Tuesday, 11 February 2014

A barometer of reason since the dawn of civilisation

Here’s a neat chart showing  interest rates since the birth of civilisation (not including China).

What do you notice?

Click to enlarge

Here’s two things I find fascinating: it’s like a barometer of the growth and collapse of reason in the western world.

I say that because the time preference theory of interest – the notion that a dollar today is worth more to most folk than a sum slightly more a year or so from now -- suggests that a growing culture of reason, a culture that values longer time horizons, will generally have lower interest rates.  (A lower time preference is required to make greater relative provision for the future. And vice versa.)

And so we see: a general trend of lowering interest rates as a result of the growing Hellenistic age, the Renaissance and the Enlightenment – and the results of the abandonment of reason in the dark ages.

Yet even with these long-term trends, there are short term spikes – spikes that can still be explained in terms of time preference.  How? Because, with the “originary rate of interest” being measured in terms of the currency in use, you would expect interest rates to rise with the ongoing debasement of this currency. And so they do …

See what other lessons you can draw from the trends of commodity prices since the dawn of civilisation.

[Pics from the Macro_Tourist, hat tip Zero Hedge]

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