The Price of Time: The Real Story of Interest

By Edward Chancellor

The first book of the next crisis. A history of interest rates by a leading financial commentator, updated with a new postscript.

*Winner of the 2023 Hayek Book Prize*
*Longlisted for the 2022 Financial Times Business Book of the Year Award*

All economic and financial activities take place across time. Interest coordinates these activities. The story of capitalism is thus the story of interest: the price that individuals, companies and nations pay to borrow money.

In The Price of Time, Edward Chancellor traces the history of interest from its origins in ancient Mesopotamia, through debates about usury in Restoration Britain and John Law ' s ill-fated Mississippi scheme, to the global credit booms of the twenty-first century. We generally assume that high interest rates are harmful, but Chancellor argues that, whenever money is too easy, financial markets become unstable. He takes the story to the present day, when interest rates have sunk lower than at any time in the five millennia since they were first recorded - including the extraordinary appearance of negative rates in Europe and Japan - and highlights how this has contributed to profound economic insecurity and financial fragility.

Chancellor reveals how extremely low interest rates not only create asset price inflation but are also largely responsible for weak economic growth, rising inequality, zombie companies, elevated debt levels and the pensions crises that have afflicted the West in recent years - conditions under which economies cannot possibly thrive. At the same time, easy money in China has inflated an epic real estate bubble, accompanied by the greatest credit and investment boom in history. As the global financial system edges closer to yet another crisis, Chancellor shows that only by understanding interest can we hope to face the challenges ahead.

• Language: English
• Publisher: Penguin
• Release date: Jul 7, 2022
• ISBN: 9781802060164

Reviews for The Price of Time

[willszal-1 · Rating: 3 out of 5 stars]

This is the second Chancellor book that I've just read, the first being "Devil Take the Hindmost," a history of financial speculation. If you've read that book, a good bit of the first third of this one will be familiar.

Chancellor's central thesis is that interest rates establish asset prices and that interest rates over the past fifteen years have been dangerously low.

As this book is a mix of history and current analysis, Chancellor comes across as a curmudgeon (as opposed to the more scholarly tone of "Devil Take The Hindmost"). If you're willing to forgive this, the book is a worthwhile investigation into a range of issues surrounding interest rates.

For all their importance, Chancellor does note the challenges of precisely establishing the true interest rate (nominal interest with inflation factored in) at any given moment. That said, it is still possible to establish a ballpark number.

An interesting fact from the history: did you know that Mesopotamia had two interest rates? They had a rate of 33% for barley loans, and 20% for silver loans.

I feel like Chancellor's takedown of Piketty's theory that wealth inequality increases when growth is less than the rate of return on capital is unfair. Chancellor is talking about interest rates while Piketty focuses on return on capital; Chancellor conflates the two, when they are distinct. In commercial banking, return on capital is the difference between market rates and central bank rates. To try to boil down return on capital to just bottom line interest misses a lot of the nuance and difference across different sectors and times in history.

There are a few areas in the book that are worth exploring further. In particular, I'd love to learn more about appropriate and inappropriate uses of demurrage. Chancellor seems to feel that it is inappropriate across the board, but I think this is a fundamentalist stance. I'm also interested in further exploring the ways that interest rates should or shouldn't enter into credit-based (as opposed to commodity-based) monetary systems.

Overall, Chancellor does make a strong case that interest rates should be somewhere in the 5% region.

If you're a finance geek, you'll like this book. If anything, interest rate rises over the past two quarters have vindicated Chancellor's position.