Classic interest theory

Die klassische Zinstheorie behauptet, dass der (Capital market-) Zins durch das Verhältnis von Sparen und Investieren bestimmt wird und beide Größen ins Gleichgewicht bringt. Je mehr unter sonst gleichen Bedingungen gespart wird, desto niedriger der Zins und umgekehrt.

The money supply, and thus also the monetary policy of the central banks, has no, if any temporary, influence on the level of interest rates. It depends solely on the real economic conditions. The hypothesis is now considered refuted.

The classical interest theory understands the interest as an allocation mechanism for capital. In other words, he ensures that capital flows to where it is needed most. Where the interest rate is high, the return on capital is obviously high, so capital will flow there too. Conversely, where only low interest rates are paid, the capital requirement is low, which is why less capital will be sought in these sectors or regions. In the end, according to classic interest theory, there is an optimal distribution of capital.

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