managed to do between 1995 and 2019. The author's point is that a lot of the economic problems we face right now could have been avoided if the Fed had had the courage to raise rates when they should have back in the 1990s and 2000s. Just because you can keep the CPI in line, it doesn't mean you aren't rotting out the foundations of your economy. Well, the foundations are rotted out, and it's time to pay the price. I suspect it's going to be a rather large one.