Ron Paul on Interest Rate Manipulation
May. 7th, 2025 03:31 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
ndrosenReason published an article by former Congressman Ron Paul on how housing can be fixed without the Federal Reserve Board manipulating interest rates. He has a point, but he argues that artificially low interest rates cause people to take on too much debt, invest in projects which which won’t pay off sufficiently, and so on. This is a standard Austrian critique of artificially easy money.
The Georgist critique has a more thorough understanding of the problem. Low interest rates drive up land prices, and encourage speculation. For example, if the annual rental value of a piece of land is $10,000, and expected to remain at that level, and the interest rate is ten percent, the selling price of the land will be $100,000, but if interest is pushed down to 5%, the selling price increases to $200,000. In practice, selling prices will usually be higher, because people will expect future increases in land rent. So artificially low interest rates help make land hard to afford, and result in people taking on more debt to buy land.
I still think well of Dr. Paul; I remember, more than twenty years ago, he let the Council of Georgist Organizations use space in the Congressional Office Building, when there was a conference in the DC area, the first Georgist conference that I attended.
The Georgist critique has a more thorough understanding of the problem. Low interest rates drive up land prices, and encourage speculation. For example, if the annual rental value of a piece of land is $10,000, and expected to remain at that level, and the interest rate is ten percent, the selling price of the land will be $100,000, but if interest is pushed down to 5%, the selling price increases to $200,000. In practice, selling prices will usually be higher, because people will expect future increases in land rent. So artificially low interest rates help make land hard to afford, and result in people taking on more debt to buy land.
I still think well of Dr. Paul; I remember, more than twenty years ago, he let the Council of Georgist Organizations use space in the Congressional Office Building, when there was a conference in the DC area, the first Georgist conference that I attended.
