An enticing book is often one in which readers can see themselves. Sometimes, it requires a creative exercise to conjure images of ourselves as an old man with a harpoon or as a Russian woman in an extramarital affair with a count.
In other cases, the imaginative leap is much shorter. Who will struggle to recognise themselves as living through a period of productivity growth, unaffordable housing, rising inequality and the resurgence of populism?
Not the escapist’s choice, the book recommended below by Ian Lance, co-head of the UK value and income team at Redwheel and co-fund manager of Temple Bar Investment Trust, is a deep-dive into the consequences of ultra-low monetary policies and one that “should be required reading for anyone involved in financial policy making – from politicians to treasury officials and to central bankers”.
With this feature, Trustnet is re-launching its ‘Investor’s Bookshelf’ series, asking fund managers and financial professionals to recommend books that have influenced their careers.
Ian Lance’s pick was The Price of Time: The Real Story of Interest by Edward Chancellor.
“Edward Chancellor was already the author of two books in my top 10 investment books list; Devil Take the Hindmost: A History of Financial Speculation and Capital Returns (the latter is a compendium of investment letters written by Marathon Asset Management and edited by Chancellor) and I would now add this one as well.”
The Price of Time: The Real Story of Interest illustrates the problems created by setting interest rates too low and by the rapid expansion of credit using historical examples, ranging from John Law’s Mississippi Scheme to the Wall Street Crash and Japanese bubbles of the 1980s.
Interest rates are the anchor for the valuation of asset prices and once they reach zero, any valuation can be justified, and bubbles occur. These bubbles have always burst with enormous economic costs but that is only part of the damage wrought by low-interest rates.
Chancellor maintains that ultra-low interest rates contributed “to many of our woes, whether the collapse of productivity growth, unaffordable housing, rising inequality, the loss of market competition or financial fragility; and they also seemed to play some role in the resurgence of populism”.
Seen from this perspective, Truss’s mini-Budget won’t be the last mishap, said Lance, and “as much as mainstream media would like you to believe that all of the UK’s economic woes can be pinned on her, these issues, Chancellor explains, have been years in the making and can be mostly traced back to the faulty economic thinking of the central banks”.
“In the first half of the book, he examines many of the previous ill-fated bubbles and I found myself repeatedly writing “just like today” in the margin, but it would appear that many of our current economic thought leaders do not regard the study of history as worthwhile,” said Lance.
“According to their website, the US Federal Reserve employs more than 400 economics PhD’s and yet it would appear that they don’t employ any financial historians, since all their recent errors occurred previously.”
“If I thought they would read it, I would willingly buy a copy for Andrew Bailey and the rest of the Monetary Policy Committee,” said Lance.