Cheaper money
Sir: Nicholas Davenport's article ' Cheaper money is the spur' (September 11) was like a breath of fresh air.
May I point out that high interest rates militate against industrial investment. Companies, when considering installation of new or extended manufacturing facilities, customarily nowadays carry out a simple compound interest calculation commonly called 'discounted cash flow' or DCF, from which the likely return on capital is assessed. If this likely return is less than the current rate of interest obtainable by simply ' investing ' the capital, the development does not normally proceed. In other words, high interest rates demand high returns on proposed industrial investment
which become increasingly difficult to obtain.
Surely a high return on money invested can be earned only if It can be 'put to work.' It follows that high interest rates, coupled with a down-turn in industrial investment must be directly inflationary.
D. H. Sharp Green Hill House, Shoreham Road, Otford. Kent.
Previous page
