Interest, Rate of Interest, and Crises

Abstract

Interest and capital are two closely related topics that have been widely discussed by economists. Although in today’s economic literature interest is mostly identified with contract-interest on loans and its rate with the market rate of interest, the problem of its origin has still to be satisfactory solved. Economists of the past struggled to argue the existence of an original interest enabling that of the interest on loans, where the latter is essentially nothing but the effect of the former. They all agreed that capital is at the origin of interest, yet they disagreed about the kind of causal link that exists between these two concepts. Is capital a direct or an indirect cause of interest? The question whether or not capital is a macroeconomic factor of production is still open today and, despite appearances to the contrary, still a subject of controversy. Indeed it is only thanks to Schmitt’s quantum macroeconomic analysis that a final answer is possible, the payment of human labour being the only transaction capable of transforming money into income.