2023 Hayek Lecture
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Why is the perception that high interest rates are harmful to the economy so widely held? What cautionary tales exist dating back to ancient Mesopotamia, Restoration Britain, all the way up to the global credit booms of the 21st century? How have seemingly negative rates in places such as Europe and Japan contributed to economic insecurity and financial fragility?
In response to the Great Depression, F. A. Hayek warned against expansionist monetary policy and the manipulation of interest rates, which create market uncertainty and a continuous boom-bust dynamic. Competition and reduced government spending—rather than government policies to maintain low interest rates—would help with market stabilization. In The Price of Time: The Real Story of Interest, Edward Chancellor provides more evidence to support Hayek’s skepticism of non-market-based interventions to stabilize prices, as he comprehensively surveys the misguided policies to artificially lower interest rates throughout history.
Chancellor reveals how extremely low interest rates lead not only to asset price inflation but also to weak economic growth, rising inequality, zombie companies, elevated debt levels, and the pension crises that have afflicted the West in recent years—conditions under which economies cannot possibly thrive. At the same time, easy money in China has inflated an epic real estate bubble, accompanied by the greatest credit and investment boom in history. As the global financial system edges closer to yet another crisis, Chancellor shows that only by understanding interest can we hope to face the challenges ahead.
Edward Chancellor is a financial historian, journalist and investment strategist. Edward read history at Trinity College, Cambridge, where he graduated with first-class honors, and later gained an M.Phil. in enlightenment history from Oxford University. In the early 1990s he worked for the London merchant bank, Lazard Brothers. He was later an editor at the financial commentary site, Breakingviews. From 2008 to 2014, Edward was a senior member of the asset allocation team at GMO, a Boston-based investment firm. He is currently a columnist for Reuters Breakingviews and an occasional contributor to the Wall Street Journal, MoneyWeek, the New York Review of Books, and Financial Times. His latest book, The Price of Time, is published by Allen Lane in the United Kingdom and Atlantic Monthly Press in the United States.