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RE: Think Economics – Part 1 – Interest Rates
I think this article needs a major correction: borrowers do not buy money, they rent it. The interest rate is cost of this rental. This is different from wages because the employee retains no rights to the work he has done, unless specifically provided otherwise. Then, wages are a part of total compensation.
This is meant to express the Austrian viewpoint of how interst rates work in the borrowing/lending sense.
I suppose that’s fair as far as “renting” however, the wage bit is a little odd, as this isn’t discussing wages and workplace relationships, rather borrowing.
I prefer the Austrian explanation because the interest rate is determined by supply and demand like everything else. I wish I had time to write about it for a high quality econ journal.
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