The Price of Time: The Real Story of Interest

The Mesopotamians invented what Einstein supposedly called the eighth wonder of the world, namely compound interest.fn5

Our understanding of early finance arises above the level of speculation thanks to the Mesopotamians, who recorded their loans on clay tablets.

The most important question addressed in this book is whether a capitalist economy can function properly without market-determined interest.

The entire difference between a bad and a good Economist is apparent here. A bad one relies on the visible effect, while the good one takes account of both the effect one can see and of those one must foresee.16

In the sphere of economics, a habit, an institution, or a law engenders not just one effect but a series of effects. Of these effects only the first is immediate; it is revealed simultaneously with its cause; it is seen. The others merely occur successively; they are not seen; we are lucky if we foresee them.

Bastiat foresaw disaster if Proudhon’s plans were put into practice. If lending were not rewarded, there would be no lending.

Bastiat was having none of this. Interest wasn’t theft, he maintained, but a fair reward for a mutual exchange of services. The lender provides the use of capital for a period of time, and time has value. Bastiat cites the famous lines from Benjamin Franklin’s Advice to a Young Tradesman (1748): ‘Time is precious. Time is money – Time is the stuff

Interest is much older than coined money, which only originated in the eighth century BC.

The association between interest and the fruit of a loan is embedded in ancient languages.