The Scarcity Rate of Interest
Monetary Policy and the Capital Scarcity Rate of Interest Richard A. Stanford Professor of Economics, Emeritus Furman University Greenville, SC 29613 <Take-Aways From This Essay> <Essays Menu> Introduction Many commentators and textbooks that purport to explain interest rates treat them only as returns to financial instruments. Little if any attention is given to the underlying real basis of interest rates. The natural rate of interest, described by Knut Wicksell in 1898, is no longer a "hot topic" in economics or finance literature, but it may be mentioned in passing on the way to describing interest rates as purely financial phenomena. My intent in this work is to describe a variation on the natural rate concept and argue that it is fundamental to understanding both the real and the financial aspects of interest rates. Charts provided by the Federal Reserve Bank of St. Louis (Federal Reserve Economic Data, FRED) have been downloade...