The Price of Time Quotes

“After Augustus’ death, the Emperor Tiberius hoarded money, with the result that interest rates rose above the legal limit and a banking crisis erupted in AD 33. Tiberius then decided to lend out the imperial treasure free of interest to patrician families, which brought about an immediate decline in interest rates and an end to the crisis.55 His actions constituted the world’s first experience of quantitative easing.fn9”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“As Bastiat understood, a very low rate of interest may benefit the rich, who have access to credit, more than the poor.”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“Summers also claimed that technology was reducing the demand for capital. Digital businesses, such as Facebook and Google, had established dominant global franchises with relatively little invested capital and small workforces. In his book The Zero Marginal Cost Society (2014), the social theorist Jeremy Rifkin heralded the passing of traditional capitalism.16 If the Old Economy was marked by scarcity and declining marginal returns, Rikfin argued that the New Economy was characterized by zero marginal costs, increasing returns to scale and capital-lite ‘sharing’ apps (such as Uber, Lyft, Airbnb, etc.). The demand for capital and interest rates, he said, were set to fall in this ‘economy of abundance’. There was some evidence to support Rifkin’s claims. The balance sheets of US companies showed they were using fewer fixed assets (factories, plant, equipment, etc.) and reporting more ‘intangibles’ – namely, assets derived from patents, intellectual property and merger premiums. In much of the rest of the world, however, the demand for old-fashioned capital remained as strong as ever. After the turn of the century, the developing world exhibited a voracious appetite for industrial commodities that required massive mining investment. China embarked on what was probably the greatest investment boom in history. Before and after 2008, global energy consumption rose steadily. The world’s total investment (relative to GDP) remained in line with its historical average.17 Rifkin’s ‘economy of abundance’ remained a tantalizing speculation.”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“As a cynical pamphleteer observed, demands for lowering interest were really designed for the ‘ingrossing all trade, into the hands of a few rich Merchants, who have Money enough of their own to Trade with, to the excluding all young men, that wants it’.13”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“Prehistoric peoples probably charged interest on loans of corn and livestock. The association between interest and the fruit of a loan is embedded in ancient languages. Across the ancient world the etymologies of interest derive from the offspring of livestock. The Sumerian word for interest, mas, signifies a kid goat (or lamb).2 The ancient Egyptian equivalent ms means to give birth.3 In ancient Greek interest is tokos, a calf. Among the several Hebrew words for interest are marbit and tarbit, meaning to increase and multiply. The Latin for interest, foenus, connotes fertility, and for money, pecunia, is derived from pecus, a flock. Our word capital comes from caput, a head of cattle. These derivations, claim Sydney Homer and Richard Sylla, imply that interest originated with loans of seeds and of animals. These were loans for productive purposes. The seeds yielded an increase. At harvest time the seed could conveniently be returned with interest. Some part or all of the animal’s progeny could be returned with the animal. We shall never know but we can surmise that the concept of interest in its modern sense arose from just such productive loans.”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“Our earth is degenerate in these latter days: bribery and corruption are common; children no longer obey their parents; every man wants to write a book, and the end of the world is evidently approaching. Assyrian tablet, c. 2,800 BC”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“Wilson then goes on to provide a new definition of interest: ‘Usurye is also saide to be the price of tyme, or of the delaying or forbearing of moneye.’ Interest has been described in many ways over the years – it’s often referred to as the ‘price of money’. But Wilson knew better. Interest, he said, is the price of time. There is no better definition. In”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“The most encompassing view of interest is contained in the notion of interest as the ‘time value of money’ or, simply, as the price of time.”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“This book is about the role of interest in a modern economy. It was inspired by a Bastiat-like conviction that ultra-low interest rates were contributing to many of our current woes, whether the collapse of productivity growth, unaffordable housing, rising inequality, the loss of market competition or financial fragility. Ultra-low rates also seemed to play some role in the resurgence of populism as Sumner’s Forgotten Man started to lose patience.”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“Firms in industries with the greatest increase in concentration enjoyed higher profits. But, as Adam Smith observed, monopolies don’t serve the public good. Rather, monopolies create barriers to entry which discourage the establishment of new firms and innovation.29 Rising industry concentration was associated with higher pay for senior executives, a decline in workers’ bargaining power, and falling investment and R&D. Economists at the National Bureau of Economic Research found that while ‘low interest rates have traditionally been viewed as positive for economic growth … extremely low interest rates may lead to slower growth by increasing market concentration.”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“If interest rates are kept below their natural level, misguided investments occur: too much time is used in production, or, put another way, the investment returns don’t justify the initial outlay. ‘Malinvestment’, to use a term popularized by Austrian economists, comes in many shapes and sizes. It might involve some expensive white-elephant project, such as constructing a tunnel under the sea, or a pie-in-the-sky technology scheme with no serious prospect of ever turning a profit.”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“Low interest rates fed the demand for credit, while financial innovation increased its supply.”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“The fever for start-ups didn’t spread far beyond Silicon Valley. In fact, new business formation in the United States fell sharply after 2008. In 2016, business deaths outnumbered births for the first time since the Census Bureau started keeping records in 1978.”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“Unicorns could be seen as a second class of zombie, wrote a correspondent to the Financial Times, ‘whose owners and investors can keep them alive by constant waves of propaganda about their cutting edge technology which has yet to produce a profit (Uber, for example) but are supposedly part of ‘disruption’ culture. This advertising keeps the flow of investments going. These companies are using the talent of engineers and coders, and marketing specialists that could be used in more productive enterprises. The hope that someday they will be profitable does not justify the destruction of useful and profitable business models.39 The large-scale misallocation of resources into loss-making businesses whose profits exist in Never-Never Land is a sign that the cost of capital is too low. Bring down interest rates low enough and even unicorns can fly and, soaring too high, they inevitably crash.”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“At least Japan had sufficient domestic savings to fund its escalating national debt and printed its own currency. Europe’s stricken periphery wasn’t so fortunate. Take Draghi’s homeland. In the fifteen years since the start of the euro project, Italy enjoyed no increase in income per capita and labour costs climbed relative to Germany’s, rendering Italian exports uncompetitive. Italy’s public debt trailed only Japan’s and Greece’s. Italian banks were loaded down with hundreds of billions of euros of bad debts. Many of its largest businesses were certified zombies. Political sclerosis accompanied the economic version. The IMF warned that ‘in the absence of deeper structural reforms, medium-term growth is projected to remain low.’30 Without adequate economic growth, Italy’s sovereign debt problems and the Eurozone’s existential crisis remained unresolved. As in Japan, easy money bought time, but time was wasted.fn6”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“When doubts about the survival of the single currency surfaced in 2010, the financial markets started to view countries on Europe’s periphery, from Ireland to Greece, as over-indebted and uncompetitive. Bound by euro-fetters, members of the Eurozone could not regain competitiveness by devaluing their currencies. Instead, interest rates across the region diverged, with highly indebted countries, including Italy and Greece, suddenly forced to pay hefty risk premiums. Meanwhile German bond yields headed into negative territory. Deflation beckoned. Deleveraging was in order. To bring down labour costs, the PIIGS were going to have to embrace deep structural reforms. Unemployment in Spain climbed to Great Depression levels. Schumpeter’s forces of creative destruction were about to be unleashed, big time.”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“Paradoxical as it may seem, the riches of nations can be measured by the violence of the crises which they experience,’ opined the nineteenth-century French economist Clément Juglar.13 Once creative destruction is taken into account, Juglar’s observation doesn’t appear so puzzling. Some economists take a ‘pit-stop’ view of recessions, seeing them as periods when efficiency measures are most likely to be undertaken.14 Business failures, which soar during economic downturns, are seen as essential to the economy’s evolution over time. As the saying attributed to the former astronaut and airline boss Frank Borman goes, ‘capitalism without bankruptcy is like Christianity without hell.’ If that is the case, then monetary policy should not interrupt a recession’s cleansing effect.fn4 Put another way, if financial stability is destabilizing (as Hyman Minsky maintained), too much economic stability induces sclerosis.”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate … It will purge the rottenness out of the system. High costs of living and high living will come down … enterprising people will pick up the wrecks from less competent people. Andrew Mellon, 1932”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“Borio cast aside the money veil to reveal a world of asset price bubbles, financial cycles, and credit booms and busts: ‘Think monetary! Modelling the financial cycle correctly … requires recognising fully the fundamental monetary nature of our economies,’ was Borio’s clarion call.7 The financial system, he asserted, doesn’t just allocate resources, it generates purchasing power. It has a life of its own. Finance and macroeconomics are ‘inextricably linked’. We inhabit a looking-glass world. Finance does not mirror reality, but acts upon it.fn2 Economics without finance, said Borio, is like Hamlet without the prince.”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“The highly abnormal is becoming uncomfortably normal. Claudio Borio, 2014 As we have seen in Chapter 3, David Hume held that money was a mere representation of things. A loan may be denominated in money, but what is actually lent is a certain quantity of labour or stock, he maintained. Given money’s fictitious value, Hume believed that a change in the amount of money would affect prices but not interest. In his view, interest was determined by frugality (savings) and industry (the return on capital). The Scottish philosopher imagined what would happen if money dropped like manna from Heaven: For, suppose that, by miracle, every man in GREAT BRITAIN should have five pounds slipt into his pocket in one night; this would much more than double the whole money that is at present in the kingdom; yet there would not next day, nor for some time, be any more lenders, nor any variation in the interest … this money, however abundant … would only serve to encrease the prices of every thing, without any farther consequence … The overplus of borrowers above that of lenders continuing still the same, there will follow no reduction of interest. That depends upon another principle; and must proceed from an encrease of industry and frugality, of arts and commerce.”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“As Gordon’s book The Rise and Fall of American Growth went to press in early 2016 (its publication facilitated by digital technologies), the internet continued to disrupt countless industries while the media fanned fears of an impending ‘second machine age’, in which robots replace human workers. Gordon’s Northwestern colleague Joel Mokyr suggested that a ‘shortfall of imagination [is] largely responsible for much of today’s pessimism’. Mokyr listed a number of revolutionary new technologies then under development, including 3D printing, graphene and genetic engineering, to which might be added autonomous cars and clean energy.19 Finance writer William Bernstein accused secular stagnationists of conflating what they couldn’t conceive with that which was not possible.20 Hansen made the same mistake. The most reliable prediction, Bernstein concluded, is to assume that past economic trends continue.”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“The mistake in setting targets lies in assuming that relationships between variables – in this case a certain measure of the money supply and inflation – are stationary. In the real world, human behaviour responds to attempts at control. ‘The essence of Goodhart’s Law,’ write John Kay and Mervyn King in their book Radical Uncertainty, is that ‘any business or government policy which assumed stationarity of social and economic relationships was likely to fail because its implementation would alter the behaviour of those affected and therefore destroy that stationarity.”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“Metrics serve to stifle innovation and creativity; they imitate science but resemble faith. When an institution is guided by some specific target, critical judgement is suspended. In the 1970s, the American social scientist Donald Campbell pointed out that ‘the more any quantitative social indicator is used for social decision-making, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social processes it is intended to monitor.’ Historian Jerry Muller adds a corollary to Campbell’s Law, namely: ‘anything that can be measured and rewarded will be gamed.”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“History, it is said, is written by the victors. In the late 1920s, Hayek claimed that monetary policy had taken the wrong course and predicted a deflationary bust. Irving Fisher, on the other hand, saw nothing wrong at the time with either America’s economy or its monetary policy, famously opining in the summer of 1929 that US stocks had reached a ‘permanently high plateau’. If accuracy of prediction is what matters for economic theory, as Milton Friedman later claimed, then Hayek’s interpretation should have become the received wisdom of his profession. Yet the Austrian’s interpretation of the 1920s and its aftermath has been more or less air-brushed from the history books, while Fisher’s monetarist view has become received wisdom.”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“An axiom of the Austrian school was that interest is necessary so that investment and consumption decisions are co-ordinated over time.55 As we have seen, Böhm-Bawerk argued that the rate of interest reflects society’s time preference. He also claimed that the level of interest determines how much capital is tied up in production, and thus the return on capital.fn11 When interest is determined in a free market, he said, time preference and the return on capital should equalize. The danger comes when the authorities interfere with interest rates. When interest rates are pushed too low, credit takes off and bad investments (‘malinvestment’) abound.”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“By placing too low a discount on the future earnings of companies, investors ended up paying too much. The discounting error was widely acknowledged at the time. In early 1928, Moody’s Investors Services declared that stock prices had ‘over-discounted anticipated progress’.30 After the crash, Benjamin Graham and David Dodd wrote in their book Security Analysis that the late 1920s witnessed ‘a transfer of emphasis [in the valuation of stocks] from current income to future income and hence inevitably to future enhancement of principal value’.31 Or, as the market analyst Max Winkler memorably described: ‘The imagination of our investing public was greatly heightened by the discovery of a new phrase: discounting the future. However, a careful examination of quotations of many issues revealed that not only the future, but even the hereafter, was being discounted.”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“Easy money is the great cause of over-borrowing. When an investor thinks he can make over 100 per cent per annum by borrowing at 6 per cent, he will be tempted to borrow, and to invest or speculate with borrowed money.”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“In February 1876, Bagehot reflected on the foreign lending craze. It was a familiar story. Periods of low domestic interest rates, it seemed, made the specious promise of high yields on foreign debt particularly attractive: the human mind likes 15 per cent; it likes things which promise much, which seem to bring large gains very close, which somehow excite sentiment and interest the imagination. The manufacturers of ‘financial schemes’ know this, and live by it. A long and painful experience is necessary to teach men that ‘15 per cent’ is dangerous; that new and showy schemes are to be distrusted; that the popular instinct on them is essentially fallible, and tends to prefer the brilliant policy above the sound – that which promises much and pays nothing, above that which, promising but little, pays that little.68”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“Bagehot penned an editorial (The Economist, 23 November 1867) ‘On the Dangers of Lending to Semi-Civilised Countries’. The borrower under scrutiny was Egypt. It was not a question of that country’s great resources or agricultural fertility. Rather, what is required for the repayment of foreign debts, wrote Bagehot, is ‘a continuous polity; a fixed political morality; and a constant possession of money’. Egypt did not possess these qualities. The editorial concluded starkly: ‘We lend to countries whose condition we do not know, and whose want of civilisation we do not consider, and, therefore, we lose our money.’66”
― Edward Chancellor, The Price of Time: The Real Story of Interest

“In Das Kapital, Marx made an insightful comment on the failure of Overend Gurney. High interest might indicate prosperity, wrote Marx, but it could also indicate ‘that the country is undermined by the roving cavaliers of credit who can afford to pay a high interest because they pay it out of other people’s pockets … and meanwhile they live in grand style on anticipated profits.’54”
― Edward Chancellor, The Price of Time: The Real Story of Interest