To say that interest will be eliminated is to say that there will no longer be any incentive to save, to deprive yourself, or to build up new capital, nor even to maintain the capital that already exists.

Frédéric Bastiat
Pamphlets II
Part 5 of 5

Frédéric Bastiat had seen that interest rates were bound to fall along the increase of available capital. What he does not believe though, is that interest can be inexistant or negative. With the hindsight of the 2010 decade, some could conclude that he was wrong and thus conclude that liberalism cannot function since it can be wrong on such an important feature of capitalism as the interest rate.

My point of view is that he was not wrong. His thoughts are encompassing interest rates at market price while what we are observing are distorted interest rates manipulated by governments. It is to be noted that, with a few non-significant exceptions, private enterprises borrow at positive rates despite the distortions

Frédéric Bastiat tells us that, in order for interest rates to be down to zero, abundance of capital needs to be so high as to eliminate scarcity in the economic sense. This is the thesis of François-Xavier Oliveau under the title “Crisis of Abundance” (available in French). I believe that he is wrong on the concept of scarcity and I do not share his idea because I think that he is seing causality where there is mere correlation. That said, I recommend his book to those who can read French because he stimulates some thoughts based on an optimistic picture of the current situation, which is always refreshing.

Other quotes from Capital and Rent:
Introduction – Part 1 of 5 – The sack of wheat – The house – The plane – Part 5 of 5

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