Never? So one’s decisions to invest or consume can never be based on the interest rate? If I’m trying to decide on whether to put my money in the bank or consume it, the interest rate has no bearing on my decision?
That question bothered me for a long time, and I think I have the answer.
The key lies in understanding what originary interest means. The easiest way to grasp it is to understand that originary interest is a magic number inside peoples heads. They get up in the morning and the number “5%” is inside their skulls. If we dig deeper, we find it is how much more they prefer to have something now than to have it a year later. “I like it now 5% more than later”, is what they are thinking.
That magic number residing in their heads, 5%, say, will now determine whether they lend and/or save and/or invest. If they find someone who will give them 5%, they will lend it to him. If they see they can get a profit of 5% a year from now by investing, they will do it. If no avenue at all will get them 5%, they will spend their money right now.
Someone who borrows money also has that same magic number inside his head influencing his decisions. How that works is a bit complicated apparently, and I’m working on it.
We are now ready to answer Jargon’s question. Of course, if you are trying to decide whether to put your money in the bank or consume it, what the bank is offering will have a direct bearing. If they are offering above your [predetermined] magic number, you will put your money in the bank. If not, not.