It increases or decreases according to the fluctuations of supply and demand, that is, according to the particular pressures of the moment and the general prosperity of society.

Frédéric Bastiat
Economic Harmonies

In today’s quote, “it” refers to the interest that needs to be paid by the entrepreneur to the money saver who is financing his enterprise. The interest is inseparable from a society in which property rights are respected and men are free to undertake whatever they wish to without resorting to a political stratagem to force its financing.

Economically, it is important that the interest rate be an outcome of the law of supply and demand because it is the way to allocate the ressources according to the real needs of society as a whole (and not according what some or other politician decides what “society” needs the most).

Here, Frédéric Bastiat shows the phenomena explaining why interest is not only legitimate but also necessary. Unfortunately, his message has not been sufficiently understood, which is the reason why the pandora’s box has been opened by the current politicians who managed to manipulate interest rates over the last ten years to the extent of reaching the absurdity of negative rates. Society will pay dearly for the consequences of a misallocation of capital that is as strong as it is nowadays.

Other quotes from Capital:
Introduction – Part 1 – Part 2 – Part 3 – Conclusion

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