Why should money earn interest simply because somebody owns it? We usually treat interest as a natural and inevitable part of the economy, but in this Understanding Economics video, I question whether that assumption is justified.
There’s a time value to money. That’s the interest rate.
And isn’t this fun?
I am not arguing that interest should be abolished. I am arguing that the basic interest rate on low-risk money should be close to zero in real terms, while genuine costs and risks should be identified and charged transparently.
Lending money to a bank is pretty risk free. Therefore deposit accounts at banks should pay zero interest. Hmm…..
Hello, I’m Richard Murphy, and this is Understanding Economics, the series of videos that I’m making which explains economics in the way that I see it. I stress in the way that I see it. Because I do not see economics in the way that most economists do. I am a heterodox economist. In other words, I stand outside the mainstream, but I do so deliberately because mainstream economics very clearly does not work. It’s failing us. And so I try to explain economics in a way that makes sense with regard to the world as it really is and in the way that you are likely to see it.
Apparently this was written unironically……
Brilliant by David Gowland by the way
“Why should money earn interest simply because somebody owns it? “
This is reaching peak stupidity! Why should someone get to decide the price at which they are willing to sell or lease something they own?
Because he then wants the State to compulsorily borrow it and pay 0.5% interest on Murphybonds.
Yep. He just writes the same stuff over and over with different ways of dressing it up.
Yup. And it always boils down to “I, the Fat Controller, should spend your money”
Hello, I’m Richard Murphy, and this is Understanding Economics, the series of videos that I’m making which explains economics in the way that I see it. I stress in the way that I see it. Because I do not see economics in the way that most economists do. I am a heterodox economist.
He IDENTIFIES as an economist, bigots.
Just like witch doctors identity as doctors.
At least witchdoctors sometimes cure people accidentally.
He does say ‘…close to zero in real terms’. Current rates from Lloyds:
Given inflation at 3.1% they look close to zero to me. He has his wish.
I suspect he uses the Richard Murphy Index for inflation, where the rate is whatever is needed to support his current argument.
Based on a typical basket of goods including train sets, black shorts and green ink. Excluding biscuits obviously.
And ladies underwear. Remember Eulalie!
Yep. Over time the there generally isn’t any large interest gain for *risk-free* over inflation. It’s positive at the moment, has been negative at other times.
Just Murph pretending to say something insightful.
That is a result of government policy to minimise interest rates so as hide their profligacy (understate the cost of borrowing and you understate the budget deficit) and/or the dire prospects for making any profit out of productive investment.
There have been periods, even in my lifetime, when interest rates approached the historic norm of “inflation plus 3%” but Labour’s hatred of capitalists (the large majority of whom are just retired people trying to live on their savings) means government policy is to continually devalue our savings.
Yes, you’re right, I had my more recent epoch hat on… Interesting, even from the sixties the UK average looks to be about 2% (I thought it was slightly less than that), but with obvious decadal variations.
Good god, the man’s a moron. Presumably he insists that ToolHire should be banned from charging you to use their tools.
Is that where we get our Prime Ministers from?
Interest is the rent you pay on borrowed money. And that’s all there is to it.
There is also a payment (hidden within the interest) to compensate for the risk that you’ll never pay it back. That is why “high-risk” borrowers pay higher rates.
The idea that you charge more rent to someone unreliable is perfectly normal. I don’t see how it’s “hidden”.
There is a single figure quoted for interest which comprises rent, compensation for risk, the cost of options (if the borrower has the option to repay early, or to freeze the interest rate, or to switch to an interest-only basis for a few years, or to accelerate repayments of capital, or …), the expected loss of value of the currency due to inflation, and the admin costs (such as valuing the house, or other security, before agreeing to lend money against it). Unless the lender chooses to set out a comprehensive schedule of all the items included in the interest charge then the charge for the risk of non-payment is hidden.
I still don’t see how it’s “hidden”. You’ve listed all the components: does that mean they’re not hidden any more?
PIP I’ve just said “unless the lender chooses to set out a comprehensive schedule …”. How many lenders *do* choose to set out a comprehensive schedule? Because they do *not* do so the amount charged for risk is hidden.
When I was working various people (most notably Standard & Poor’s) used to quote rates that *they* deemed appropriate or common for different classes of borrowers but my colleagues each had his own view on the appropriate margin over gilt-edged which was not just the default risk but also included a premium for liquidity [a more liquid debenture paid a *lower* interest rate so the word “premium” is counter-intuitive] and various other parameters.
Borrowing at 90% LTV is a lot more expensive than at 60%. That’s the “risk of not getting it back.” At 60% a repossession — even accounting for the costs of repossessing and a market downturn — is going to cover the capital. Unsecured loans are more expensive again.
Misunderstanding Economics video?
If your name is Berkshire Hathaway and your portfolio includes some hundreds of billions in cash, it’s a clear admission that you don’t know what the hell to do with it, and the case for earning interest becomes weak.
The inconsistent formatting of Tim’s post makes it unclear who is talking when “close to zero in real terms” is mentioned. I suspect Murphy. This is an accurate statement of reality. Banks commonly pay rate of inflation or less, i.e. zero in real terms, on call deposits. Banks commonly charge well in excess of inflation on loans, to price in the risk.
‘If your name is Berkshire Hathaway and your portfolio includes some hundreds of billions in cash, it’s a clear admission that you don’t know what the hell to do with it, and the case for earning interest becomes weak.’
I’m unsure how you come to that conclusion. Have you sought advice from Mr Murphy? I would think that this prudent renting out of cash in advance of a superb opportunity to invest in an alternative is very far from ‘don’t know what to do with it.’
I’m unsure how you came to that conclusion.
Oh, I thought he was being sarcastic!
But Berkshire Hathaway won’t have cash. I severely doubt there’s hundreds of billions of cash in the US economy.
If Warren Buffet thinks that the market is going down and that it is probable that there will be a good opportunity in three months or six months or nine months to make a big investment on favourable terms then he knows what he intends to do with it but he chooses to wait until he can negotiate terms that*he* likes. In the meantime he has *many* choices of what to do with the cash, one of which is to lend it to a bank, or buy Treasuries, and get interest on it.
We have seen this several times.
And in Berkshire’s case there is always some part of their cash fund that comprises float for the insurance business. Entirely prudent that some element of that comprises varying forms of lower risk.
Yeah, well said. If a major catastrophe occurs he needs a few $million/$billion to pay claims promptly.
Off topic but I see that the five men of no fixed description arrested over the RAF Fairford incident are all British, so shut up about immigrants* not being wonderful, bigots.
*especially new and second generation immigrants who are definitely British and so even more wonderful.
Oh, are they the Diversity? I’d assumed they were upper-middle class white Greens doing some sort of stupid protest vandalism.
D’you know, I think you might be right. These ‘highly dangerous terrorists’ have just been released on bail.
Good thing they were not called ‘Danny Tommo’, otherwise it’d be straight to remand in custody for them.
Well, it’s not as though they’d punctured someone’s lilo.
I like to think that if I’d been the farmer (the one who dobbed them in), I’d kept schtum, and let TPTB soak up the consequences of their degenerate delinquency.
Otoh, I would have taken a different view had it been an Ariana Grande concert.
If they were that they would have been described as English (especially if they were English!), Welsh, Scottish, or Irish.
‘British nationals’, especially paired with ‘from London’ is a clear tell they’re not ethnically British.
If they are British, doesn’t that make their actions – attempting to destroy a miltary installation – treason. So, up against a wall with choice of blindfold.
All looks like a king size cock up.
These goons were probably sheep rustling or stealing red diesel, both of which a lot goes on. Or even fly tipping.
The fact they were up to it a quarter mile from a very sensitive airbase is plain stupidity.
Plod, not being very bright, can’t admit that they got this wrong from the beginning.
Our heroic farmer may have accidentally broken a major crime ring rather than a terrorist plot and still deserves her plaudits.
My working theory is that they were doing what Palestine Action do, scoping a military base out to check if it had any vulnerabilities. Reconnaissance them.
Classic Murphy!!!!! from
Rearmament post
Shawn Mortimer says:
September 28 2026 at 8:37 am
Richard, the threat picture has changed, and the evidence is overwhelming.
Russia launched Europe’s largest land war since 1945 in February 2022. The government’s 2025 Strategic Defence Review called Russia an “immediate and pressing” threat and concluded Britain must move to warfighting readiness. NATO allies agreed at The Hague in June 2025 to spend 5% of GDP on defence and security by 2035. That consensus did not come from arms companies. It came from intelligence assessments.
The threat is already in our waters. Russian naval activity near UK waters has risen by around 30% in two years. The spy ship Yantar has been tracked mapping British undersea infrastructure, and those cables carry around 99% of the UK’s international data traffic. In December 2024, the Baltic Estlink 2 power cable was severed, allegedly by a shadow-fleet tanker’s anchor.
At home, MI5’s Ken McCallum reported a 48% rise in state-threat investigations in 2024. He warned that Russia’s GRU is running a sustained campaign of sabotage and arson in Britain and Europe, and he has called China an “epoch-defining” challenge.
Submarines are central to this, not a relic. Faslane hosts the continuous at-sea deterrent, unbroken since 1969, along with the attack submarines that hunt hostile boats and protect those cables. The Review commits to up to 12 new SSN-AUKUS submarines.
Security is the precondition for everything else you want. Homes and green investment mean little if critical infrastructure can be switched off.
+3
Reply
Richard Murphy says:
September 28 2026 at 12:14 pm
I don’t dispute that Russia poses security threats, including cyberattacks, sabotage and threats to undersea infrastructure.
What I dispute is that a country so bogged down in Ukraine represents a credible conventional military threat to the UK for decades to come.
Listing hostile Russian activities does not prove the case for vastly increased conventional military spending, new submarines or an arbitrary percentage of GDP devoted to defence.
Security matters. But spending should address the threats we actually face. Cybersecurity, intelligence, maritime surveillance and protection of critical infrastructure may be entirely justified. That does not mean every demand for increased military spending is.
The existence of a threat is not evidence that every proposed response to it is necessary. Stop believing the military-industrial complex – for whom you might be a spokesperson, for all I know.
+5
Reply
Shawn Mortimer says:
September 28 2026 at 12:25 pm
Richard, Putin’s logic is simple: his economy now runs on war, victory in Ukraine would embolden him, and testing NATO where it looks weakest could fracture the alliance. Meanwhile Russia’s submarine fleet is largely untouched by Ukraine and operates around our cables. That’s why submarines matter. They are the best way to hunt enemy submarines, protect the undersea infrastructure our economy depends on, and secure the North Atlantic routes that would carry NATO reinforcements. They take over a decade to build. Deterrence ordered after the threat materialises arrives too late.
+1
Richard Murphy says:
September 28 2026 at 2:49 pm
If you want to write total shite, just go and do it elsewhere.
Maybe the Richard Murphy at 2:49 pm was his AI chipping in. It’s captured his style but not his vocabulary.
David Gowland has the measure of Murphy.,
David Gowland says:
September 28 2026 at 11:48 am
Richard, your argument rests on a category error. That banks create money by keystroke tells us nothing about its price. The marginal cost of lending is the return forgone on central bank reserves, which is Bank Rate. Costless creation is not costless funding, as your own preferred accounting should have told you.
You then treat the FSCS guarantee as eliminating risk, yet it protects nominal pounds, not purchasing power. Savers holding “risk-free” deposits between 2021 and 2023 lost more than a tenth of their real wealth. Unanticipated inflation is precisely the risk your zero-real-rate rule ignores.
Your appeal to seven centuries of falling real rates backfires. That decline predates deposit insurance, credit scoring and modern central banking by hundreds of years, so it cannot be explained by them.
Most seriously, you never mention that the policy rate exists to control inflation. A permanent zero real rate is not reform. It is the abandonment of monetary policy, justified by defining interest narrowly enough to declare it illegitimate.
Finally, the transparency you demand largely exists already: trackers are Bank Rate plus a disclosed margin, and commercial loans are priced openly over SONIA.
Economics outside the mainstream can be valuable. Economics outside the evidence is merely assertion.
+4
Reply
Richard Murphy says:
September 28 2026 at 11:58 am
The category error is yours. Banks do not lend reserves to customers, and the existence of Bank Rate does not make reserves the marginal “funding” for each new loan. Banks create the deposit when they lend. Their lending decisions are constrained by capital, liquidity, regulation, credit risk and profitability, not by first obtaining the money they lend.
Nor have I ever suggested that the FSCS protects purchasing power. It protects deposits against bank failure. Inflation risk is an entirely different issue. Conflating the two does not advance your argument.
And, of course, I know that central banks claim interest rates control inflation. I disagree that they are an effective or socially desirable principal mechanism for doing so. High rates cannot create energy, food, housing or other resources in short supply. They work primarily by suppressing demand, increasing costs and weakening labour’s bargaining position.
As for transparency, quoting Bank Rate plus a margin tells us the price. It does not tell us why that margin is justified.
You finish by accusing me of ignoring evidence. But repeatedly substituting one category of risk or cost for another is not evidence. It is precisely the conceptual confusion I am challenging.
+3
Reply
Cheers Stiv (and another legend in the form of Bongo)
Great to get that recorded here as these exchanges have a habit of being ‘removed’ if he looks bad…
Money earns interest because it is loaned out.
The contrary question is ‘why should I lend you money if I do not get interest?’
He, of course, denies that deposits are loaned out. So, as usual, he is building a model of the world based on blatantly false assumptions.
Technically isn’t it lent out, not loaned?
You lend, I loan. You lent, I loaned. Its further divided in that British English prefers lent, American loaned.
Why should money earn interest simply because somebody owns it?
He said out loud that people own money. That’ll change soon.
The assertion in that sentence is that people shouldn’t own money. It shouldn’t be kept locked up like a slave but instead freed from its owners and urinated up the wall by the government.