Rise of Capitalism and Early Interest Rate Theory

Peter Spahn ()
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Peter Spahn: University of Hohenheim

A chapter in Waving the Swedish Flag in Economics, 2025, pp 107-118 from Springer

Abstract: Abstract This paper explores the early development of interest rate theory within the context of the rise of capitalism. It traces the origins of interest rates back to the trading practices of late medieval merchants and the need for financing in maritime trade projects. The paper discusses how early interest rate contracts were structured, with financiers guaranteeing fixed returns while trading entrepreneurs bore the risks and potential profits. It also delves into the theoretical and practical attempts to circumvent the ban on interest rates imposed by the scholastic tradition, highlighting the arguments and justifications put forward by various scholars during that time. The paper examines the concept of sacrificing liquidity and intertemporal valuations as a rationale for interest rates, with references to the work of theologians such as Leonhard Lessius and Konrad Summenhart who, in a way, anticipate key elements of Keynes's monetary theory.

Keywords: Interest rate theory; Liquidity preference; Trade finance; Scholasticism; Credit risk; Interest ban; Intertemporal valuation; Money capital; Risk sharing; B11; E43 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:spshcp:978-3-031-71511-2_5

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DOI: 10.1007/978-3-031-71511-2_5

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