The two interest rates

Everything before this course is foundations. Everything after it is the cycle. The hinge is a distinction Knut Wicksell drew in Geldzins und Guterpreise, published in German in 1898 and translated into English by Kahn in 1936 as Interest and Prices. There is the rate lenders actually charge, and there is the rate that would emerge if real capital goods were lent in kind with no money involved. Wicksell called the second the natural rate of interest on capital, and he built a theory of the price level out of the gap between them.

Seven lessons. The first three are the distinction, the Austrian answer to what sets the natural rate, and the loanable funds market drawn once. The objection that there may be no single natural rate appears in the second lesson, at strength, because it is the sharpest thing anyone has said against this part of the theory.

The fourth asks what a central bank's policy rate actually is, from the central bank's own published description, and how far along the curve it reaches. It evaluates nothing.

Lessons five and six are the same arithmetic run twice. The same fall in the rate, once because people saved more and once because credit was created, with the resources available in each case set beside each other. Those two lessons are the whole theory in miniature, and the next two courses are what follows from them.

The last lesson is the bridge to mainstream macroeconomics, and it is not a concession. The natural rate is not a heterodox idea. Central banks estimate it and publish the estimates.

Nothing here is a forecast, a policy position or a view about any security, and ValueScreener gives no advice.