Interest, The Price of Time

“The emergence of interest to incentivize lending is the most significant of all innovations in the history of finance,” according to the financial historian William Goetzmann. Edward Chancellor is also a financial historian who included that quote in his captivating book, The Price of Time. Chancellor reveals the origin story of interest, how rates were set in different civilizations, and the negative consequences of ultra-low interest rates for extended periods of time.

Interview Highlights

• A book on interest – the origin of the idea for this book
• A brief history of interest
• The myth of interest and paper money
• Calves, lambs, and other farm animals
• The true definition of usury and whether it’s a negative concept or not
• The value of time for both the lender and the borrower
• Where do rates originate?
• The U-shaped pattern of interest rates in Babylon, Greece, and Rome
• John Bull and 2%
• John Law and the Mississippi Company bubble – a flawed genius?
• The Bagehot Rule explained
• Edward’s other highly-acclaimed book, Devil Take the Hindmost

To learn more about Edward, his other books, articles, and other media appearances, you can check out his website here.

Selected Quotes on the Concepts of Interest

Below are selected quotes from the first pages of the book, The Price of Time by Edward Chancellor.

On definitions …

Among the several Hebrew words for interest are marbit and tarbit, meaning to increase and multiply.

The word usury derives from the Latin usuarius, meaning ‘one who has the use but not ownership of a thing’. In the seventeenth century, a loan was still commonly referred to as the ‘use’ of money.

On how rates were set in the past …

How the level of interest rates is determined remains one of the most perplexing problems in the field of economics.

Interest rates in Ancient Greece … remained stable for hundreds of years.

Keynes, who studied Babylonian monetary history while researching his Treatise on Money, believed that interest rates were determined by custom rather than market forces.

It is clear that interest rates were not correlated with economic growth, either in the ancient world or afterwards.

… the ancient history of interest provides no strong support for any particular view as to how the rate of interest is formed.

Books Mentioned

Below are some of the books that Edward Chancellor mentioned that are some of his favorites:

• Money of the Mind by James Grant
• Manias, Panics, and Crashes by Charles Kindleberger
• City of London: The History by David Kynaston
• John Law: A Scottish Adventurer of the Eighteenth Century by James Buchan