On 3/28/07, Charles Brown <[EMAIL PROTECTED]> wrote:
What is the logic supporting the idea that interest should be paid for money lent ? I believe many or most mortgages have more interest paid than principle. In part this is done by payments being allocated to interest payments before being allocated to principle payments. How is this rationalized by economics ? How is wealth created by the lending of money to buy a place to live ?
If resources are limited (e.g. labor and raw materials) some consumptions should be postponed to accomodate others. Interest is supposed to be compensation for consumption postponed. (Because consumption today has greater utility than the promise of consumption tomorrow, I should receive more tomorrow than I lend today.) This explanation makes a lot of sense -- until the amounts become too large and then this argument is nonsense. -raghu.
