Capital and Interest Theory

The US economy is hooked on easy money and artificially low interest rates. Huge credit expansions are not “stimulating” the economy; they are destroying it.

The US economy is hooked on easy money and artificially low interest rates. Huge credit expansions are not “stimulating” the economy; they are destroying it.

Mainstream economists are at a loss to explain why the current regime of inflation and central bank interventions have been so economically devastating. Understanding Cantillon effects is vital to making sense of the current madness.

Bob walks through a recent WIRED video on “the economics behind the Great Depression,” correcting its claims on lax regulation, Hoover’s alleged inaction, the role of the Fed and the gold standard, and the notion that World War II ended the slump.

Bob revisits capital and interest theory to show why the textbook result “interest = MPK” only holds in a one-good world, and why in actual markets the interest rate emerges from time, prices, and capital valuation—not raw productivity.

Equilibrium is an imaginary construct that should be used only for analytical purposes. Unfortunately, mainstream economists have claimed it should represent a desired state of economic affairs.

The modern debt culture—underwritten by the Federal Reserve’s expansionary policies—is not only harms capital development, but it also encourages short time preferences, which diminishes the structure of production.

Ever since the Great Depression, most economists have claimed that the key to increasing economic growth is to lower unemployment. However, increasing the savings rate and building a capital structure are the keys to growth—and lower unemployment.

While some economists are celebrating the awarding of the Nobel Memorial Prize in Economics to three economists who are relatively friendly to free markets, we should not forget that most Nobel winners have been unrepentant statists and socialists.

David Gordon reviews Shawn Ritenour's The Economics of Prosperity. The book shows how economic growth stems from entrepreneurship, the division of labor, and investments in capital and technology. These factors, Ritenour argues, are the key to prosperity in underdeveloped countries.