The Price of Time

The Real Story of Interest

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The author, Edward Chancellor, is a financial journalist. But this is every bit a scholarly work, laden with footnotes and references, its scope sweeping in both time and space. It's also very opinionated, arguing a point of view that (a) is very compatible with my own; and (b) underappreciated by the world at large.

It's about interest. And isn't it funny that a topic that a lot of people would find boring is called "interest"?

Chancellor's history goes back a long way. He argues that interest, as an economic phenomenon, actually predates the invention of money. (And also the wheel.) How? Well, if you lent out some breeding livestock to a customer, you would expect to be repaid, after a time, with more livestock. And this is reflected today in our language: "Our word capital comes from caput, a head of cattle."

Obviously, from the title, Chancellor argues that interest is "the price of time". And (further) argues that imposing a rate of interest on an economy is conceptually no different from price controls on any other good or service. Which means you're just begging for trouble down the road: accordant distortions, gluts, and shortages. But (historically and currently) the predominant mistake with interest rates is in setting them too low. This causes capital investors to desperately seek out better returns elsewhere, which causes no end of trouble, like bubbles. (Hey, anyone remember Gamestop?) Chancellor convincingly argues that too-low rates encourage monopoly and oligopoly, as people already in the "tippy top" of the economic pyramid are in the best position to reap gains from other peoples' malinvestment.

Chancellor at times sounds as if he's a Sanders/Warren class warrior, railing about "inequality". But he's not, really. Page 299:

Most commentaries on inequality discuss it as a question of degree, but not all inequality is created equal. In fact, development economists distinguish between "good" and "bad" inequality. Good inequality fosters economic growth by providing incentives for people to improve their lot, whereas bad inequality benefits a particular class (rent-seekers). Good inequality grows the economic pie, whereas bad inequality is associated with stagnation. Unconventional monetary policies have fostered the worst kind of inequality.

Obviously, Chancellor's no fan of the Fed's recent history.

The history here is of varying degrees of interest (heh), but there are occasional fascinating details. Montagu Norman, onetime Governor of the Bank of England, is called "eccentric." Well, he was once a patient of Carl Jung. He was given to showing up "in his trademark velvet cape and wide-brimmed soft hat." And he was best buds with Hjalmar Schacht, president of Germany's Reichsbank. In fact, they "often enjoyed holidays together, booking into resort hotels under assumed names, so as not to attract attention."


Well, if Jerome Powell starts showing up in Congressional hearings in a velvet cape and a wide-brimmed soft hat, it might be time to worry a bit more than you already are.

But (I admit) sometimes the history can get a little tedious; I sometimes go into "look at every page" reading mode when things get too sluggish; at some points here, I dropped below that, searching for paragraphs that I might be interested in reading.

But overall, Chancellor is on the side of the angels. He approvingly quotes Hayek throughout. In fact, his conclusion chapter is subtitled "The New Road to Serfdom". Which (to a Hayek fan like me) is both gratifying and extremely worrying.

Last Modified 2024-01-13 12:58 PM EDT