4 ms·
This is my take: Interest is just another term for the time value of money. The time value of money is a fact of life as long as there are opportunities in the
by projectramo 8y ago
This is my take:
Interest is just another term for the time value of money. The time value of money is a fact of life as long as there are opportunities in the world to invest in something that is productive.
Therein lies the problem: you can't explicitly charge interest, but you are still subject to the time value of money.
The only option is to describe/disguise the time value of money in terms that don't bring up interest. That is a juggling act because interest is really the simplest (imho) way of understanding it.
So you get a lot of obfuscation.
- lottin 8y agoBasically, you're right, but thinking thinking in terms of "money" is missing a more general point. A loan doesn't have to involve money at all. There are various reasons why the price of credit isn't zero. One reason is that most humans have a "preference for the present", i.e. given the choice they would rather have something now that the same thing at some point in the future. As a result, most people are not willing to give something away now, unless they have an expectation that they will get something more valuable in the future. Another reason is that there is always risk involved in lending. The borrower might not be able to fulfil their obligations, whereas the lender might find a better use for whatever it is they're lending. Therefore, it generally is better to keep something, than to lend it at an interest rate of zero.
- tinus_hn 8y agoInterest also pays for the risk of not getting your money back.