Economy featured

Edward Chancellor: “The Price of Time”

April 25, 2023

Conversation recorded on March 29th, 2022)

Show Summary

On this episode, financial historian Edward Chancellor joins Nate to give a meta-history of interest rates and human societies. With recent news of global financial turmoil in response to rising interest rates, taking a look at our history could help us interpret our present and plan for the future. How deeply entangled is this financial predicament that we’ve gotten ourselves into? Can we learn from the past to reshape a more stable monetary policy in the future, or are inflating financial bubbles (and popping them) simply in our human nature?

About Edward Chancellor:

Edward Chancellor is a financial historian, journalist, and investment strategist. He is the author of Devil Take Hindmost: A History of Financial Speculation and his latest book, The Price of Time, where he explains the story of capitalism is really the story of interest: the price that individuals, companies and nations pay to borrow money. He is currently a columnist for Reuters Breakingviews and a contributor to the Wall Street Journal, MoneyWeek, the New York Review of Books and Financial Times.

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Show Notes & Links to Learn More:

00:20 – Edward Chancellor Works + Info + The Price of Time + Edwards best history book recommendations

01:53 – Lazard Brothers

02:45 – Compound Interest as the ‘8th Wonder of the World’

03:32 – Misattributed quotes

04:25 – History of interest

04:53 – Ancient Mesopotamian dispute over land resulting in a back payment of compounding rent resulting in 8 trillion liters of barley (Page 216)

05:38 – [Richard] PricePenny accruing 5% interest since 0 BCE it would result in twice the weight of Earth

06:34 – Marx on the impossibility of compound interest

06:49 – Frederick SoddyWealth, Virtual Wealth, and Debt

09:34 – Human’s positive time preference

10:57 – Thomas PikettyCapital in the 21st Century

11:50 – Warren Buffet

13:16 – William N. Goetzmann – Wikipedia

14:08 – Study on the USSR’s lack of interest rate which meant a lack of coordinated activity

15:23 – James GrantThe Universal Price

16:28 – What is Capitalism?

17:04 – Origin of the word capital and other financial terms coming from livestock terms

20:56 – Payback period

21:17 – A higher interest rate is important for creative destruction (Schumpeter)

22:57 – Irving Fisher

24:18 – Jeremy Grantham

24:35 – Kenneth Boulding

24:45 – Spaceship Earth

26:07 – Half of man-made carbon emissions have come since the 1990s

26:26 – China’s real estate boom

27:36 – Chinese investment running at 50% of GDP

27:40 – Chinese cement consumption >1 ton per capita + energy intensity of cement production

28:04 – Cement consumption in Spain during their real estate boom

28:32 – Howard Odum and the 4th Law of Thermodynamics: Maximum Power Principle

34:45 – Oil depletion and scarcity

37:00 – GDP Growth peaked in the 1970s along with crude oil production growth

38:38 – ‘Green’ committed governments turned to subsidizing consumption when energy prices rise

38:55 – Quantitative Easing

39:44 – Low interest rates encourage a lot of high-yield debt investment into fracking without a high return

40:40 – Energy Return on Investment (EROI)

40:53 – Paul Chapman

42:15 – Modern society was built on 20:1 EROI

42:45 – EROI and inflation

44:41 – History of Interest Rates – Sidney Homer, Richard Sylla

46:53 – 16 trillion dollars worth of negative interest rates in Europe

49:17 – COVID Market Mania

49:25 – Charlie Munger

50:25 – Hyperinflation

50:55 – Fiat Currency

51:30 – Gold Standard

51:55 – Volatile short-term rates vs long-term rates

52:29 – In the past 100 years we’ve seen the lowest and highest interest rates in history

52:47 – Devil Take The Hindmost

53:28 – The Government of Japan has bought 50% of its own government bonds

54:14 – South Sea Bubble

55:40 – US household wealth vs US household savings

57:45 – Financial Industry failure to recognize their role in bubbles

1:01:05 – Everything Bubble

1:01:15 – US Household wealth above it’s long term average in terms of percentage of GDP

1:04:05 – SVB/Credit Suisse Banking Problem

1:04:22 – Too Big to Fail

1:07:50 – UK helping gilts market

1:08:04 – US offering financing to US banking system

1:09:02 – Bank of Australia announced its equity is wiped out

1:09:15 – Bank of England statement that running off securities would be a loss of 200 billion pounds to be indemnified for

1:09:45 – US government spending on COVID relief

1:11:49 – US Government debt

1:13:16 – US Civil War Greenbacks

1:13:55 – Napoleon War inflation and return to normalcy post-war

1:15:55 – Russia + Saudi Arabia account for 45% of oil exports by net export (analysis by ISEOF)

1:17:26 – Bretton Woods

1:18:40 – Fractional Reserve Banking

1:19:39 – Chicago Banking Model

1:20:45 – The annual interest of forests (2.8%/yr)

1:22:28 – Hayek, Benjamin Grahamcommodity based currency

1:22:54 – John Law, land-based currency

1:25:02 – Central Bank Digital Currencies

1:25:12 – Expiring currencies 

1:26:05 – PanopticonJeremy Bentham

1:31:33 – ‘Flight into things of real value

1:34:33 – Germans stealing turnips during hyperinflation

 

Teaser photo credit: Pocket watch, savonette-type. By Isabelle Grosjean ZA – Self-published work by ZA, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=144336

Nate Hagens

Nate Hagens

Nate Hagens is the Director of The Institute for the Study of Energy & Our Future (ISEOF) an organization focused on educating and preparing society for the coming cultural transition. Allied with leading ecologists, energy experts, politicians and systems thinkers ISEOF assembles road-maps and off-ramps for how human societies can adapt to lower throughput lifestyles. Nate holds a Masters Degree in Finance with Honors from the University of Chicago and a Ph.D. in Natural Resources from the University of Vermont. He teaches an Honors course, Reality 101, at the University of Minnesota.

Tags: financial history, history of capitalism, interest rates