Viewed from the supply side of the market for loanable funds, interest rates are the payments needed to entice individuals to sacrifice their present consumption, that is, to let someone else use their money for a period of time. The following story that was told by economist Irving Fisher (1867-1947) helps illustrate this "time-value of money." (1) In the process of a massage, a masseur informed Fisher that he was a Socialist who believed that "interest is the basis of capitalism, and is robbery." Following the massage, Fisher asked, "How much do I owe you?" The masseur replied, "Thirty dollars." "Very well," said Fisher, "I will give you a note payable a hundred years hence. I suppose you have no objections to taking this note without any interest. At the end of that time, you, or perhaps your grandchildren, can redeem it." "But I cannot afford to wait that long," said the masseur. "I thought you said that interest was robbery. If interest is robbery, you ought to be willing to wait indefinitely for the money. If you are willing to wait ten years, how much would you require?" "Well, I would have to get more than thirty dollars." His point now made, Fisher replied, "That is interest." Irving Fisher, as quoted in Irving Norton Fisher, My Father Irving Fisher (New York: Comet, 1956), p. 77.

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