In economic and financial theory, the explains why interest exists and how its rate is determined within a market. It essentially treats interest as the "price of time"—the compensation paid to a lender for postponing their own consumption and assuming the risk of lending capital to a borrower. Core Conceptual Frameworks
: An extension of the classical view that includes bank credit and "dishoarding" (releasing idle cash) as part of the supply, treating interest as the price determined by the total supply and demand for loanable funds. Theory of Interest
Different schools of thought provide varying perspectives on why we pay for the use of money: In economic and financial theory, the explains why
: Adjustments to protect the lender’s purchasing power against rising prices. In economic and financial theory