CLOSELY connected with the subject of the effects
of inflation on debtor-and-creditor relation-
ships, in fact, an important part of it, is the
subject of the effects of inflation on interest rates.
This chapter will be devoted to a brief consideration
of a few outstanding principles and historical facts
in this complex and controversial field.

It is a fact of elementary economics that a market
rate of interest consists of three elements, namely:
(1) pure interest, or economic interest, as it is some-
times called; (2) a cost of administration, and (3) a
cost for insurance.

Pure Interest. The essence of pure interest is the
fact that the possession of an economic good today
carries an advantage over the present right to possess
the same good at some future date, in that the use of
the article during the intervening period is valuable.
It is worth rent, either to enjoy directly as in the
case of consumption goods like a diamond ring or a
house, or to use productively as in the case of pro-
ductive goods like a tractor or a lathe. The rate of
pure interest is, therefore, the annual rental price of

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