March 4, 2025 • 28 mins
Out of interest, what price do you put on your time?
'The Price Of Time' by Edward Chancellor is a look at interest rates across history and what effects they have had on human behaviour & therefore economic activity. His central argument is that the current rates of interest seen in modern times are too low and have led to distorted & unproductive outcomes. It consists of 3 parts split into 18 chapters with a small series of charts and photographic plates.
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Timeline:
(00:00:00) Intro
(00:01:52) Themes/Questions
(00:18:52) Author & Extras
(00:23:20) Summary
(00:25:52) Value 4 Value
(00:28:18) Join Live!
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Kyrin Down (00:00):
Out of interest, what price do you put on your time?
Welcome everyone to another episode of the Mere Mortals Book Reviews. I'm your host here, Kyrin, live on the 03/05/2025,
'11 AM Australian Eastern Standard Time on a Wednesday.
(00:20):
As you might surmise, this is the podcast where I praise our central bank overlords for their prescience and their all encompassing wisdom.
Okay. No. I don't do that on this podcast, and I'm not sure I ever will. I am very much sure that I never will. But what we do have here today is an interesting book on interest, the price of time, the real story of interest.
(00:43):
This book was published in 2022.
It's 314
pages in length,
about twelve hours reading to get through in total because it is pretty thick in terms of the word count and density and what you're actually going over in here. What this book is, it's a look at interest rates across history, what are interest rates and what effects they've had on human behavior and therefore on economic activity.
(01:06):
The central argument that he contains within this book is that the current rates of interest for roughly the last three centuries are too low.
And that
this has led
to distorted outcomes
and basically unproductive
economic activity
as a whole, as well as a series of asset prices and bubbles that have formed. So it consists of three parts the book in total, and it also has these
(01:35):
with 18 chapters being contained within that, as well as like a series of photographic plates right in the middle,
And some charts,
which also showcase
interest rates in term and, you know, GDP and things like that, which
within the book itself.
So let's jump on to the main themes and questions. What is interest? What does it do historically? How has it changed over time? What happens when governments and bankers
(02:00):
start to get involved and mess around with it? Well, let's start off with the the definition, I guess. And in the section right at the start where he begins to describe this,
he has a pretty strong caveat, a word of warning. And I think it's an apt word of warning,
which is,
in my terms here that much like inflation,
it's very much discussed,
(02:21):
little defined and
extremely complex in nature,
of of its,
what actually constitutes it. So with that being said, as the name of the book implies, he ties it to the time and the price of time.
So,
the time value of money, I guess, is is one way of putting it. So simply put, the present moment is more valuable
(02:45):
and more certain than the future. And this is why just intuitively,
we will know if I asked you, would you want $10 Now? Or would you want $1,000
In, you know, one thousand years time,
you're going to choose the $10 Now, because that $1,000 like, what's what's that going to do? How's that going to work? There's no
interest. There's there's nothing for you there in that period.
(03:09):
As we bring it closer to,
you could now say, would you rather $10 now or $20
in in ten minutes time? Okay. Most people are probably going to choose the the $20
in ten minutes. What about $10.01
in in twenty minutes time or an hour's time? You're like, oh, okay. That's kinda,
it'd be a bit tedious and I've got things to do. So now I'll just take the $10 now.
(03:31):
So this is the kind of calculations that go into what our interest and we can see that
money changes over time and that therefore time and
has a
an impact on what money is
in terms of its value, which is is rather funny. So therefore, what I've once again, my kind of words here optionality,
(03:52):
which is what money provides, you can do things with money, you can buy stuff you can,
you know, interact with the world
is worth more right now. And so if I was to loan out a
$10 bill or a thousand dollars, let's just say,
to someone else,
I expect a compensation for
foregoing what I could use it for right now,
(04:15):
which comes in the form of interest, and that compensation is interest. And therefore the rate of this is is what the interest rate is. And so I could say to someone, I want 15%
per year for this, or it could be 1% per year. And these rates can change over time and
are very much
vary depending on the myriad of circumstances,
(04:39):
of human life. So my circumstances
if I'm well off,
the person that I'm lending it to, are they well off? What is my relation to them? Am I gonna charge a charge higher interest on a loan to my brother? Probably not. I'd probably not even charge any interest.
But what if I didn't have a good relation with my brother and he was sneaky, and I didn't trust him? Well, then maybe I'd charge a higher one. And so the all of these circumstances come up to what is interest rates, and therefore, you know, it's the supply and demand of actual savings as well is another way of thinking of this. So,
(05:13):
let's jump on to, I guess, by getting even looser here.
There's this broad sweep of this across society be can be termed as the natural
interest rate.
So this would kind of be the conglomeration of all people's individual circumstances, their choices,
interacting with other people
and loaning money back and forth,
(05:34):
the monetary effects over time. So the more natural part of this would kind of be
expanding knowledge, leading to greater productivity,
expanding population, leading to
more labor time, working on people, working on things,
the social fabric, what type of behaviors are encouraged
and rewarded.
(05:55):
Essentially, economic growth is an is a kind of little proxy for what the natural interest rate would be.
The less natural part of this would be based on the meddling of humans with actual money. So money has changed over time.
We see in the past and in certain cultures, it used to be shells or certain types of limestone rocks.
(06:15):
Precious metals then started to become the kind of default talking gold and silver here
across various
places across time.
Eventually that turned into paper money for reasons that we've talked about in the Bitcoin standard book.
And then
all of this has been open for monetary effects taking place, such as,
(06:37):
you know, counterfeiting of notes such as coin cutting and
putting less value into a gold bar, but it's got a little bit of silver or nickel in it, or discovery of new deposits of gold and things like this. All of this, which affects the actual money itself and therefore,
the interest rate that you use on your money, the value of your money also is changing with all of these things. So
(07:01):
the other part of this would be the creation of banks in places where people
issue this type of money or otherwise have subtle or powerful control of it.
Okay. That's the the kind of rough outline of of what
money and the interest rates are. Well, give me a rough timeline. Okay. Here we go. So if you look on your screen here,
(07:22):
you'll see interest rates in the ancient world.
And what we see is that, you know, it roughly was in the range of, like, 20 to 6%
for large periods of time. So it was birthed in Babylon
and basically existed probably even before recorded history.
Funnily enough, one of the things he talks about in the book was there was these clay tablets which were records of people doing loans
(07:46):
and if they how much the loan was worth. And so therefore, we could kind of see what interest rates were in in different time periods across history.
And the only ones that we actually have
knowledge of are the loans which were defaulted because they kept the clay tablets. When the loan was actually paid back, they broke the cape clay tablet because it was now finished. So funnily enough, we only have bad debts across history.
(08:11):
As we get on, we see Ursury usury was banned religiously. So this is the blending of money and charging of too high interest rates, I guess is what you would call
was banned in many, many places, and usually for religious reasons.
And this was actually really impossible to enforce
(08:31):
because bankers and people in general, pretty creative. And so they would, instead of saying this is interest, they would charge late fees or foreign transaction
fees or foregone benefits,
clip coin, replayed and, repaid and unclipped coin, discretionary
gifts,
capital use fee, all of these sorts of things. On page 24, there's a, there's a quote
(08:54):
about all of these sneaky merchants. And so
we got this bit here.
The the most common
method of
no. Sorry. Here we go. And this was by the Jesuits father Diego Lati Linas. He said, the merchants have so many tricks for inventing ingenious practices that we can hardly see what is going on at the bottom of it all.
(09:16):
That's pretty much true. There's a lot of sneaky behavior that goes on. Sometimes this is for good, in terms of money lending out to people who probably need it. And sometimes this is like the, you know,
sharks who are taking advantage of people who are desperate and and need alone. And so this is why it was usury usury, I don't know exactly sure how you pronounce that, was
(09:40):
banned in many places, but an ineffective ban
as we get further on in history up into,
you know, probably like the fifteen hundreds period, something like that. And sixteen hundreds,
The idea of interest was gaining much more popularity,
particularly in England and in the,
countries. Well, it's it's much easier to see in in England and the European countries just due to,
(10:03):
surviving notes and records and things like that.
And that it was okay. This is actually the price of time. And while usury usury is still condemned as evil,
which is inflicted upon the poor, we do want banks and we do want to be able to loan out to people
from the mid 1600s.
It's kind of up to up to debate
(10:23):
what it actually was. It's it started to become implemented into governments and things like this.
And
what does lowering rates do? What does happens when there is one central fixed rate? And does this reduce land price? Does this encourage borrowing of of the plebs?
Does it enrich the wealthy? Does it promote trade? All of these sorts of things were up to debate. And so I guess the
(10:48):
the economic theories of what interest rates do,
and particularly when there is one central rate, and this isn't the natural rate, this is one which is being controlled by someone, whether it be a government or a central bank or things like this.
That is where we start to see all these theories coming into place. From then onwards, it's pretty much put into the hands of governments or central bankers.
(11:13):
And the prevailing
view tends to be that high interest rates
are a negative thing and cause negative things for the economy. And so this is why we see over history
from kind of the seventeen hundreds onwards that
the interest rates across the world and across
different places generally are in a very much a downward trend,
(11:35):
getting towards zero and dare I even say into the negative interest rates, which we would touch upon very soon.
So what happens when I guess economists
started getting into power?
One thing I noticed in this book that he was talking about lots was that the
their ideas, their theories,
are always shifting. At one point, it's we want stable prices.
(11:57):
Then the next point, we want a strong market,
a strong stock market. And then the next one, it's like we've got to keep bond yields within a certain region to
promote
certain things. The next one, it's like, Okay, our currency is getting overvalued. We need to devalue it or the opposite.
The next one is we've got to keep unemployment
in check. Then the next one, it's like, no, wait, we got to keep inflation in check.
(12:22):
There are many, many attempts of putting theory into practice, and these are typically all failed from what I can gather
as the entire field is rather unscientific and broken.
Nobody nobody has any idea what is going on, and,
anyone who claims to,
you could find an equally convincing case on the other side of what interest rates do and why we need to hire them or lower them or, you know, keep them steady or whatever it is.
(12:49):
So but don't we just need the smartest and bestest person in power? Well,
no, because that doesn't really tend to
ameliorate to stop any of the bad things that they want to stop happening. So for example,
classic John Locke, who we saw previously in Edward Chancellor's other book, The Devil Take the Hindmost.
(13:12):
We saw with his Mississippi
bubble, Mississippi
company
that,
hit all of his ideas of, you know, running the French central bank,
of keeping interest rates low or of lowering them and doing these things ended up just leading to a huge massive bubble, which of course popped.
And,
(13:33):
we also saw another person. There was this guy, Bagahut Bagahut.
Don't know how to pronounce that as well. He was an English guy, I believe. And he had he was one of the people,
coining the idea, I guess, of central banks
being the lender of last resort so that when
companies and markets got distorted, the central bank would come in and be the lender of last resort and I AKA bail them out.
(13:59):
But even these people still had caveats of okay,
Bagahot, he was worried that lending
should be on high interest rates and not just a bailout.
Lock worried about
rates being too low, but also too high. So what we tend to see across history is there's a lot of hubris, there's a lot of poor ideas, a lot of contradictory
(14:21):
and counterintuitive
ideas abound. Couple of select quote quotes here from page 86. Interest rates are now political as well as financial question. So this is saying that, okay, there's no actual,
well, not necessarily saying there's no natural interest rate, but that we we now,
need to make it a political question as well.
(14:42):
Page 88. We're no longer the victims of the vagaries of the business cycle. This is from the Federal Reserve System. The sorry. The Federal Reserve System is the antidote for money contraction and credit shortage. So this is claiming we've now got interest rates. We can control it. We're we're we're gonna stop all of these bad things happening of,
inequality and things like this.
(15:03):
Page 42,
interest existed to discourage people from hoarding money.
And then jumping here onto page a 18, which I I think sums up this this little section here nicely.
The closed community of central bankers and monetary economists remained obdurate to monetary explanations for the crisis. And so this crisis he's talking about in particular
(15:23):
was, I believe, the nineteen ninety nine,
dot com bubble in the section. In any case, it doesn't really matter which one. They had invested too much time and effort in their economic models and were reluctant to jettison them. Their canonical model assumes that an economy
is only knocked off course by random or exogenous shocks such as the nineteen seventy three oil crisis.
(15:44):
It has no place for money and credit. Interest rates are given, and errors in monetary policy are revealed by instability in consumer prices, but not asset prices.
Speculative bubbles and original irrational exuberance are not countenance.
Instead, this the model posits a world filled with rational actors possessed with perfect foresight, but it doesn't remotely describe what actually happens on Wall Street or any other stock market. No wonder the academic economists in charge of what James Grant called the
(16:12):
PhD standard were blindsided by events.
So
I guess there was arguments
and the
general theories across economists are that the real a. K. A. Natural interest rates
weren't affected by monetary
policy.
And I think this is obviously wrong. I think the book shows really clearly that
(16:34):
the if people are messing around with money and interest rates and other people's decisions on how to lie to to loan out what their price of time is,
that this is obviously going to affect many, many, many things.
Easy monetary policy and low rates create booms and busts of asset prices.
Economists don't give that theory credit
(16:55):
because they believe it's only consumer prices that are affected.
And just for me, you know, personally, messing with money, I think, obviously creates
differences
in
risk of reward of surety. It's gonna change things.
Some really funny stuff happens from this. So, you know, credit to the central bankers, they make some really funny shit happen.
(17:19):
So for example,
in
a period that was sending of ice skates from England to Rio De Janeiro because
just somehow the asset price bubble got so great that people thought, okay, we're gonna, you know,
create ice rinks in in Rio.
And,
when you start sending ice skates there,
(17:39):
there was the famous bubble company promotions for the wheel of perpetual motion
or one of the best for an undertaking, which shall in due time be revealed.
This is classic quote,
attributed to Mark Twain as all good quotes are,
A hole in the ground,
a hole a mine is a hole in the ground owned by a liar,
(18:00):
but rather indicative of what happened during the gilded age and and things like this.
And then finally, you know, we got to in the 2,000 periods negative interest rates, which are just
the purest stupidity and not just me saying this as many other people in the book.
How can the future
be worth more than the present? How can how can the future have more certainty
(18:24):
than than the present moment?
I don't understand that. I don't understand why
negative interest rates like
me being a general human,
giving money to the bank, and then them taking money from me for me giving it to them. Like, it just
it doesn't make sense.
So lots of crazy shit happens when the money supply and the the interest, the price of time gets, distorted.
(18:52):
So jumping on to the author, some extra details here.
I covered mister Chancellor in my recent book review that I talked about. So we'll just go into some other points of note.
His other books, and he's got three of them in total,
and this being the second one that I've reviewed,
are notable for when they came out. The
Devil Take the Hindmost was just before, like, a year before the dot com bubble.
(19:17):
The I think he had one called, like, the the credit crunch or something to do with credit came just before the 02/2008,
GFC. I think that was in 02/2005.
Now this one was actually a little bit late. It came out in 2022.
And
what he was describing a lot in this book was actually the effects of the everything bubble,
which is despite COVID wreaking havoc to supply chain systems,
(19:41):
many people staying at home.
The
the world, I think, got
unproductive
as compared to how it was. There can be no question of that. I don't think
if everyone's staying at home,
a lot of stuff is not getting done.
You know, there is probably
a also an argument saying that people are spending less time in transit,
(20:04):
that that that actually might be more productive. But I think generally, we could say those were rather unproductive years. Yet we saw in 2021
asset prices of everything
going up like crazy.
And
that was kind of the everything bubble.
And so the effects of that was just due to monetary
(20:25):
stimulus of in, of interest rates going down to low.
This didn't address all the problems,
you know, and I think
that there's still more to come because he talks about how we're we're essentially
kicking the can down the road. He actually had a better there was a better,
analogy for that, which I thought was more apt, but I didn't write it down. Unfortunately, I forgot that. Are we due for more? Almost certainly.
(20:51):
The book itself is kind of recycled from his previous work. So you you do see him referencing things from The Devil Take Behind Most, for example,
of things from the bubbles. And then
the funny thing for me was that he could have written a book with the complete opposite theory,
with either high interest rates,
causing financial chaos by encouraging risk taking for yield, bleeding the poor or lowering productivity,
(21:17):
or even that, you know, high interest rates do the opposite of these things or low interest rates do the opposite of these things.
It it doesn't really
matter, and my takeaway would still be the same.
The question is,
whether changing monetary policy
a good thing?
And in particular, should a government be the one to set the rate rather than let the market figure it out or even crazier and unelected,
(21:42):
unaccountable
series of people who do that? So on page 40 here, right at the bottom, we have a little section of this,
which was,
here.
A consensus emerged among English practitioners of political arithmetic that interest defined by one writer as a reward for forbearing the use of your own money for a term of time agreed upon was much like any other price whose level should be determined by buyers and sellers in the market rather than government fiat. As sir Dudley North said, it was best for the nation to leave the borrowers and the lender to make their own bargains according to the circumstances
(22:20):
they lie under.
I think people understood that there is
no reason for government to be setting interest rates because of how can they judge
your circumstances,
your time
accurately,
and not only just a view, but of everyone else around you.
Personally, I think letting the natural interest rate sort itself out of the market
(22:44):
doing this. So this would essentially be the form of of bank of not only individual loans from myself to other people if I was doing so, but also have banks and more financial institutions,
not having us set mandate being put down upon them.
But just the market figuring out what natural interest rates would be, would be much healthier and lead to less of these
(23:09):
crazy asset bubbles and peaks and things like this, which I think this book showed
the the messing round of rates,
did. Now
I guess getting onto the the summary here,
I think his general see thesis makes sense, and he's probably correct for the most part.
Low interest rates ultimately discourage savers,
(23:30):
as saving doesn't bring about rewards and encourages consumption.
And for those who want to make money, they must therefore go out on the risk curve for gains and hence why we have these crazy illogical bubbles.
What percentage of this is due entirely to interest rates? I have no idea. But I think it's a fair chunk. Obviously,
interest rates are not the only thing that people are meddling meddling around with. But
(23:54):
it's certainly one which has a lot of weight on it.
I wouldn't say the book has entirely convinced me that
everything he says in it is, you know, gospel, that low interest rates are bad and that high interest rates are a little bit better.
What it's convinced me of, though, is what I've something I've already believed for a long time, which is,
(24:15):
the less that governments meddle around in your personal affairs and your decisions,
the better. And that
the people who
are hubristic, who think they know better than you,
who, you know, want to save you because you as the poor person, you're too stupid to make your own decisions and and things like this.
(24:37):
They tend to
have
effects which come and rebound and make you poorer anyway. So
it's a it's a rather dry, boring topic, to be honest, interest rates, there's plenty of time reading this book around like,
okay, I've just got to get through this paragraph got got to get through this page.
And,
you know, it's, it's about interest rates, like, come on, there's there's not that much interesting
(25:01):
in it, even though despite the title that I've given this book review, but I think he does a decent job of explaining it without sounding, you know, too unhinged without putting his own political
biases or whatever he thinks in with it. It's not a really a scientific book, but I don't think you can be scientific about interest rates. It's it's true.
(25:21):
It's it's too complex and too.
It's dealing with humans ultimately. You know, what what do I value? And how do I value it across time?
So it's hard to rate this book, but I'll give it a solid six out of 10 the price of time, the real story of interest by Edward Chancellor.
You know, similar books to this, I double take the hindmost is the one that obviously comes up and one which I enjoyed much more because it was it was kind of funnier in a way and really showcase the
(25:49):
craziness that that humans get up to.
So value for value here coming into the end.
Would love if you could,
come and and share some value with me, much like Juan does in the chat. And he was asking, what about when low rates, though, have allowed economic growth without extreme consequences?
A good point. He doesn't touch upon this in the book. I guess he would say that
(26:13):
this does
it can happen, but
the the gas is is left on for too long. So, yeah, sure. You get quicker from A to B, but then you also overshoot and you go too crazy.
And so
has there been any examples of
a country
doing it exactly right?
(26:34):
Not sure. Not sure. Did you feel it was nuanced enough? The book?
I think it was
probably like 80% of the way.
Correct.
It's likely he he started off
writing this book
with already
in mind that
(26:54):
high interest that economic theory and that
the low interest rates have been the,
I guess, scourge of of many things.
Do I think he is right?
I mean, like,
probably 80% right as well. And that,
ultimately, though, I think the book,
(27:15):
what, as I mentioned, it doesn't really matter if he's right or wrong. The real question is, should there be a central point of control
of a government, of individual people dictating
the
lending of and borrowing of money across
a whole country, across a whole set of people. I
(27:38):
the the hubris to think that anyone or any person could do this sort of thing,
I think is is ridiculous. And
that's what the book has more firmly cemented in my mind,
that meddling,
whether it be
it's always done with good intentions, of course,
leads to bad outcomes is essentially what I took away from this.
(28:01):
But, yeah, coming and joining in live is one way you can and giving comments like that is one way you can contribute.
You could also send some, book reviews my way. I would love those. Sharing, liking, all those sorts of things. And then meremodelspodcast.com
slash support for any financial stuff. As I mentioned, 11AM Australian Eastern Standard Time on Wednesdays is when I do this.
(28:23):
What's coming up in the future? I've got
honestly, I'm like right at the edge. I just finished this book in time for this book review. Thankfully, I've got a couple of small smaller ones, coming up. I know Juan said he's just finished recording
the 48 laws of power, so he'll have a review coming up at some point.
Plenty of stuff coming up in the future. So, yeah, thank you very much, everyone, for joining in. Hope you're having a fantastic day wherever you are in the world. Chat for now. Cara now. Bye.
Out of interest, what price do you put on your time?
Welcome everyone to another episode of the Mere Mortals Book Reviews. I'm your host here, Kyrin, live on the 03/05/2025,
'11 AM Australian Eastern Standard Time on a Wednesday.
(00:20):
As you might surmise, this is the podcast where I praise our central bank overlords for their prescience and their all encompassing wisdom.
Okay. No. I don't do that on this podcast, and I'm not sure I ever will. I am very much sure that I never will. But what we do have here today is an interesting book on interest, the price of time, the real story of interest.
(00:43):
This book was published in 2022.
It's 314
pages in length,
about twelve hours reading to get through in total because it is pretty thick in terms of the word count and density and what you're actually going over in here. What this book is, it's a look at interest rates across history, what are interest rates and what effects they've had on human behavior and therefore on economic activity.
(01:06):
The central argument that he contains within this book is that the current rates of interest for roughly the last three centuries are too low.
And that
this has led
to distorted outcomes
and basically unproductive
economic activity
as a whole, as well as a series of asset prices and bubbles that have formed. So it consists of three parts the book in total, and it also has these
(01:35):
with 18 chapters being contained within that, as well as like a series of photographic plates right in the middle,
And some charts,
which also showcase
interest rates in term and, you know, GDP and things like that, which
within the book itself.
So let's jump on to the main themes and questions. What is interest? What does it do historically? How has it changed over time? What happens when governments and bankers
(02:00):
start to get involved and mess around with it? Well, let's start off with the the definition, I guess. And in the section right at the start where he begins to describe this,
he has a pretty strong caveat, a word of warning. And I think it's an apt word of warning,
which is,
in my terms here that much like inflation,
it's very much discussed,
(02:21):
little defined and
extremely complex in nature,
of of its,
what actually constitutes it. So with that being said, as the name of the book implies, he ties it to the time and the price of time.
So,
the time value of money, I guess, is is one way of putting it. So simply put, the present moment is more valuable
(02:45):
and more certain than the future. And this is why just intuitively,
we will know if I asked you, would you want $10 Now? Or would you want $1,000
In, you know, one thousand years time,
you're going to choose the $10 Now, because that $1,000 like, what's what's that going to do? How's that going to work? There's no
interest. There's there's nothing for you there in that period.
(03:09):
As we bring it closer to,
you could now say, would you rather $10 now or $20
in in ten minutes time? Okay. Most people are probably going to choose the the $20
in ten minutes. What about $10.01
in in twenty minutes time or an hour's time? You're like, oh, okay. That's kinda,
it'd be a bit tedious and I've got things to do. So now I'll just take the $10 now.
(03:31):
So this is the kind of calculations that go into what our interest and we can see that
money changes over time and that therefore time and
has a
an impact on what money is
in terms of its value, which is is rather funny. So therefore, what I've once again, my kind of words here optionality,
(03:52):
which is what money provides, you can do things with money, you can buy stuff you can,
you know, interact with the world
is worth more right now. And so if I was to loan out a
$10 bill or a thousand dollars, let's just say,
to someone else,
I expect a compensation for
foregoing what I could use it for right now,
(04:15):
which comes in the form of interest, and that compensation is interest. And therefore the rate of this is is what the interest rate is. And so I could say to someone, I want 15%
per year for this, or it could be 1% per year. And these rates can change over time and
are very much
vary depending on the myriad of circumstances,
(04:39):
of human life. So my circumstances
if I'm well off,
the person that I'm lending it to, are they well off? What is my relation to them? Am I gonna charge a charge higher interest on a loan to my brother? Probably not. I'd probably not even charge any interest.
But what if I didn't have a good relation with my brother and he was sneaky, and I didn't trust him? Well, then maybe I'd charge a higher one. And so the all of these circumstances come up to what is interest rates, and therefore, you know, it's the supply and demand of actual savings as well is another way of thinking of this. So,
(05:13):
let's jump on to, I guess, by getting even looser here.
There's this broad sweep of this across society be can be termed as the natural
interest rate.
So this would kind of be the conglomeration of all people's individual circumstances, their choices,
interacting with other people
and loaning money back and forth,
(05:34):
the monetary effects over time. So the more natural part of this would kind of be
expanding knowledge, leading to greater productivity,
expanding population, leading to
more labor time, working on people, working on things,
the social fabric, what type of behaviors are encouraged
and rewarded.
(05:55):
Essentially, economic growth is an is a kind of little proxy for what the natural interest rate would be.
The less natural part of this would be based on the meddling of humans with actual money. So money has changed over time.
We see in the past and in certain cultures, it used to be shells or certain types of limestone rocks.
(06:15):
Precious metals then started to become the kind of default talking gold and silver here
across various
places across time.
Eventually that turned into paper money for reasons that we've talked about in the Bitcoin standard book.
And then
all of this has been open for monetary effects taking place, such as,
(06:37):
you know, counterfeiting of notes such as coin cutting and
putting less value into a gold bar, but it's got a little bit of silver or nickel in it, or discovery of new deposits of gold and things like this. All of this, which affects the actual money itself and therefore,
the interest rate that you use on your money, the value of your money also is changing with all of these things. So
(07:01):
the other part of this would be the creation of banks in places where people
issue this type of money or otherwise have subtle or powerful control of it.
Okay. That's the the kind of rough outline of of what
money and the interest rates are. Well, give me a rough timeline. Okay. Here we go. So if you look on your screen here,
(07:22):
you'll see interest rates in the ancient world.
And what we see is that, you know, it roughly was in the range of, like, 20 to 6%
for large periods of time. So it was birthed in Babylon
and basically existed probably even before recorded history.
Funnily enough, one of the things he talks about in the book was there was these clay tablets which were records of people doing loans
(07:46):
and if they how much the loan was worth. And so therefore, we could kind of see what interest rates were in in different time periods across history.
And the only ones that we actually have
knowledge of are the loans which were defaulted because they kept the clay tablets. When the loan was actually paid back, they broke the cape clay tablet because it was now finished. So funnily enough, we only have bad debts across history.
(08:11):
As we get on, we see Ursury usury was banned religiously. So this is the blending of money and charging of too high interest rates, I guess is what you would call
was banned in many, many places, and usually for religious reasons.
And this was actually really impossible to enforce
(08:31):
because bankers and people in general, pretty creative. And so they would, instead of saying this is interest, they would charge late fees or foreign transaction
fees or foregone benefits,
clip coin, replayed and, repaid and unclipped coin, discretionary
gifts,
capital use fee, all of these sorts of things. On page 24, there's a, there's a quote
(08:54):
about all of these sneaky merchants. And so
we got this bit here.
The the most common
method of
no. Sorry. Here we go. And this was by the Jesuits father Diego Lati Linas. He said, the merchants have so many tricks for inventing ingenious practices that we can hardly see what is going on at the bottom of it all.
(09:16):
That's pretty much true. There's a lot of sneaky behavior that goes on. Sometimes this is for good, in terms of money lending out to people who probably need it. And sometimes this is like the, you know,
sharks who are taking advantage of people who are desperate and and need alone. And so this is why it was usury usury, I don't know exactly sure how you pronounce that, was
(09:40):
banned in many places, but an ineffective ban
as we get further on in history up into,
you know, probably like the fifteen hundreds period, something like that. And sixteen hundreds,
The idea of interest was gaining much more popularity,
particularly in England and in the,
countries. Well, it's it's much easier to see in in England and the European countries just due to,
(10:03):
surviving notes and records and things like that.
And that it was okay. This is actually the price of time. And while usury usury is still condemned as evil,
which is inflicted upon the poor, we do want banks and we do want to be able to loan out to people
from the mid 1600s.
It's kind of up to up to debate
(10:23):
what it actually was. It's it started to become implemented into governments and things like this.
And
what does lowering rates do? What does happens when there is one central fixed rate? And does this reduce land price? Does this encourage borrowing of of the plebs?
Does it enrich the wealthy? Does it promote trade? All of these sorts of things were up to debate. And so I guess the
(10:48):
the economic theories of what interest rates do,
and particularly when there is one central rate, and this isn't the natural rate, this is one which is being controlled by someone, whether it be a government or a central bank or things like this.
That is where we start to see all these theories coming into place. From then onwards, it's pretty much put into the hands of governments or central bankers.
(11:13):
And the prevailing
view tends to be that high interest rates
are a negative thing and cause negative things for the economy. And so this is why we see over history
from kind of the seventeen hundreds onwards that
the interest rates across the world and across
different places generally are in a very much a downward trend,
(11:35):
getting towards zero and dare I even say into the negative interest rates, which we would touch upon very soon.
So what happens when I guess economists
started getting into power?
One thing I noticed in this book that he was talking about lots was that the
their ideas, their theories,
are always shifting. At one point, it's we want stable prices.
(11:57):
Then the next point, we want a strong market,
a strong stock market. And then the next one, it's like we've got to keep bond yields within a certain region to
promote
certain things. The next one, it's like, Okay, our currency is getting overvalued. We need to devalue it or the opposite.
The next one is we've got to keep unemployment
in check. Then the next one, it's like, no, wait, we got to keep inflation in check.
(12:22):
There are many, many attempts of putting theory into practice, and these are typically all failed from what I can gather
as the entire field is rather unscientific and broken.
Nobody nobody has any idea what is going on, and,
anyone who claims to,
you could find an equally convincing case on the other side of what interest rates do and why we need to hire them or lower them or, you know, keep them steady or whatever it is.
(12:49):
So but don't we just need the smartest and bestest person in power? Well,
no, because that doesn't really tend to
ameliorate to stop any of the bad things that they want to stop happening. So for example,
classic John Locke, who we saw previously in Edward Chancellor's other book, The Devil Take the Hindmost.
(13:12):
We saw with his Mississippi
bubble, Mississippi
company
that,
hit all of his ideas of, you know, running the French central bank,
of keeping interest rates low or of lowering them and doing these things ended up just leading to a huge massive bubble, which of course popped.
And,
(13:33):
we also saw another person. There was this guy, Bagahut Bagahut.
Don't know how to pronounce that as well. He was an English guy, I believe. And he had he was one of the people,
coining the idea, I guess, of central banks
being the lender of last resort so that when
companies and markets got distorted, the central bank would come in and be the lender of last resort and I AKA bail them out.
(13:59):
But even these people still had caveats of okay,
Bagahot, he was worried that lending
should be on high interest rates and not just a bailout.
Lock worried about
rates being too low, but also too high. So what we tend to see across history is there's a lot of hubris, there's a lot of poor ideas, a lot of contradictory
(14:21):
and counterintuitive
ideas abound. Couple of select quote quotes here from page 86. Interest rates are now political as well as financial question. So this is saying that, okay, there's no actual,
well, not necessarily saying there's no natural interest rate, but that we we now,
need to make it a political question as well.
(14:42):
Page 88. We're no longer the victims of the vagaries of the business cycle. This is from the Federal Reserve System. The sorry. The Federal Reserve System is the antidote for money contraction and credit shortage. So this is claiming we've now got interest rates. We can control it. We're we're we're gonna stop all of these bad things happening of,
inequality and things like this.
(15:03):
Page 42,
interest existed to discourage people from hoarding money.
And then jumping here onto page a 18, which I I think sums up this this little section here nicely.
The closed community of central bankers and monetary economists remained obdurate to monetary explanations for the crisis. And so this crisis he's talking about in particular
(15:23):
was, I believe, the nineteen ninety nine,
dot com bubble in the section. In any case, it doesn't really matter which one. They had invested too much time and effort in their economic models and were reluctant to jettison them. Their canonical model assumes that an economy
is only knocked off course by random or exogenous shocks such as the nineteen seventy three oil crisis.
(15:44):
It has no place for money and credit. Interest rates are given, and errors in monetary policy are revealed by instability in consumer prices, but not asset prices.
Speculative bubbles and original irrational exuberance are not countenance.
Instead, this the model posits a world filled with rational actors possessed with perfect foresight, but it doesn't remotely describe what actually happens on Wall Street or any other stock market. No wonder the academic economists in charge of what James Grant called the
(16:12):
PhD standard were blindsided by events.
So
I guess there was arguments
and the
general theories across economists are that the real a. K. A. Natural interest rates
weren't affected by monetary
policy.
And I think this is obviously wrong. I think the book shows really clearly that
(16:34):
the if people are messing around with money and interest rates and other people's decisions on how to lie to to loan out what their price of time is,
that this is obviously going to affect many, many, many things.
Easy monetary policy and low rates create booms and busts of asset prices.
Economists don't give that theory credit
(16:55):
because they believe it's only consumer prices that are affected.
And just for me, you know, personally, messing with money, I think, obviously creates
differences
in
risk of reward of surety. It's gonna change things.
Some really funny stuff happens from this. So, you know, credit to the central bankers, they make some really funny shit happen.
(17:19):
So for example,
in
a period that was sending of ice skates from England to Rio De Janeiro because
just somehow the asset price bubble got so great that people thought, okay, we're gonna, you know,
create ice rinks in in Rio.
And,
when you start sending ice skates there,
(17:39):
there was the famous bubble company promotions for the wheel of perpetual motion
or one of the best for an undertaking, which shall in due time be revealed.
This is classic quote,
attributed to Mark Twain as all good quotes are,
A hole in the ground,
a hole a mine is a hole in the ground owned by a liar,
(18:00):
but rather indicative of what happened during the gilded age and and things like this.
And then finally, you know, we got to in the 2,000 periods negative interest rates, which are just
the purest stupidity and not just me saying this as many other people in the book.
How can the future
be worth more than the present? How can how can the future have more certainty
(18:24):
than than the present moment?
I don't understand that. I don't understand why
negative interest rates like
me being a general human,
giving money to the bank, and then them taking money from me for me giving it to them. Like, it just
it doesn't make sense.
So lots of crazy shit happens when the money supply and the the interest, the price of time gets, distorted.
(18:52):
So jumping on to the author, some extra details here.
I covered mister Chancellor in my recent book review that I talked about. So we'll just go into some other points of note.
His other books, and he's got three of them in total,
and this being the second one that I've reviewed,
are notable for when they came out. The
Devil Take the Hindmost was just before, like, a year before the dot com bubble.
(19:17):
The I think he had one called, like, the the credit crunch or something to do with credit came just before the 02/2008,
GFC. I think that was in 02/2005.
Now this one was actually a little bit late. It came out in 2022.
And
what he was describing a lot in this book was actually the effects of the everything bubble,
which is despite COVID wreaking havoc to supply chain systems,
(19:41):
many people staying at home.
The
the world, I think, got
unproductive
as compared to how it was. There can be no question of that. I don't think
if everyone's staying at home,
a lot of stuff is not getting done.
You know, there is probably
a also an argument saying that people are spending less time in transit,
(20:04):
that that that actually might be more productive. But I think generally, we could say those were rather unproductive years. Yet we saw in 2021
asset prices of everything
going up like crazy.
And
that was kind of the everything bubble.
And so the effects of that was just due to monetary
(20:25):
stimulus of in, of interest rates going down to low.
This didn't address all the problems,
you know, and I think
that there's still more to come because he talks about how we're we're essentially
kicking the can down the road. He actually had a better there was a better,
analogy for that, which I thought was more apt, but I didn't write it down. Unfortunately, I forgot that. Are we due for more? Almost certainly.
(20:51):
The book itself is kind of recycled from his previous work. So you you do see him referencing things from The Devil Take Behind Most, for example,
of things from the bubbles. And then
the funny thing for me was that he could have written a book with the complete opposite theory,
with either high interest rates,
causing financial chaos by encouraging risk taking for yield, bleeding the poor or lowering productivity,
(21:17):
or even that, you know, high interest rates do the opposite of these things or low interest rates do the opposite of these things.
It it doesn't really
matter, and my takeaway would still be the same.
The question is,
whether changing monetary policy
a good thing?
And in particular, should a government be the one to set the rate rather than let the market figure it out or even crazier and unelected,
(21:42):
unaccountable
series of people who do that? So on page 40 here, right at the bottom, we have a little section of this,
which was,
here.
A consensus emerged among English practitioners of political arithmetic that interest defined by one writer as a reward for forbearing the use of your own money for a term of time agreed upon was much like any other price whose level should be determined by buyers and sellers in the market rather than government fiat. As sir Dudley North said, it was best for the nation to leave the borrowers and the lender to make their own bargains according to the circumstances
(22:20):
they lie under.
I think people understood that there is
no reason for government to be setting interest rates because of how can they judge
your circumstances,
your time
accurately,
and not only just a view, but of everyone else around you.
Personally, I think letting the natural interest rate sort itself out of the market
(22:44):
doing this. So this would essentially be the form of of bank of not only individual loans from myself to other people if I was doing so, but also have banks and more financial institutions,
not having us set mandate being put down upon them.
But just the market figuring out what natural interest rates would be, would be much healthier and lead to less of these
(23:09):
crazy asset bubbles and peaks and things like this, which I think this book showed
the the messing round of rates,
did. Now
I guess getting onto the the summary here,
I think his general see thesis makes sense, and he's probably correct for the most part.
Low interest rates ultimately discourage savers,
(23:30):
as saving doesn't bring about rewards and encourages consumption.
And for those who want to make money, they must therefore go out on the risk curve for gains and hence why we have these crazy illogical bubbles.
What percentage of this is due entirely to interest rates? I have no idea. But I think it's a fair chunk. Obviously,
interest rates are not the only thing that people are meddling meddling around with. But
(23:54):
it's certainly one which has a lot of weight on it.
I wouldn't say the book has entirely convinced me that
everything he says in it is, you know, gospel, that low interest rates are bad and that high interest rates are a little bit better.
What it's convinced me of, though, is what I've something I've already believed for a long time, which is,
(24:15):
the less that governments meddle around in your personal affairs and your decisions,
the better. And that
the people who
are hubristic, who think they know better than you,
who, you know, want to save you because you as the poor person, you're too stupid to make your own decisions and and things like this.
(24:37):
They tend to
have
effects which come and rebound and make you poorer anyway. So
it's a it's a rather dry, boring topic, to be honest, interest rates, there's plenty of time reading this book around like,
okay, I've just got to get through this paragraph got got to get through this page.
And,
you know, it's, it's about interest rates, like, come on, there's there's not that much interesting
(25:01):
in it, even though despite the title that I've given this book review, but I think he does a decent job of explaining it without sounding, you know, too unhinged without putting his own political
biases or whatever he thinks in with it. It's not a really a scientific book, but I don't think you can be scientific about interest rates. It's it's true.
(25:21):
It's it's too complex and too.
It's dealing with humans ultimately. You know, what what do I value? And how do I value it across time?
So it's hard to rate this book, but I'll give it a solid six out of 10 the price of time, the real story of interest by Edward Chancellor.
You know, similar books to this, I double take the hindmost is the one that obviously comes up and one which I enjoyed much more because it was it was kind of funnier in a way and really showcase the
(25:49):
craziness that that humans get up to.
So value for value here coming into the end.
Would love if you could,
come and and share some value with me, much like Juan does in the chat. And he was asking, what about when low rates, though, have allowed economic growth without extreme consequences?
A good point. He doesn't touch upon this in the book. I guess he would say that
(26:13):
this does
it can happen, but
the the gas is is left on for too long. So, yeah, sure. You get quicker from A to B, but then you also overshoot and you go too crazy.
And so
has there been any examples of
a country
doing it exactly right?
(26:34):
Not sure. Not sure. Did you feel it was nuanced enough? The book?
I think it was
probably like 80% of the way.
Correct.
It's likely he he started off
writing this book
with already
in mind that
(26:54):
high interest that economic theory and that
the low interest rates have been the,
I guess, scourge of of many things.
Do I think he is right?
I mean, like,
probably 80% right as well. And that,
ultimately, though, I think the book,
(27:15):
what, as I mentioned, it doesn't really matter if he's right or wrong. The real question is, should there be a central point of control
of a government, of individual people dictating
the
lending of and borrowing of money across
a whole country, across a whole set of people. I
(27:38):
the the hubris to think that anyone or any person could do this sort of thing,
I think is is ridiculous. And
that's what the book has more firmly cemented in my mind,
that meddling,
whether it be
it's always done with good intentions, of course,
leads to bad outcomes is essentially what I took away from this.
(28:01):
But, yeah, coming and joining in live is one way you can and giving comments like that is one way you can contribute.
You could also send some, book reviews my way. I would love those. Sharing, liking, all those sorts of things. And then meremodelspodcast.com
slash support for any financial stuff. As I mentioned, 11AM Australian Eastern Standard Time on Wednesdays is when I do this.
(28:23):
What's coming up in the future? I've got
honestly, I'm like right at the edge. I just finished this book in time for this book review. Thankfully, I've got a couple of small smaller ones, coming up. I know Juan said he's just finished recording
the 48 laws of power, so he'll have a review coming up at some point.
Plenty of stuff coming up in the future. So, yeah, thank you very much, everyone, for joining in. Hope you're having a fantastic day wherever you are in the world. Chat for now. Cara now. Bye.
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