Tuesday, February 13, 2007

The British: More patient than the Greeks?   posted by Herrick @ 2/13/2007 04:17:00 PM

Economic historian Greg Clark is arguing that the British may be "Genetically Capitalist." Tyler Cowen has his doubts. One of piece of evidence that should grab the attention of economists: The long term decline in inflation-adjusted interest rates over the past few centuries:
All societies before 1400 for which we have sufficient evidence to calculate interest rates show high rates by modern standards. In ancient Greece loans secured by real estate generated returns of close to 10 percent on average all the way from the fifth century BC to the second century BC. The temple of Delos, which received a steady inflow of funds in offerings, invested them at a standard 10 percent mortgage rate throughout this period.
He also looks at Roman Egypt, Sumeria, India, and the Ottoman Empire, and always finds the same story: A high cost of borrowing. But then around 1100, something changed: the cost of borrowing started falling fairly steadily in England, dropping down to the 2 or 3% inflation-adjusted rates we see today.

Why? Clark argues it's because in England the patient were more fertile than the impatient--and that the patient passed on their traits either culturally or genetically. Clark checks out the usual suspects--risk in particular--and finds that it's tough to explain away the big story: It looks like borrowers and lenders are a lot more patient than they used to be.

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