2023 Summer Book Review

The Price of Time: The Real Story of Interest

by Edward Chancellor, 2022
Winner of the 2023 Hayek Book Prize

Longlisted for the 2022 Financial Times Business Book of the Year Award

In the beginning, was the loan in Mesopotamia, and that loan carried interest at 20%. During the 5,000 years prior to 1913, there was no US central bank and interest rates often ranged between 4% and 8% with a few upward and no downward spikes to zero or negative rates. Is there a ‘natural’ rate of interest the author asks, and if so, how can we know what it is?

I like that this book deftly brings together reading for pleasure and finance knowledge. Edward Chancellor shows his intellectual strength and experience as a financial historian by finding a way to make his protagonist, interest rates, incredibly interesting. While Chancellor doesn’t directly answer the begging question in his book, he points to the recent occurrence of historically low rates now being on an upper trend for a generation. Everyone, not just capitalists or those in finance, should know more about interest rates and how moral hazard forces can come to shape them. In this book, the author showed that overuse of “central banking tools such as the Fed put” led to an “everything bubble” with an inflation “hangover”. With central bankers having now raised rates more aggressively than ever before perhaps we should be asking what price society is willing to pay to reduce inflation towards an arbitrary target. In the first part of the book, he presents the history of interest rates with the observation that if interest rates are looking to escape or perhaps normalize off one in-five-thousand- year lows, then we should prepare for something to go wrong. Throughout the book, Chancellor offers amusing relevant yet poignant tales from the highs and lows of interest rate history including John Law and the Mississippi bubble. The author properly points out how hurtful more recent negative real interest rates are and why a reasonable cost of capital leads to a healthier economy. In addition to looking at the impact of global central banks’ woeful policy of zero/negative interest rates, Chancellor discusses his main character’s far-reaching impact on valuation, capital allocation, saving, risk-taking, capital flows, leverage, and inflation. The book shows that low-interest rates more often lead to wealth inequality, property speculation, poor corporate governance, and frightening levels of risk-taking instead of repairing the economy. Chancellor also shows that the West is not alone as recent easy money in China has inflated an epic real estate bubble there, accompanied by the greatest credit and investment boom in Chinese history. The central bank “put” created by Alan Greenspan and then perpetuated by all his successors and too many of his global piers has spread into several major market shocks over nearly two decades as investors made an ongoing sport of interest rate speculation.

“Interest rates haven’t simply fallen-they were pushed. And by their pushing, the world’s central banks have constructed the hall of mirrors in which every investor has become, of necessity, a speculator. So argues Edward Chancellor in this brilliant chronicle of the most important prices in capitalism. You must read it. It is a masterpiece of history, analysis – and properly managed outrage.” James Grant, editor of Grant’s Interest Rate Observer.