The Price of Time: The Real Story of Interest

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On the corporate side, Chinese state-owned enterprises get state loans at a full percentage point or more lower than comparable private biz. That’s a large part of corporate bubbliness there. After reading history at Cambridge and Oxford, Edward worked for Lazard Brothers and until 2014 he was a senior member of the asset allocation team at GMO. He is currently a columnist for Reuters BreakingViews and has contributed to the Wall Street Journal, the Financial Times, MoneyWeek and the New York Review of Books. In 2008, he received the George Polk Award for financial reporting for his article “Ponzi Nation” in Institutional Investor. policy, or its effects on only a special group, and to neglect to inquire what the long-run effects of that policy 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

The first is to consider that the neediest borrowers are also the riskiest ... The second is to consider that the The reader deserves a word of warning. Interest is an extremely complex subject. Over the centuries many theories have been advanced to explain its existence. The nineteenth-century Austrian economist (and three times his country’s finance minister) Eugen von Böhm-Bawerk lists some two dozen different schools of thought in his magisterial work, Capital and Interest, ranging from the ‘fructification theory’ to what he called ‘colourless theories’ not worthy of serious consideration. fn1 JD: You left Cambridge and Oxford with an advanced degree in history but ended up working for the investment bank Lazard. Did your time in mergers and acquisitions plant the seed of a “financialized” economy in your mind, that investment bankers move money around but don’t produce much?companies with superior efficiency. Its multibillion-dollar subsidies completely distorted marketplace price and Reserve Bank of Australia governor Philip Lowe’s cautionary paper 20 years ago seems prescient in the current climate of rising inflation. Photograph: Mark Baker/AP Good inequality fosters economic growth by providing incentives for people to improve their lot, whereas bad

And as for that Borio-Lowe paper, Chancellor says they were on the money: “If you looked at real estate booms and credit booms, and put them together, you get what [they call] high-cost recessions.” megastores was deemed unaffordable and existing stores became shabby. Profits waned, leverage climbed, and The Price of Time’s later sections shift from history to interpreting recent events. Interest is presented as a master co-ordinator – the ringmaster at the centre of our financial circus. The interest rate’s “universal price” helps prioritise the allocation of capital, set savings levels, measure risk, regulate international capital flows and more. When you artificially set that price close to zero, chaos and unforeseen consequences inevitably follow, just like those out-of-control wildfires in America. EC: The Church of England has made some of the worst investment decisions in the history of mankind. So, actually, if it had set itself up as some payday lender, I’m sure it would have failed spectacularly.Historian Jerry Muller adds a corollary to Campbell’s Law, namely: ‘anything that can be measured and Then, he starts early modern history where knowledgeable people would expect: John Law and the Mississippi Bubble, with details on just how bubbly it was. From there, it’s off to Walter Bagehot, his Bank of England as “lender of last” resort and just how much that’s abused in modern times. That includes even abuse in Switzerland, regarded throughout the Western world as a model of probity. Along the way, he loops in discussions on economists in the 1600s, notes on how “easy money” led to Fugger wealth and more. More than 20 years ago, Edward Chancellor’s Devil Take the Hindmost supplied readers with one of the most engaging and incisive descriptions of financial manias ever written. That was a hard act to follow, but The Price of Time nicely fills the bill; it is a serious work of political economy that is part comprehensive guide to the world financial system’s greatest peril and part literary chocolate torte.

JD: I liked that quote. Fisher said competing theories of interest are not in fact “mutually annihilatory.”Pierre Joseph Proudhon (1809–1865), French socialist and political theorist. (Photograph: Bridgeman)

Chancellor does a great job of showing how time affects various aspects of our lives, and how understanding the value of time can lead us to make wiser decisions about our finance, work, and personal lives. The book offers a comprehensive view of time as a valuable resource that we should be mindful of, manage, and use effectively. JD: I know you’re friends with Jim Grant and you have a section in your book devoted to Walter Bagehot. Bagehot is sort of a lost figure these days. Jim Grant is one of his biographers.

Interest Is the Price of Time

EC: I think they do. As I argue in the book, the finance sector is too large. Obviously it serves a function, but traditionally in the US, I think it ran 3 percent of GDP or below, probably the same in the UK, and in both of those countries, the financial sector is now more than three times that level. And as the finance sector rises, I think it becomes a bit of an incubus on the rest of society. It ceases to provide a benign function. Or better, it does continue to provide a benign function, but there are malignant effects from a bloated financial system. These become, I think, stronger as the system, as the finance section, grows larger. And then, as I point out in the book, the periods of very strong financial growth, whether the Gilded Age, the 1920s, or more recently, are also those associated with a very strong rise in inequality. While generally cri The Price of Time" written by Edward Chancellor is an exceptional read for those who are interested in finance and economics. This well-written book gives readers a deep understanding of the value of time, from both a historical and economic point of view. This may be an early example of subsidized public lending, or perhaps the temples attracted a better class of Entertaining, useful, admirable scholarship... Chancellor seems to have read everything. -- New York Times Book Review