For professional investors and advisers only

Edward Chancellor was already the author of two books in my top ten investment books list; Devil Take the Hindmost: A History of Financial Speculation and Capital Returns (the latter is a compendium of investment letters written by Marathon Asset Management and edited by Chancellor) and I would now add a third to that list. The Price of Time: The Real Story of Interest is an extraordinary book which illustrates the problems created by setting interest rates too low and by the rapid expansion of credit through the use of historical examples ranging from John Law's Mississippi Scheme to the Wall Street Crash and Japanese bubble of the nineteen eighties. Interest rates are the anchor for the valuation of asset prices and once they reach zero, any valuation can usually be justified, and bubbles occur. These bubbles have ALWAYS burst with enormous economic costs but that is only part of the damage wrought by low interest rates. As Chancellor notes today's ultra-low interest rates have contributed "to many of our woes, whether the collapse of productivity growth, unaffordable housing, rising inequality, the loss of market competition or financial fragility. Ultra-low rates also seemed to play some role in the resurgence of populism". As much as mainstream media would like you to believe that all of the UK's economic woes can be pinned on Liz Truss's mini budget, Chancellor explains that these issues have been years in the making and can be mostly traced back to the faulty economic thinking of the central banks.

In the first half of the book, he examines many of the previous ill-fated bubbles which were inflated by low interest rates, and I found myself repeatedly writing "just like today" in the margin. It would appear, however, that many of our current economic thought leaders do not regard the study of interest rates history as worthwhile. According to their website, the US Federal Reserve employs over 400 economics PhD's and yet it would appear that they don't employ any financial historians since all their recent errors occurred previously. In my opinion, Chancellor is rightly critical of the current cadre of central bankers and their predecessors for their failure to observe historical misjudgements as well as their failure to learn from their own mistakes (Ben Bernanke rightly attracts criticism despite the fact that he has just received a Nobel prize). In the last few years, our monetary mandarins have inflated what some have described as 'the everything bubble'. At the same time, we saw the average price of a home in Vancouver reach $1.6m, Tesla valued at more than Toyota which produces twenty times the number of cars as Elon Musk's firm, cryptocurrencies like Bitcoin rise by 1200% in a year and 150 unicorns (start-up firms valued at more than $1bn). The collapse of companies such as Theranos, WeWork and FTX is also reminiscent of how most bubbles end and the enormous damage that they create.

This book should be required reading for anyone involved in financial policy making from politicians to treasury officials and to central bankers. If I thought they would read it, I would willingly buy a copy for Andrew Bailey and the rest of the Monetary Policy Committee but I suspect they have little interest in reading anything which conflicts with the current economic orthodoxy no matter how wrong it has been.

Author: Ian Lance, Fund Manager