An Essay on Economic Theory

2.10. The Causes of Increases and Decreases of the Interest Rate on Money in a State

An Essay on Economic Theory by Richard Cantillon
Richard Cantillon

The interest rate is determined by the supply and demand for loanable funds, not the supply of money. Savings and frugality decrease the interest rate while lavish spending increases it. War increases the interest rate, peace decreases it. Paying off the national debt decreases the interest rate. A positive balance of trade decreases the interest rate, but the government cannot effectively lower the interest by a usury law. The interest rate is a critical factor in the valuation of assets such as land.

From Part 2: Money and Interest. Narrated by Millian Quinteros.