Economics
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The Price of Time: The Real Story of Interest
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.
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.
Editorial Reviews
Praise for The Price of Time:
"Interest rates haven't simply fallen-they were pushed. And by their pushing, the world's central banks have constructed the hall of mirrors in which every investor has become, of necessity, a speculator. So argues Edward Chancellor in this brilliant chronicle of the most important prices in capitalism. You must read it. It is a masterpiece of history, analysis-and properly understated outrage."-James Grant, editor of Grant's Interest Rate Observer
"I wish The Price of Time were the book that I had written. I am reminded of Keynes's letter to Hayek after reading The Road to Serfdom where he said ‘In my opinion it is a grand book. We all have the greatest reason to be thankful to you for saying so well what needs so much to be said. I find myself in agreement with virtually the whole of it, and not only in agreement but in a deeply moved agreement.'"-William White, former Chief Economist, Bank for International Settlements
"Is it possible to write a highly engaging history of the world going back to Hammurabi, unfolding along the way a bitingly comprehensive explanation for its problems today, all told through a single character? Apparently yes. Edward Chancellor has done it, an achievement all the more notable since his drama is built around a character so unheroic on its surface: his ‘price of time' is interest rates. This is a timely, vitally important and hugely readable book."-Ruchir Sharma, Chairman, Rockefeller International and New York Times-bestselling author
"Chancellor provides a different, more compelling, and more frightening explanation of the world's slowing economies: central banks' now decades-long love affair with artificially low interest rates . . . One of the book's joys is its relevance to both political policy and personal finance . . . Chancellor's encyclopedic grasp of economic history shines through on nearly every page . . . Besides being a first-rate economic historian, Chancellor is also a master wordsmith; almost unique among serious finance books, The Price of Time serves well as bedtime reading." -William J. Bernstein, author of A Splendid Exchange, in Enterprising Investor
"Interest rates haven't simply fallen-they were pushed. And by their pushing, the world's central banks have constructed the hall of mirrors in which every investor has become, of necessity, a speculator. So argues Edward Chancellor in this brilliant chronicle of the most important prices in capitalism. You must read it. It is a masterpiece of history, analysis-and properly understated outrage."-James Grant, editor of Grant's Interest Rate Observer
"I wish The Price of Time were the book that I had written. I am reminded of Keynes's letter to Hayek after reading The Road to Serfdom where he said ‘In my opinion it is a grand book. We all have the greatest reason to be thankful to you for saying so well what needs so much to be said. I find myself in agreement with virtually the whole of it, and not only in agreement but in a deeply moved agreement.'"-William White, former Chief Economist, Bank for International Settlements
"Is it possible to write a highly engaging history of the world going back to Hammurabi, unfolding along the way a bitingly comprehensive explanation for its problems today, all told through a single character? Apparently yes. Edward Chancellor has done it, an achievement all the more notable since his drama is built around a character so unheroic on its surface: his ‘price of time' is interest rates. This is a timely, vitally important and hugely readable book."-Ruchir Sharma, Chairman, Rockefeller International and New York Times-bestselling author
"Chancellor provides a different, more compelling, and more frightening explanation of the world's slowing economies: central banks' now decades-long love affair with artificially low interest rates . . . One of the book's joys is its relevance to both political policy and personal finance . . . Chancellor's encyclopedic grasp of economic history shines through on nearly every page . . . Besides being a first-rate economic historian, Chancellor is also a master wordsmith; almost unique among serious finance books, The Price of Time serves well as bedtime reading." -William J. Bernstein, author of A Splendid Exchange, in Enterprising Investor
Readers Top Reviews
book maven
This book is both a fascinating history and, in its later stages, a piercing critique of recent monetary policy trends. Chancellor does a a marvellous job of killing a few sacred cows and upending some key points of widespread economic consensus. Recent media coverage contrasting this book with Ben Bernanke’s new book has completely failed to engage substantively with Chancellor’s material. There is much more here than the FT and Economist make out. Should be required reading for economics undergrads and postgrads.
Darren
Someone needed to write this book and Edward Chancellor has done an outstanding job.
NJKathleen Holmes
The Price of Time, in the best case, is a misnomer. The book is not a story of interest rates despite the occasional attempts to weave them into the narrative. Its first part provides summaries of a few most celebrated historic bubbles, followed by a long, unstructured diatribe on the state of current markets, economic structures, and policy frameworks. There is nothing wrong with these topics. The author's attempts fall short because of how the content appears manipulated, like the title of the book, to emphasize his discomfort with the way things are. The author is right in pointing out numerous current ills from the extreme and rising inequality to market valuations, corporate abuses and policy adventurism, real-life reflexivities of financial events and externalities including climate damage, etc. The author is not alone in listing these issues. These topics are covered continuously by a rising horde in a far more effective manner almost daily in books and journals. This book has little primary research. Worse, its reliance on the points made by others is so inconsistent that the arguments often lose credibility. For instance, the author would lament the lack of creative destruction in one paragraph but have long sections on individual companies that go bust. He would appear to favor the Austrian school of thought and Hayek, but still, have digs at Greenspan's connections with Ayn Rand or the regulatory failures in controlling the powers of today's giants in some other sections. The inconsistencies are worse when the author discusses two sides of any interest rate level. The book would criticize how low rates hurt the pensioners relying on interest income, but mind savers benefiting from rising wealth levels of financial instruments. The author never realizes how much the two groups overlap and why retirees worldwide have not gone up in arms against low-interest rates decades later. Take another argument in the same vein: the author would criticize low-interest rates for luring students and consumers of all types to borrow but would still want funding available to these groups all the time for the betterment of the masses. Once again, the conclusions are not wrong. The problem is the ad hocism in the arguments used to support them. It is ok to use quotes from both Marx and Smith or Keynes and Mises to point out any unsustainability, but when it happens too often, it all begins to jangle. For example, the author does not like central banks because of their lack of policy framework. He seems to believe in the Austrian worldview that argues against fiat money, seen as the leading cause of the boom-bust cycle in the prices of financial assets and possibly also real-life goods/services. The book does not like cryptocurrencies, though - and for all the right reasons. Somehow, the author sees a solution in governmen...
Kevin ColdironTom
The book has enlightening history on the various explanations of interest - is it the price of money, risk, relative power, time? The 2nd part of the book takes a close look at the impact of ultra-low interest rates. They are supposed to stimulate growth, but do they? You might not agree with all the arguments but I found it really worthwhile to read and consider them.
