Originally published in Carroll Capital, the print publication of the Carroll School of Management at 艾可直播 College. .听
When most of us want to know about interest rates, we check a finance website. Paul Schmelzing, an assistant professor in the Carroll School鈥檚 Seidner Department of Finance, visits a monastery.
Schmelzing, an economic historian, has compiled a 707-year history of interest rates, arriving at a startling conclusion: For seven centuries, through countless wars and the rise and fall of empires, interest rates, on average, fell. Thus a postal worker in today鈥檚 America can borrow more cheaply than a Florentine prince during the Renaissance, even with the recent uptick of lending rates.
To compile his history, Schmelzing dug up rates from as far back as the Middle Ages. Monasteries, including Lorsch Abbey in Schmelzing鈥檚 hometown in Germany, were repositories of wealth back then. So monks cared about and kept records of rates. 鈥淢onasteries were the institutional investors of the day,鈥� Schmelzing says.
While archaic interest rates might seem an obscure topic for research, Schmelzing鈥檚 work has found a receptive audience of policymakers and others.
The Bank of England, the United Kingdom鈥檚 central bank, published his original solo-authored work spanning seven centuries. He coauthored a paper that landed on a prominent list of the ten academic papers most cited by policymakers in 2025. Schmelzing听has presented his research at an International Monetary Fund conference and a G20 summit of the world鈥檚 largest economies. High-profile outlets like The New York Times and The Economist have cited him repeatedly.
Part of the reason for all the attention is that Schmelzing鈥檚 findings raise questions about some influential contemporary theories about the economy.
One school of thought鈥攆ormer Treasury Secretary Lawrence Summers is a well-known proponent鈥攕ays developed economies may be stalled in a low-growth state, called secular stagnation. Their populations are aging and their investment levels weakening, and thus they鈥檙e lately stuck with low interest rates on safe assets like CDs and treasury bills. In recent years, those rates, when considered after inflation, have sometimes turned negative. Schmelzing鈥檚 work shows low rates aren鈥檛 a recent phenomenon.
A problem with virtually all theories about interest rates is that they rely on recent data, Schmelzing says. But with real (inflation-adjusted) rates falling for centuries, someone could鈥檝e guessed they might turn negative today just by extrapolating, he says. Empirical research is never strictly predictive鈥攖here鈥檚 no guarantee the future will resemble the past鈥攂ut hundreds of years of data do suggest a powerful trend.
Another school of thought, pioneered by French economist Thomas Piketty, says economic inequality grows inexorably because the rate of return on assets like stocks and bonds exceeds the economy鈥檚 long-term growth rate, making investors ever richer. But if rates are continuing to shrink, as Schmelzing contends, they鈥檙e not likely to permanently outpace the economy鈥檚 rate of growth.听
One might wonder whether monks and their parchment ledgers can tell us anything about financial transactions in the age of AI. But Schmelzing says there鈥檚 鈥渕ore and more appreciation of the long-run view, both among investors/asset managers and researchers.鈥� People have come to realize that if they focus only on recent data, they lack precedents for understanding economic events like the global financial crisis of 2008 and the Covid shock, he says.
Schmelzing is further exploring these dynamics in a book to be published by Yale University Press, titled The Long Run: A New听History of the International Financial System. 鈥淲e need to understand the long-run context better,鈥� he says. 鈥淚鈥檝e talked to many policymakers, and there鈥檚 no catchall solution to a 500-year trend.鈥�
He traces at least part of this trajectory back to a financial crisis in 1557. At the time, King Philip II of Spain had overextended himself. He was stretching to听expand his empire and chasing gold and silver in the New World. When the Spanish crown defaulted on its debts, the rest of Europe suffered too.
鈥淭his is when the clear trendline came into existence,鈥� Schmelzing says. 鈥淭hat affected almost half of global GDP. It took all the major banks of the time with it. It was an epic financial crisis.鈥�
“ There鈥檚 growing skepticism about governments as safe [debt] issuers. That鈥檚 reminiscent of the pre-1557 environment, when private assets were the safe assets. It鈥檚 not a given that government debt will remain the safe asset. ”
Today, policymakers have sophisticated fiscal and monetary policy tools to address times of economic tumult. When they confronted the global financial crisis, for example, central banks resorted to new, sometimes controversial techniques, like large-scale purchases of bonds. (Central bankers call this approach 鈥渜uantitative easing.鈥�) Governments likewise took on lots of debt as they tried to stimulate their economies during the 2008 crisis and again during the pandemic.
Schmelzing, who is also a research fellow at The Hoover Institution at Stanford University, says interest rates have been more volatile in the last hundred years or so. That could be pointing to听 the emergence of a new centuries-long pattern.
鈥淚n the book, I鈥檓 venturing that these dynamics since 1914 are comparable to the period before 1557. There鈥檚 growing skepticism about governments as safe [debt] issuers. That鈥檚 reminiscent of the pre-1557 environment, when private assets were the safe assets. It鈥檚 not a given that government debt will remain the safe asset,鈥� he points out. 鈥淲e all grew up with this idea of owning US Treasuries during bad times, but there鈥檚 no built-in necessity that that will be the case.鈥�
