324. A History of Interest Rates feat. Edward Chancellor

Aug 28, 2023

Edward Chancellor, columnist and author, delves into the history of lending and interest rates. He discusses the problems with centralized banking, financial repression in China and the US, and the relationship between inflation and interest. The podcast explores the significance of interest rates in corporate finance and macroeconomics, the impact of financial engineering, challenges of debt and government bonds, and the potential of cryptocurrency as an alternative to conventional banking.

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INSIGHT

Interest Links Finance To Real Time

Interest links finance to the real economy by pricing time and intertemporal trade.
Edward Chancellor argues modern macro ignores this time dimension, disconnecting models from real decisions.

ADVICE

Recognize Limits Of Monetary Control

Wake up: central banks cannot fully internalize complex market information by tweaking interest rates alone.
Chancellor recommends recognizing limits of centralized monetary control and re-evaluating policy mandates.

INSIGHT

Central Banks Contradict Market Principles

Central banks manipulate the most important price: the interest rate, despite market-oriented economists endorsing decentralized information discovery.
Chancellor calls this a glaring intellectual dissonance that policymakers rarely examine closely.

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Is finance really just the economics of time and risk? How do you price things like time and risk?

Edward Chancellor is a columnist with Reuters and is the author of the book, The Price of Time: The Real Story of Interest, which delves into the history of lending and the interest rates that followed for the last five millennia.

Edward and Greg discuss the history of interest and its connections to Greek philosophy, the potential problems with centralized banking, and financial repression in China and the US.

*unSILOed Podcast is produced by University FM.*

Episode Quotes:

The overlooked aspects of monetary policy and central planning

08:05: What I think happened is you have the support amongst some neoclassical economists for Hayek's ideas relating to the economy as spontaneous, complex, emergent order that is difficult to control centrally. And yet, at the same time, no one has any problem with taking the most important price in the system, the one that affects everything, namely the interest rate. And so it's somehow perfectly acceptable to tweak that for whatever your end.

Insights from a finance journalist

51:34: One of the things I've discovered about writing about finance for nearly 30 years is that it's hardly worth having new ideas, because the conservatism of the world is so great that it's very hard to get them taken up. So I prefer to describe, rather than create, solutions.

Unraveling the complexity between the relationship between inflation and interest

42:37: The relationship between inflation and interest is not as straightforward as people surmise. If a low-interest rate encourages leverage, then the more leverage you have, the greater the leverage tottering over an individual household or an economy as a whole, and the more potential deflation pressure there is.

What’s an inevitable feature of a market-based system?

13:23: The notion that a transitional rise in unemployment may actually be useful is complete heresy and is seen as being a sort of strange, perverted form of sadism. Which I didn't think it was. So it's an inevitable feature of a capitalist or market-based system that you'd have these periods of boom and bust.

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