The Price of Time is a recently published book by Edward Chancellor. Its subtitle is “The Real Story of Interest” which makes it very topical as bank interest rates are being raised in both the USA and UK in an attempt to damp down inflation. After an era when interest rates have been at their lowest levels in the last 5,000 years, and have even gone negative in some countries, a historic review of the impact of interest rates through booms and busts is certainly worth reading. But this is a difficult book in some ways.
It's too long at 400 pages for one thing for all but the most avid reader of economic history. Why do publishers (in this case Allen Lane part of Penguin) insist on their authors padding out their manuscripts to such length? This book would have been much better at 200 pages than 400. It attempts to cover too much ground and in too much detail while not getting the key messages across.
It covers some ancient history but really gets going in a good explanation of how Scotsman John Law rescued the French economy in the 1700s by lowering interest rates and issuing paper money – similar to the modern Quantitative Easing. But thereafter that economic experiment ended in tears. The book covers the economic booms and busts in the Victorian era forward through the depression in the 1930s to the banking crisis in 2008, and the reaction of Governments.
The book attempts to answer the question of whether there is a natural rate of interest, i.e. one that would apply if the Government did not intervene as the have persistently done throughout history – from the imposition of usury laws, through debt forgiveness to modern central bank base rates.
Why is interest paid? Because an investor holding cash needs some return for the uncertainty of being repaid when money is lent. If the risk is higher then the interest paid has to be higher to attract lenders. In times of economic uncertainty such as wars, interest rates are raised.
Historically when there was a surplus of cash in the economy, interest rates would fall as there might be more lenders than borrowers. High interest rates are likely to reduce economic activity as borrowers are put off from investing in new developments such as buildings or machinery. Low interest rates should encourage economic activity and the circulation of money as opposed to the hoarding of assets.
Governments have taken a stance in recent years that lowering interest rates must be good to maintain a healthy economy but the result has been asset inflation. From stock market booms to house price inflation, if you can borrow money at very low rates it encourages speculation and the borrowing of money to buy assets.
Lenders also need a return to cover the future value of the money lent. If inflation is high, then interest will be high. Recently the Bank of England has had an inflation target of 2% while interest rates have been less for many borrowers. That made little sense. Inflation has now got out of hand but real interest rates are still effectively negative. That is essentially irrational.
The book covers the history of Government and central bank interventions in interest rates and the economy, often with unintended consequences. In that regard, it is a good education on what should or should not be done. One message is clear – artificially low interest rates are as bad for the economy as high interest rates.
The book is very well researched with numerous apposite quotations. I would recommend it to anyone interested in economic history and the trends that have made the modern world. But it could do with being shorter and having a more defined structure.
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Rw Lawson
A good review of interest rates through the ages
Reviewed in the United Kingdom 🇬🇧 on 28 August 2022Verified Purchase
MCM Customer
Good but to learn economic history
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Venkat Pillai
Magnum opus of a book on Interest rate
Reviewed in India 🇮🇳 on 30 January 2023Verified Purchase
Venkat Pillai
Reviewed in India 🇮🇳 on 30 January 2023
Edward traces back the history of Interest from 5000 BC to 500AD in Babylon, Greece, and Rome civilization. He further discusses the Japanese bubble in 1980, the subprime crisis in 2008, financial repression in China, the flip side of negative interest rates, the flight of dollars from the US to other emerging countries leading to their economic downfall, Interest rates, and wages relationships, Interest rates contribution to inequality, the effect of Interest rates on savings and retirement liabilities, so on. There are much more.
Edward quotes extensively from all economists and no less from the iconic Austrian economist Friedrich Hayek. Few nuggets here:
“Monetary policy directed at stabilizing prices administers an excessive stimulus to the expansion of output as costs of production fall, and thus regularly makes a later fall in prices with a simultaneous contraction of output unavoidable.” This is a peach from Hayek.
In the early 1930s, Hayek argued that the cure for a credit boom would not come from lowering interests or by running large fiscal deficits. If interest rates had been too low before the crisis, then reducing them further was not the answer. Instead, he believed that interest rates should be allowed to rise, along with savings (which had been too low beforehand). Poor investments should be liquidated, he added. Iceland followed in Hayek’s footsteps and came out of the 2008 crisis in much better shape than most countries.
I enjoyed reading this magnum opus of a book much as you would like to do. My interest in this book on interest is forever.
#investments #interestrates #china #economy #like
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Sk
Clear demonstration of writing Skills with Excellent Content
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msna
金融を起点にマクロ経済の総点検を試みた良書
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