Editing Interest (section)

==Economics==
In economics, the rate of interest is the price of [[credit (finance)|credit]], and it plays the role of the [[cost of capital]]. In a [[free market]] economy, interest rates are subject to the law of [[supply and demand]] of the [[money supply]], and one explanation of the tendency of interest rates to be generally greater than zero is the scarcity of [[loanable funds]].

Over centuries, various schools of thought have developed explanations of interest and interest rates. The [[School of Salamanca]] justified paying interest in terms of the benefit to the borrower, and interest received by the lender in terms of a premium for the [[credit risk|risk of default]].<ref>{{Citation |last1=Izbicki |first1=Thomas |title=School of Salamanca |date=2019 |url=https://plato.stanford.edu/archives/sum2019/entries/school-salamanca/ |encyclopedia=The Stanford Encyclopedia of Philosophy |editor-last=Zalta |editor-first=Edward N. |edition=Summer 2019 |publisher=Metaphysics Research Lab, Stanford University |access-date=2022-06-29 |last2=Kaufmann |first2=Matthias |archive-date=2022-06-29 |archive-url=https://web.archive.org/web/20220629191058/https://plato.stanford.edu/archives/sum2019/entries/school-salamanca/ |url-status=live }}</ref> In the sixteenth century, [[Martín de Azpilcueta]] applied a [[time preference]] argument: it is preferable to receive a given good now rather than in the future. Accordingly, interest is compensation for the time the lender forgoes the benefit of spending the money.

On the question of why interest rates are normally greater than zero, in 1770, French economist [[Anne-Robert-Jacques Turgot, Baron de Laune]] proposed the [[theory of fructification]]. By applying an [[opportunity cost]] argument, comparing the loan rate with the [[rate of return]] on agricultural land, and a mathematical argument, applying the formula for the value of a [[perpetuity]] to a plantation, he argued that the land value would rise without limit, as the interest rate approached zero. For the land value to remain positive and finite keeps the interest rate above zero.

[[Adam Smith]], [[Carl Menger]], and [[Frédéric Bastiat]] also propounded theories of interest rates.<ref>[http://oll.libertyfund.org/titles/bawerk-capital-and-interest-a-critical-history-of-economic-theory Bohm-Bawerk, E. (1884) ''Capital and Interest: A Critical History of Economic Theory''] {{Webarchive|url=https://web.archive.org/web/20171230104323/http://oll.libertyfund.org/titles/bawerk-capital-and-interest-a-critical-history-of-economic-theory |date=2017-12-30 }}.</ref> In the late 19th century, Swedish economist [[Knut Wicksell]] in his 1898 ''Interest and Prices'' elaborated a comprehensive theory of economic crises based upon a distinction between [[Real interest rate|natural]] and [[Nominal interest rate|nominal interest rates]]. In the 1930s, Wicksell's approach was refined by [[Bertil Ohlin]] and [[Dennis Robertson (economist)|Dennis Robertson]] and became known as the [[loanable funds]] theory. Other notable interest rate theories of the period are those of [[Irving Fisher]] and [[John Maynard Keynes]].