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Curated by: Richard J Murphy (21 videos)
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. Commercial banks do not need to collect deposits before making loans. When a bank lends, it creates new money through its accounting records. The process of creating that money itself costs very little, so why are interest rates often so high, even after allowing for the fact that lending does involve administration and the risk that borrowers will not repay? That question is especially appropriate when much lending is now virtually risk-free. Interest should not be confused with an investment return. Investment involves taking a genuine risk in the hope of making a profit. Interest, by contrast, is a payment for allowing somebody else to use money for a period of time. I argue that we should separate the different costs currently bundled together as interest. Borrowers could instead see a basic charge for using money, an administrative charge and a separate premium reflecting the genuine credit risk involved. This matters because interest rates have significant economic consequences. Higher rates redistribute income towards people who own financial wealth while increasing mortgages, rents and borrowing costs. They can also discourage productive investment and spending on priorities such as the green transition. 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. Understanding what we are actually paying for would make borrowing clearer, improve competition and help us understand who gains and who loses from the interest rates that shape our economy. You can watch the rest of this series here: https://www.youtube.com/playlist?list=PLaSguNBvHIto Take a look at the poll below: https://www.youtube.com/post/UgkxdSYI0BvjscAhQ5o1yKcGhV_X9SGJxm0N TRANSCRIPT A transcript for this video is available at: https://www.taxresearch.org.uk IF YOU WANT TO WRITE TO YOUR MP ABOUT ISSUES IN THIS VIDEO If you want to write a letter to your MP on the issues raised in this blog post, there is a ChatGPT prompt to assist you in doing so, with full instructions, here. https://www.taxresearch.org.uk/Blog/2025/06/20/chatgpt-prompt-for-a-letter-to-your-mp/ HOW TO SUPPORT US Please consider donating: https://ko-fi.com/taxresearch ABOUT RICHARD MURPHY Richard Murphy is Emeritus Professor of Accounting Practice at Sheffield University Management School. He is director of Tax Research LLP and the author of the Funding the Future blog. His best-known book is ‘The Joy of Tax’. This video was edited by Thomas Murphy. RICHARD MURPHY ON BLUESKY: https://bsky.app/profile/richardjmurphy.bsky.social OR ON MY BLOG: http://www.taxresearch.org.uk/Blog/ HIT SUBSCRIBE & GET NOTIFICATIONS Subscribe and get notified of new videos released. INTRODUCTION: https://www.youtube.com/watch?v=HdHsRPy3060 PLAYLISTS: The Wealth Series https://www.youtube.com/playlist?list=PLvRueM6wBgobQLeyZYAagFDMjEFTKbhRD Ecenomics https://www.youtube.com/playlist?list=PLvRueM6wBgob54Gs-fOL-8OAQ-IpduwB4 Britain https://www.youtube.com/playlist?list=PLvRueM6wBgobwTT4ATvJjsf8OO6S7wD10 Tax https://www.youtube.com/playlist?list=PLvRueM6wBgoaMni_12J6ULp3yUJisUZoY MMT https://www.youtube.com/playlist?list=PLvRueM6wBgoZ6jvRGSW5YXu8qogE6aClX Money https://www.youtube.com/playlist?list=PLvRueM6wBgoYnLk1c7syTvoIo8bKYUs5m Climate Change https://www.youtube.com/playlist?list=PLvRueM6wBgob4_wsYaVivWd2WumpPLYwJ USA https://www.youtube.com/playlist?list=PLvRueM6wBgoYYd3dSyU2Oyl3x7bWJOP7H Labour https://www.youtube.com/playlist?list=PLvRueM6wBgoa-KhzG-fnjDSg1WROL1zMw The Trump Administration https://www.youtube.com/playlist?list=PLvRueM6wBgobz41-GLimTho27A3flVWQx #richardmurphy #richardjmurphy #economy #economics #accountancy #accounting #tax #uktax #ukeconomy #greennewdeal #uk #money #economy #politics #government #tax #labour #health #life