A History of Interest Rates [ペーパーバック]

Many might say that a book of this subject matter would be incredibly dry and boring. But if one reads it from cover to cover, as was the case for this reviewer, one will find it to be packed with fascinating information and insights on almost three thousand years of financial history. Nearly every culture and geography is represented as the authors take the reader on a roller coaster ride over the hills and valleys of lending policies and usury in both private and public contexts. There are many surprises for the reader who is unaware of the great impact that interest rates can have on human activities, including war and pestilence, but also human discovery and adventure. For the serious researcher, there are also a multitude of tables and graphs, illustrating the behavior of interest rate time series for different cultures and governments throughout history.

The scale of importance of interest rates in the modern world is staggering if compared with the historical periods that are discussed in this book. Indeed, and this is brought out by the authors, interest rates in their words are "watched like a hawk", and millions of dollars are spent every year in interest rate modeling and analysis of fixed income securities such as bonds and mortgage-backed financial instruments. All investors, no matter which sector of the market they are involved in, have to monitor very closely the trends in interest rates.

The magnitude of interest rates can enable wars to be fought and lost, as is brought out brilliantly in this book. Legal philosophies and developments have also guided humans as to what is considered just compensation for lending, with rates in some cultures considered to be astronomical as compared to others. And the authors show that there have been periods where lending has barely occurred at all, with progress in such periods taking as expected a back seat. One cannot grow and flourish without taking risk, and lending risk is measured with the level of interest rates and their volatilities.

Many might say that economic and financial history cannot be romanticized. After all, economics is supposed to be the "dismal science". The authors do not intend to present such a romantic view, but they do so inadvertently perhaps. With all the conflicts that have been waged because of financial competition, with most of these conflicts being horrifying and in some cases completely destructive to the societies that waged them, lending encapsulates the need for humans to plan for the future. It exemplifies the attitude that the future holds promise, and solidifies a level of trust between borrower and lender. It allows both parties to assess their current position with what it will be in the future. And of course it is an axiom that it is always infinitely preferable to exchange coins rather than bullets.

Sidney Homer delivers what he promised - a lengthy and extremely detailed history of interest rates. Almost completely absent is any commentary on why interest rates have changed through history. Any observations of cause and effect are left up to the reader to discern. But as a pure history text, the book is readable and thorough both in breadth and depth.

This exceptionally written, highly readable volume, written by a true pioneer in bond trading and fixed income research, covers interest rate trends and lending practices spanning over four millennia of economic history. Despite the paucity of data prior to the Industrial Revolution, the book manages to present a highly detailed analysis of money markets and borrowing practices in major economies. A History of Interest Rates seeks to provide a helicopter perspective of interest rate movements, avoiding anecdotal indications if possible and applying analytical tools such as yield curves and decennial averaging of the available data.

Homer asserts that "the free market long-term rates of interest for any industrial nation, properly charted, provide a sort of fever chart of the economic and political health of that nation." Given the unprecedented rise in asset price volatility and the emergence of extraordinary inflation rates during twentieth-century episodes of economic distress--occurrences which were nearly imponderable during the nineteenth century--it would seem that we are now living in times of eschatological excess, which is actually one of the understated themes in this book's third edition.

This book should be part of the library of every investment analyst, together with such finance classics as Graham and Dodd's Security Analysis and Lefevre's Reminiscences of a Stock Operator.