[00:03:25] Edward Chancellor: In the ancient world, that often meant that the debtor would fall into a position of debt, bondage and slavery. So the forgiving of the debts was a way of leveling, of bringing, you know, these, this great pilot mounted of debt back to a level and start again. And, yeah, so that I think is the main reason for the Jubilee.

[00:03:49] Edward Chancellor: Why do we need it today? I mean, it’s only a fringe notion that debt should be forgiven today. And occasionally that’s, you know, occasionally that’s called, there’s been calls, I think, you know, 20 odd years ago to forgive debt to less developed countries. But our debt, the modern debt jubilee really occurs through inflation.

[00:04:11] Edward Chancellor: What we call you know what the economists call financial repression. By keeping interest rates actually below the level of inflation, the principle of the debt gets paid off. So we have, sneaky, protracted debt jubilees. You could say that, you know, this year, even though interest rates are going up [00:04:30] inflation is much higher.

[00:04:31] Edward Chancellor: So obviously the real value of the principle owed in debts is shrinking. So you could say we are at the early stages of an ongoing debt jubilee.

[00:04:41] Stig Brodersen: It definitely would make headlines if we said, let’s just forgive all debt. But as you said, we found another way of not saying it but still doing it.

[00:04:48] Edward Chancellor: Towards the end of the book, I do mention the case of Iceland after the 2008 crisis. And there Iceland, probably no country on Earth, had borrowed as recklessly as a tiny country of Iceland during the global credit boom, running up foreign liabilities of 10 times. Icelandic GDP, and much of the debt that they run up was wasted on poor investments.

[00:05:15] Edward Chancellor: After the financial crisis, the Icelandic government put the major banks. Into receivership and into runoff mode and actually defaulted on their foreign debt. So sort a default is another way of debt Jubilee. And as I mentioned, Iceland going down this route actually recovered much more rapidly than the US or the European countries that went down the different route that we’ll discuss later of sort of quantitative easing and low interest rates.

[00:05:47] Stig Brodersen: So Edward, let’s still stay in time of history. Let’s talk about Seneca, the younger, born 4BC. He’s primarily known as a historic philosopher, ancient Rome guest today, and [00:06:00] I find it fascinating how he’s thinking about time and how is that is related to his views on interest. Not only because he is painful, inconsistent, but he still said a bunch of interesting things about it.

[00:06:10] Stig Brodersen: How did Seneca think about interest rates and how is that perhaps relevant today?

[00:06:15] Edward Chancellor: Well, I’m not sure if Seneca directly addressed question interest. He was, there is a sort of inconsistency about Seneca where he advocates, as you say, stoicism really an unworldly physician. But at the same time, he was tutored to the Emperor Nero and he amassed great fortune.

[00:06:37] Edward Chancellor: He gave lavish parties; he lent his money. With a group of people, group of other Romans into Britain. And apparently it said that when Seneca and his friends called in their loans, it was that triggered the famous British revolt of Queen Boudica. But I think that what Seneca does say, and this becomes very important later on, is that time is man’s most precious possession.

[00:07:06] Edward Chancellor: And the important thing about interest and why I called the book the Price of Time in Interest, is really putting a price on how we spend our time. And Seneca’s notion that time is man’s possession is revived in the renaissance period in Italy. It’s at that moment the bit people then begin [00:07:30] more virtually to justify.

[00:07:32] Edward Chancellor: The practice of interest as a use of time, the use of capital over a period of time. I think that’s the sort of main lesson that one takes from Seneca.

[00:07:42] Stig Brodersen: And history tends to repeat itself, or at least it tends to rhyme as is often being said. We already talked here about the Babylon King and how he tried to regulate interest rate. You also mentioned in your wonderful book, Queen Elizabeth in 1571 signing into law at the cap interest rate at that time around 10%. And yet here we are today, and regulators are still trying to solve for the ever-relevant challenge of fair level of interest on loans. It’s always tricky whenever you use the word fair.

[00:08:09] Stig Brodersen: I should say that, but how can we think about monetary value across time and what is the concept that economists call income smoothing?

[00:08:18] Edward Chancellor: So the time value is linked to humans’, natural impatience, that we prefer to have things sooner rather than later. But also, if you are engaged in any economic activity, you say you have a factory, you are producing something sooner and quicker, you couldn’t produce things, the more profitable you are likely to be and providing you, obviously you keep your costs under control.

[00:08:46] Edward Chancellor: And so there is an incentive, or least there should be an incentive to use your time wise. In fact, actually, although I didn’t mention it in the book, I came across the other day the concept of something called demurrage [00:09:00] that derives on the word to demur or to slow. And apparently in medieval Europe, ships were fined.

[00:09:08] Edward Chancellor: They find a demurrage charge if they took a long time unloading their good. In the port. See, as you see, everything is linked. An efficient economy is sort of driven by a charge on time, and if we don’t have any charge on time, we will tend to do things more, you know, to take too much time. As for income smoothing, when people are young, they can expect their income to grow over time.

[00:09:41] Edward Chancellor: And therefore people, you know, say for instance, students going to university will borrow and then pay back those debts over time, and they might borrow also for consumption purposes and the extent to which they will borrow and the interest rate. They pay is linked to, so to speak, their time preference or their degree of impatience.

[00:10:04] Edward Chancellor: Some people will borrow more because they’re eager to consume more rapidly today. Others won’t be so much engaged in income smoothing. But there is a sense that when people are young, they’re more impatient and keener to borrow, and therefore you could say that their internal interest rate is higher than a person who’s old and who’s not expecting their income [00:10:30] to grow any future, and therefore not keen to borrow and pay interest.

[00:10:34] Stig Brodersen: So as a student of economic history, I found that the most fascinating characters, perhaps the Scottish economist, John Law, many words could be used to describe his life. I would not say boring is one of. He conducted the world’s first experiment with easy money. Certainly debunking the method that Scottish people should be cheap in any kind of.

[00:10:58] Stig Brodersen: Could you please tell his story? I know Ed, we can probably do an entire episode just in John Law and his quite exhilarating life.

[00:11:05] Edward Chancellor: I mean, you could do an entire season of John Law. Yes. The most. He’s the most extraordinary figure in the entire history of finance, and when I think about him, I have to pinch myself.

[00:11:20] Edward Chancellor: Is this guy for real? We made him up. So John Law is the son born in the late 17th century. Is the son of an Edinburgh Goldsmith. And bear in mind that Goldsmiths at that time were not just merely selling sort of gold and silverware, but they were the early bankers. They were taking in people’s silver and gold and lending out, lending the money with paper.

[00:11:44] Edward Chancellor: So they were starting to use paper notes, and then law’s father dies. He, when he is young, he inherits a certain amount of money. He goes to London, becomes a bit of a dandy. And a thought goes spends a lot of his time [00:12:00] at the gambling tables, loses his fortune, gets into an argument with another dandy and they have a jewel and law kills this man in a jewel.

[00:12:12] Edward Chancellor: And then law is arrested. He escapes. He escapes jail is sentenced to death in absence, flees to the continent of Europe. Spends the next 20 years touring around Europe from one capital another. Amsterdam, Genoa and other places ends up in Paris. And over that time he’s got better at gambling. He has an extraordinary head for figures.

[00:12:38] Edward Chancellor: He would probably now work for the sort of Jim Simons Renaissance technology hedge fund. You know, he has a cute supercomputer in his head that can calculate fine. Probabilities at a time when people’s understandings of probabilities were a bit less sophisticated than today. He then develops an interest.

[00:13:01] Edward Chancellor: Well, over the course of his years in exile, he develops interest in as, say, economics or in particularly he proposes a land bank, A bank that would lend money against land. And he also writes a famous pamphlet called Money and Trade Considered in which he argues that money that at the time would’ve been considered a precious metal like golden silver.

[00:13:29] Edward Chancellor: Was really [00:13:30] only the, was not an object that was exchanged in value, but Millie was just a yardstick of value. And if money is just a yardstick of value rather than something inherently valuable in itself, then there’s no need to have gold or silver backing money as we see today. So law is the first, so to speak.

[00:13:51] Edward Chancellor: Monetarist economist, he believes that if you replace. Golden silver currency with a paper currency, you can bring interest rates down and he believes that if you print more money, what we would call sort of boost the money supply, that you will bring economic prosperity. So those are his, the ideas he’s formed.

[00:14:14] Edward Chancellor: He goes to France. He gets the, he presents himself to the Regent of France after the death of the old King Louis Cato’s in 1715. And he says to the regent, can I start a private bank in France? And the Regent gives him permission to do so. He then takes over a trading company in. And that trading company is then merged with a number of other, with all France’s foreign trading companies.

[00:14:43] Edward Chancellor: It also acquires the contract to raise taxes in France. It acquires the French mint; it acquires the tobacco monopoly. And you know, its most famous possession is called Louisiana Company, which [00:15:00] late claim to half the current land mass of the United States. So this is by any measure, an extraordinary, extensive holding company, but that law’s not finished

[00:15:16] Edward Chancellor: He then says to the regent, I want to turn my private bank, a bank which was in way conventional that issued notes that could be exchanged of gold into a central bank or a national bank that was called the Bon Royale. And this is in early 1719. He then goes for broke by issuing paper currency and withdrawing gold silver from circulation.

[00:15:46] Edward Chancellor: And there’s a massive increase in the man supply over the course of 1719, roughly the doubling of the money in certation. And interest rates come down. They in the early part of the decade, they were about 8% in France, and they fell to 2% and sometimes a bit below 2%. And here you see we witnessed in recent years, people valuing stocks shares off the level of interest rates.

[00:16:19] Edward Chancellor: So when interest rates are low, they feel that a high valuation is just. For their stock. And that was a case of Mississippi Company, which this enormous [00:16:30] business that went up started to trade on a price earnings ratio of 50 times, which is roughly three and a half times the long-term average of the US stock market.

[00:16:41] Edward Chancellor: And that P 50 times is equal to a dividend yield of 2%, which is the same as the current prevailing interest. Now law, the final sort of his final act. Is to offer to take over for the Mississippi company to take over the entire French national debt and he gets the bond or the people that government creditors to convert their credit into Mississippi shares and to keep the Mississippi shares hi.

[00:17:15] Edward Chancellor: During this conversion, he prints money and uses the money to buy. The Mississippi Company shares. So this, as I say, is very like a quantitative easing operation, what we would call quantities easing operation, where a central bank is going out and buying debt, or in this case, shares in the company that.

[00:17:38] Edward Chancellor: Is acquiring the dead in order to keep interest rates down and there occurs during this period an extraordinary speculative, and the Mississippi share price rises 20-fold, and a large number of enormous fortunes are made. And this is a period in which the term millionaire [00:18:00] is first coined a French word.

[00:18:02] Edward Chancellor: So Paris is teaming with millionaires and law and people come. From all over Europe to try and buy shares in The Mississippi Company and little Bubbles appear in other markets, you know, in, in London and Amsterdam, in Lisbon. So this is also the sort of first not exactly globe bubble, but sort of European wide mania and law himself, by his own reckoning, has become the richest man who ever lived.

[00:18:30] Edward Chancellor: In the, in space of a very short period of time, and he’s deemed to be, he’s also appointed French finance minister, and is considered the, you know, the greatest statesman and most powerful statesman in Europe. So this is an extraordinary achievement if, think about it for a man who you know, starts out in life.

[00:18:50] Edward Chancellor: As a bankrupt murderer to become this great figure. And then it all falls to pieces. It falls to pieces because inflation enters the system, not the asset price inflation that everyone likes, but the widespread in commodity and food prices. That creates what we would call today a cost of living. And law then share price.

[00:19:15] Edward Chancellor: The Mississippi company starts to sort of wobble a bit. People start selling Mississippi company’s shares and trying to translate their wealth into something in something more secure. And another sort of English word or least financial [00:19:30] word coined at the time was realization to realize your profits.

[00:19:34] Edward Chancellor: To make real, it’s an interesting term because you think of it during bubbles, very notion of a bubble is that the wealth is numerical isn’t really of any substance. So to realize your profit is to take something that is, that has sort of perhaps no, no value or dubbed out and turn it into something real anyhow, so people realize their profits.

[00:19:58] Edward Chancellor: Then the, and the scheme forced pieces and law then has to choose, is he going to carry on inflating or is he going to sort of put his foot on the brakes and he chooses to deflate the currency or some of the currency from circulation and the whole Mississippi bubble collapses and law is, has to flee the country in the space of 18 months.

[00:20:21] Edward Chancellor: He goes, you know, from a projector into the wealth richest man ever, and then to having to flee, leaving behind his wife and daughter and his fortune, and then the rest of his life, he really spends on the road going from one cup to another, ending up in Venice. Eight or nine years later where he goes back to his old gambling and the parents seems to earn a so decent sum of money offering people things of dice. So he has, as you say a pretty eventful life.

[00:20:52] Stig Brodersen: You know, he’s such a fascinating person and he is a person, like whenever you read books about economic [00:21:00] history, he’s usually always there. And I have to say that what you do in your book is perhaps the best I’ve read about your law. It’s so fascinating the way that you tell his story.

[00:21:08] Stig Brodersen: And one thing I always think about whenever I read about John Law, do you think he truly believed his system would work.

[00:21:15] Edward Chancellor: Yes, I think so. He, there is an interview I think I cite where a French ambassador visits him in Venice towards the end of his life and law still seems to be convinced in the viability of his plans.

[00:21:32] Edward Chancellor: He like he, as I say, the first tres, the first fiat money central banker. And one thing we know about Fiat money, central bankers. They don’t always, when they make mistakes, confess to their errors, say there’s something quite dogged about, nor I think he was way too ambitious, moved far too quickly and didn’t particularly have an eye for the details.

[00:21:57] Edward Chancellor: One biographer says that law scheme was the most ambitious economic experiment. The Russian Revolution, And I think that’s a fair description but go back to it the way I’m trying to write it. You are right. You know, many people have written about law say, it’s not exactly the unknown story. What I’m trying to do is to show how.

[00:22:20] Edward Chancellor: Law is one of his prime motivations is to bring down the interest rate. So he is, as another [00:22:30] biographer said, a low interest rate advocate, and he succeeds in his aims through monetary policy and the modern monetary economist look back at law and they say, well, law provided the framework for modern central banking.

[00:22:49] Edward Chancellor: And these comments were being made over the course of the last decade, at the time of the quantitative easing and so forth. And what I found rather extraordinary is, there you have it, that law has, you know, the first great experiment in quantitative easing to revive an economy. And to bring down interest rates that ends in the most phenomenal disaster.

[00:23:13] Edward Chancellor: And our modern central bankers were either wittingly or unwittingly following law but seemed to pay no attention to the fact that the system ended with a resounding failure.

[00:23:28] Stig Brodersen: It’s very interesting to think about and he was just so smart and like you alluded to, he might be too smart for his own good.

[00:23:35] Stig Brodersen: It’s so interesting how his scheme. In many ways designed to alleviate the French nobles that were heavily indebted Bo us and here we are. Everybody just let me leave it at that. But Edward, do you compare the collapse of Lehman Brothers in September 2008 to be somewhat similar to the French economy after the death of Louis the XIV?

[00:23:54] Stig Brodersen: A toxic mixture of deflation, high unemployment, and soaring government debt. [00:24:00] And it seems like monetary. Policy makers respond to the conditions by taking the lead from lost Coffee book. You already alluded to some of that before in your response, but could you paint some color around, how come, how can we connect those two stories?

[00:24:13] Edward Chancellor: Well, the Louis Catours, the Sun King, had a very long reign and got the France into huge debt because he was constantly engaged in warfare with Britain and Holland, other places. And very extravagant. And so at the time of his death, there were huge amount of debt. I think the Fran French debt was about equivalent of a hundred percent of GDP of French GDP, and the debts were trading at a discount.

[00:24:46] Edward Chancellor: To their face value. And the country, as you say was depressed and the price level was falling and law’s idea. So you had this sort of bad debt deflation and economic depression, and a large, not as bad debts, but a large mountain of debt. A law’s idea is that this can all be. Cured by waving a monetary wand.

[00:25:09] Edward Chancellor: And I think you know, he then really as I have said before, when he then fans the Royal Bank and issues paper money, he sets up the progression from a go back currency to a pure paper currency, what we call a fiat currency. People who speculate in the Mississippi up [00:25:30] zone, you could say that they’re envision envisaging a.

[00:25:34] Edward Chancellor: In which, you know, the riches of the United States come forth, or they’re visiting a world of paper money and manipulated interest rates. But in fact, these things, the speculators often see the future. They draw the, a distant future into the present. And in this case, the, you know, obviously it took a while.

[00:25:55] Edward Chancellor: You know, the US to, you know, the American riches to be established, but also Fiat money didn’t really become established until 71 when the US brought the post-war Breton Woods currency system to an end. So law was, you know, almost 250 years ahead of his time in that respect. I think that, you know, there is, you know, as I said, to go back to it, one of the things that we know about Fiat money is it has an inherently inflationary aspect to it.

[00:26:28] Edward Chancellor: You know, the gold dollar that dollar was worth announced, gold was worth just, I think around 23, 20 $4 up till 1933. and now you know it’s, I probably ran sort of 18, $1,900. Yeah, 18 or $1,900 turnout. So you can see huge. Collapse in the value of money. And I think that laws inflation, the, and what I think what law he does is encourages people to think that you can [00:27:00] use money to dispel your economic problems.

[00:27:03] Edward Chancellor: But it would appear to me that the inevitable consequence of that is that you depreciate the value. Of your currency, and that really is shown in his own period. But then, you know, of course of the 20th century. And then as you know, as we’re experiencing again today,

[00:27:26] Stig Brodersen: Just one quick note on Louis the XIV, the Sun King, it was said that he used wine in his fountains when there were, he was having his elaborate parties.

[00:27:36] Stig Brodersen: And I want to use that as a segue to the next question, because one person. Who probably, I don’t know if he would even be drinking wine, but definitely not having his fountains would be John Bowl. And our audience might or might not be familiar with John Bull. He’s the diversification of Brady’s Common sense.

[00:27:52] Stig Brodersen: And we know that John Bowl can stand a great deal, but he cannot stand 2%. So former East India Company, Dr. John Fulton, who turned banker, claimed that 2% was the tipping point into financial folly. Looking back at the recent yield, so more last year perhaps than here in 2022. I just find that to be a quite interesting statement.

[00:28:15] Stig Brodersen: Could you please talk to us about the psychology of the 2% tipping point?

[00:28:20] Edward Chancellor: So that 2% tipping point as you mentioned. First described by a very obscure figure called John Fullerton, who no one would’ve heard of, [00:28:30] but people do who know bit about financial history, are aware of the most famous 19th century financial journalist, editor of the Economist called Walter Bagehot.

[00:28:42] Edward Chancellor: And Walter Bagehot. He comes from a banking family not far from where I live in some. And so he knew about Baggie, knew about finance, and he went, and he became editor of the Economist. And Badger noted that, and I think he borrowed from the cello Fullerton, that the speculative manias and lending crisis tended to coincide with periods of low interest rates.

[00:29:10] Edward Chancellor: And it, it was he who coined the phrase, which he repeats again and. In his writings, John Bookend stand many things, but he cannot stand 2% and then badger elaborates. Faced with a loss of income, people will do foolish things to make good and they will engage in speculations into, you know, canal speculations or railway speculations.

[00:29:38] Edward Chancellor: He says he makes a good point a bad way. He says, people, when interest rates come down, you must either be, the investor must either be less poor so less rich or less safe. In other words, there is a trade-off between risk and return. And what we find, and this is what modern research [00:30:00] confirms, is that the periods of low interest rates do encourage people to take more risk.

[00:30:06] Edward Chancellor: And in fact, the recent research suggests it’s not 2% yield, but actually a 3% yield. That is the threshold. And we see, and as I describe in the book, you know, in the low rates of interest that prevailed after global financial crisis, the lowest interest. In fight millennia, all sorts of risk were taken.

[00:30:27] Edward Chancellor: I also said slightly earlier, writer on economics, an Italian called Fernando Galiani. And Galiani has an interesting definition of interest as being the price of anxiety or the price of risk. So you see there is a, and that’s one of the key functions of interest that I think is misunderstood by the policy makers.

[00:30:49] Edward Chancellor: Because they think you can lower the interest rate. I can lever in order to encourage people to borrow more and to, you know, bring deflation to an end to lower unemployment. But if you are playing around with a price of risk, you are also going to be unwittingly encouraging a buildup, a risk in the system, and you probably won’t know where that risk is building.

[00:31:16] Edward Chancellor: So Bagehot, I think deserves great credit for making this early connection. And I go, I have a chapter on early connection between interest and speculative booms or bad lending, not [00:31:30] just bubbles in stocks, but also foreign lending booms as well. And I have a chapter sort of showing how that pattern played itself out over the course of the 19th century.

[00:31:42] Stig Brodersen: It’s difficult to have an episode about economic history without talking about the great economist John Maynard Keynes. I actually, I just finished the letters from Nick Sleep, which is a brilliant British investor, and he actually mentioned John Maynard Keynes, and he said that allegedly one of the last things he said before he died was that he had a deep regret of not drinking more champagne.

[00:32:03] Stig Brodersen: Why? He had the chance. That was not what the question was about. It was just a wonderful anecdote. But even the great economist John Maynard Keynes seem to have changing thoughts on what economists call the natural level of interest. Could you please, Edward, explain to us what is that concept and would you argue that it’s relevant to manage the monetary policy of today’s economy?

[00:32:26] Edward Chancellor: It’s a thorny problem, the quest of what’s called a natural rate of interest. If you look at the early the writings of early economists in the 17th century, they’re tending to you. Remember you mentioned Queen Elizabeth’s statute on News three that fixed the maximum rate of interest that was charged in the country.

[00:32:46] Edward Chancellor: And in the 17th century were lot of debates about should the user level be brought lower and lower. Or should the market be free to determine borrowers and lenders free to determine what [00:33:00] rate of interest charge now? That that I think is the early and formulation of a natural rate of interest.

[00:33:07] Edward Chancellor: It’s the rate, you know, if you go and buy, I don’t know, packet of matches. The price you pay is the natural price for a packet matches, cause you, you don’t have to buy that packet of matches and a seller doesn’t have to sell it to you. So it’s set in the market. It then becomes more complicated. It becomes an idea of a monetary economist, in particular, the great Swedish economist, Knut Wicksell in the writing of the late 19th, early 20th century.

[00:33:38] Edward Chancellor: And Wicksell suggests a natural rate of, he has rather complicated view. He says the natural rate of interest is the return on capital. Of an economy without money. And then he says if you sort of superimpose money on the system, the rate of interest will reflect that return on capital. He then says, you can tell the natural interest rate.

[00:34:04] Edward Chancellor: You can’t observe it directly, which is one of the problems of the natural interest rate, but you can infer it. From whether there is inflation or deflation in the economy. Wicksell says if the interest rates, if the central bank is keeping interest rates too low, then and inflation follows, then the interest rate that the policy rates are below the natural rate.

[00:34:29] Edward Chancellor: He [00:34:30] says Then if the price level falls. If the price level is falling and you have deflation, then Wicksell says, send, the policy rates are above the natural rate, and this is a view held by modern monetary policy makers and central bankers, and it was the view that was the rationale for these extremely low and negative interest rates.

[00:34:54] Edward Chancellor: In the last decade, and also for the quantitative easing, and I argue somewhat differently. I say, forget about inflation, and deflation. You don’t know what the natural rate is, but there are other things that would be telling you, aside from. Inflation that the policy rate was below, so to speak, the natural rate and you would observe.

[00:35:18] Edward Chancellor: The things I observe are the asset price inflation that we’ve just talked about, credit booms and so forth. Those would be the, to my mind, the indications that the policy rate has been set too low. So I say that. You can tell the natural rate by its absence because bad things, so to speak or dangerous things are happening in the financial system.

[00:35:46] Edward Chancellor: So one thing I should add to that is I didn’t mention the misallocation of capital. If you have interest rates at too lower level, you will have a misallocation of capital into projects that won’t [00:36:00] deliver a satisfactory. Another sort of grave problem from interest rates being too low.

[00:36:07] Stig Brodersen: Yeah. Let’s talk a bit more about that because I think our listeners are quite familiar with Schumpeter’s evolution in process of created destruction.

[00:36:14] Stig Brodersen: So to your point before, why have the low interest rate put a break on the process by having now unnatural selection and capital destruction?

[00:36:24] Edward Chancellor: Well, I mean, I discovered a, the writings of a late 19th century American economist whose president of Yale called Arthur Hadley, and Hadley actually suggests, that interest rates.

[00:36:38] Edward Chancellor: Lead to encourage the process of natural selection. If you think about it, we often talk about the interest rate as a hurdle rate for an investment. So if you will, the higher the hurdle rate only the more efficient companies can get over a higher hurdle rate. Now, Schumpeter, the Austrian economist in his way, perhaps the second most colorful economist after John Law and in, and.

[00:37:04] Edward Chancellor: Just as brilliant law. But Schumpeter has this notion, famous notion of creative destruction. In Schumpeter’s world, profits are always dwindling away, and the economy is sort of moving towards sclerosis through need a constant flow of companies being created and other companies being destroyed and innovation and entrepreneurs [00:37:30] and I argue, this is not a fashionable position.

[00:37:34] Edward Chancellor: And it’s very much against the view of the Keynesian economist who tend to dominate the world of academia and policymaking that the low interest rates of recent years have impeded the creative disruption in the economy. And you can see that. By the relatively low levels of policies that occurred after the global financial crisis in both Europe and in the United States, and then later by the proliferation of zombie companies.

[00:38:07] Edward Chancellor: These were companies that couldn’t afford to pay them. Interest, aim their profits were not large, sufficient to cover their interest charges at a time when interest rates themselves were a historically low level. And the, I also argue that this lack of creative destruction then has an impact on productivity and therefore, and the lap productivity feeds through to low wage.

[00:38:35] Edward Chancellor: So people have argued the, if you will, the, you know, the conventional central banker view or the establishment view is that becomes a justification for lower interest rates at one stage. I think the, you know, former Fed. Chair Ben Bernanke in ran say 2018, responding to no productivity figures. He says, [00:39:00] this is dovish news for interest rates, whereas in other words, that interest rates will get will come down because productivity slip, I’m arguing.

[00:39:08] Edward Chancellor: I’m reversing the order, I’m saying the low interest rates appear to be actually leading to low productivity, and then you get a sort of, you know, horrible feedback loop because then the low productivity feeds back into the low interest rates. So I think one of the problems, and I think one of the problems that the sets for economics, that in my experience, people who’ve actually worked in financial markets as investors and bankers, and so.

[00:39:36] Edward Chancellor: Where we, those are we practical experience, realize the sort of feedback between finance, between our perceptions or policies and the financial system and the economy. And there are these constant feedbacks what George Soros calls reflexivity, whereas the academic. Economist nowadays tends just have an abstract view of the economy.

[00:40:01] Edward Chancellor: That without really any impact of, you know, of financial and monetary policy on this abstract view of the economy it’s a very, to me, it’s a view that is extraordinary far away from the reality that one can observe.

[00:40:16] Stig Brodersen: Edward, I wanted to end this interview with a wonderful quote from the very beginning of your book, and the quote goes like this.

[00:40:24] Stig Brodersen: Our earth is degenerate in these latter days, bribery and corruption are common. [00:40:30] Children no longer obey their parents. Every man wants to write a book, and the end of the world is evidently approaching. Now, one might think that this is a headline of today’s newspaper.

[00:40:43] Edward Chancellor: Right now, I must stop you there because that quote comes from Homer and Siler’s famous, History of Interest Rates, which is the bible of giving you the five-millennial history of, and my book is about interest, obviously writes about it, and Homer writing a history of interest. So they cite this claim, but I couldn’t resist putting it in. But as I did a bit of research in it and it, look it’s almost certainly apocryphal.

[00:41:14] Edward Chancellor: In fact, lot of a one stage I was going to use as epigraphs at the beginning of each chapter. Apocryphal quotes about interest. Like for instance, you know, the claim that Einstein said that, “interest was the eighth wonder of the world,” which Einstein never actually said. It’s so perfect that this apocryphal quote that I couldn’t resist putting it in slightly as a sort of inside joke to Dick Siler.

[00:41:38] Edward Chancellor: Sidney Homer is dead, but Dick Siler, I know. And I thought it might amuse if I replicated it. There’s a very good website, Quote Investigator, if you ever think a quote is too good to be true, you have to go to the Quote Investigator website where the writer will say whether, where they’re research the quotes, see what they have.

[00:41:59] Edward Chancellor: So it, it [00:42:00] could be true, it could be in so, but it, you know, it’s probably just made up some time in the 20th century. But it does seem to you. It does seem to apply today. I’m not least, you know me publishing a book and you try and put a book out today and you are, and the publisher says, well, you know, 60,000 books are published in England area, and you are thinking, wow, that’s slightly more books than we probably need.

[00:42:25] Stig Brodersen: It’s so wonderful that you would say that because I, you know, I can’t help but be captivated whenever I read that on the very first pages in the book, I was thinking this has to be a wonderful book. Just the last question I wanted to ask you here before I, I let you go. I want to be very respectful of your time, but you started the price of time from the origins of Mesopotamia up to today. What is the most surprising fact that you learned on this journey running your wonderful book.

[00:42:52] Edward Chancellor: I think, if I can call it a fact, is that over the course of writing the book, I came to realize how central the interest rate was to all of human life and sense of putting a price on time, but in particular to the capitalist system because as I say somewhere, you know, if you have what we call a piece of capital is something generating income, and unless you apply a discount rate, an interest rate, a capitalization rate to that income, you can’t have a price, you would have an infinite price.[00:43:30]

[00:43:30] Edward Chancellor: I think one of the 17th-century economies said that, you know, without interest, a, there would be no difference between the value of an acre of land and a value. And, you know, 2000 acres of land interest is we have lost sight of this most extraordinarily important, the most important economic, if you want to call it, for, want a better word, variable.

[00:43:55] Edward Chancellor: And because we lost sight of what it did and the richness of its functions, what my friend Jim Grant calls the cause interest, the universal price because we’ve lost a sense of the universality of interest, we have I think, you know, we have gone down a pretty, pretty bad route. And we’re at the moment, you know, with, you know, obviously with inflation coming and interest rates rising and the financial markets cracking. We’re sort of beginning to recognize the errors of our way.

[00:44:27] Stig Brodersen: And here we are today. Perhaps that should be the last famous words. The name of the book is The Price of Time. It’s a wonderful book. Edward, would you like to say a few words about the book here before we round off the interview?

[00:44:40] Edward Chancellor: My definition of a good bookshop will be my book is the sale in it.

[00:44:45] Stig Brodersen: Well said, Well said. Well, Edward, thank you so much for your time.

[00:44:49] Edward Chancellor: Okay, thanks very much Stig.

[00:44:52] Outro: Thank you for listening to TIP. Make sure to subscribe to Millennial Investing by The Investor’s Podcast Network and [00:45:00] learn how to achieve financial independence. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.