The Price of Time: The Real Story of Interest

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A comprehensive and relevant history of interest from a leading financial writer explains our current global financial position and its origins. For at least five millennia, people have borrowed and lent at interest, a practice once viewed as exploitative in the ancient world, often leading to debt bondage. However, as capitalism emerged in the late Middle Ages, the condemnation of interest softened, recognizing it as a necessary incentive for lenders to provide capital. Interest serves vital functions: it encourages saving, helps value precious assets like houses and financial securities, and allows for risk pricing. Economic activities unfold over time, making interest not just the "price of money" but more accurately the "price of time," reflecting its scarcity and value. In the early twenty-first century, interest rates have plummeted, a consequence of easy money following the 2007/2008 financial crisis. This has led to asset price bubbles, reduced productivity growth, discouraged savings, increased inequality, and compelled yield-starved investors to assume excessive risks. The financial world now faces significant challenges, and the author elucidates the historical context and essential role of interest in capital allocation and pricing.