Interest Rates

Paper Summary:

Sidney Homer, in his 1963 seminal history of interest rates, argues that a history of often dramatic interest rate fluctuations provides an excellent summary of the success of some communities and the failures of others to develop effective commercial ethics and laws and suitable monetary and fiscal techniques and policies. While "credit" is considered a modern device (or vice), a brief survey of financial history in this paper demonstrates that credit was in general use in ancient and in medieval times, antedating industry, banking and even coinage. This paper examines selected issues related to the history of simple and compound interest rates, specifically loans and considers periods when high rates were commonplace in their historical context.

From the Paper:

"In this context, Gwartney and Stroup (1990) note that in Keynesian economic theory, the interest rate is linked to the supply of and demand for money. High interest rates have historically induced people to hold less money (i.e., to invest more), while low rates have the opposite effect. During normal times, the demand curve for money is like the demand curve for other goods; when the price (the interest rate) of holding money rises, the quantity of money demanded will decline. The Federal Reserve System, the U.S. monetary authority, often finds it necessary to intervene to "adjust" the interest rate to further "adjust" the monetary supply and demand curves and related activity."

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