THE PRICE OF TIME : THE REAL STORY OF INTEREST

In the beginning was the loan, and the loan carried interest. For at least five millennia people have been borrowing and lending at interest. Yet as capitalism became established from the late Middle Ages onwards, denunciations of interest were tempered because interest was a necessary reward for lenders to part with their capital. And interest performs many other vital functions: it encourages people to save; enables them to place a value on precious assets, such as houses and all manner of financial securities; and allows us to price risk. Interest is often described as the "price of money," but it is better called the "price of time:" time is scarce, time has value, interest is the time value of money.