Essays on Long-Term Real Rate and Safe Asset Trends, 1311-2018

Abstract

With recourse to archival, printed primary, and secondary sources, the first article of this dissertation constructs global real interest rate series on an annual basis going back to the 14th century, covering 78% of advanced economy GDP. I show that throughout monetary and fiscal regimes, and across fixed income assets, real interest rates have not been “stable”, and that since the major monetary upheavals of the late Middle Ages, a trend fall of 0.6-1.8bps p.a. has prevailed, despite temporary reversals such as the 17th Century Crisis. Currently depressed sovereign real rates are in fact “at historical trend” – a trend that makes narratives about a “secular stagnation” environment misleading, and suggests real rates could enter permanently negative territory in the coming years. I posit that the data here reflects a substantial share of “nonhuman wealth” over time: the resulting “R-G” series derived from this data exhibit a downward trend over the same timeframe: suggestions about the “virtual stability” of capital returns are thus equally unsubstantiated by the historical record. With recourse to both archival and published data, the second paper constructs a 546-year survey of “safe asset” dynamics in advanced economies. I document performance for historical “safe asset providers”, and identify nine major “safe asset shortage periods”. These have on average seen net reductions in safe asset supply of over 40% within 20 years, and are now secularly becoming more intense. In contrast to recent propositions, sub-par inflation has not been overcome by a boost in net safe asset supply. The third paper posits that it is entirely plausible that early modern economies exhibited “modern” net investment ratios, and that historical capital depreciation rates of 3% and more appear unlikely. But why were capital stocks relatively low at the beginning of the industrial age? I construct long-term “war-induced capital destruction series” to show empirically that the changing nature and capital destruction intensity of wars over time likely constitute a key influence on the capital accumulation process. I link these geopolitical dynamics to present interest rate discussions – and seek to provide new replies to Simon Kuznets’ early modern capital accumulation model.