Economic Freedom

First interest – the lower, the better”The gold is created for the exchange, the interest he has the determination to multiply by itself. Therefore, this acquisition as the most repugnant of all the natural law. ” Moral concerns about interest rates are evident for more than two thousand years is widespread.Interest is often perceived as unearned income, they shall be liable to the aura of the disreputable. More surprising, it can hardly, if interest rates are perceived as something good, as something that relieves the people.

To present even in the sovereign debt crisis. Based on historically low interest rates lowering the European Central Bank interest rates one more time Nobel laureate economist Paul Krugman recommends in Handelsblatt, the unlimited turning on the tap European money to buy government bonds. He does not see inflation risks. Presumably, he assumes the liquidity flow relieves the states of the difficult credit search, the lower the interest rates and possibly create a growth spurt that catapulted Europe out of the crisis. Can you flush away the crisis that simple? I think: no. Below is argued therefore, that interest is a price that many other prizes as well as social functions and exercises its arbitrary manipulation might have unwanted side effects.

Second prizes as carriers of information

Prices are not only an expression of the distribution of gains from trade between buyers and sellers, they are not the result of a constant-sum bargaining game. Rather, they are essential information carriers that govern the behavior of people in socially desirable cars.

The market price for a product bundles a variety of detailed information. First, it shows how much the consumer had to pay for the most recently acquired from the market Good to the last train had come to demand not just to beat. He brings so well to express the appreciation that would willingly offering consumers a production expansion. Market prices continue to collect the costs incurred by providers. These include, among other things, the procurement, storage and marketing costs, which in turn expressed upstream market prices, in turn, consider the cost of all the upstream stages of production. In this way, the benefit and cost estimates on any number of stages in the value chain are concentrated in the market price. As a result, events that must be done away from consumers and from that neither knew nor understood, find their way into his behavior.

If for example the promotion of a particular commodity at a specified delivery area, the raw material in question is relatively scarce. Its price will rise and with it the prices in all the different strands using downstream production steps. The effect extends to the consumer, who now have to decide for its various end products that contain the raw material concerned, must decide whether the use of the benefits now increase in price still exceeds.

In addition, the signal

Price increases demonstrating the increased scarcity of the product. Do the entrepreneurs then on ways to close the supply gap thus created at a cost below the new market price, then it follows immediately a profit opportunity. Even if the entrepreneur does not know, why has this set to win and even if they carry out their acts of pure self-interest, so they contribute to the welfare of other members of society.

The third Rate as the price of loans

The interest rate is a price to contribute through incentives and information content for directing scarce resources. During normal goods prices adjust the structure of consumption of different commodities at a time when the interest rate the same consumption rate of five percent creates controls, he can consume in one year for products with a value of 105 €. The credit market now governs how the temporal allocation of consumption – the intertemporal allocation of goods – will be.

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