I have great appreciation for the renowned British magazine The Economist and its varied articles, which are produced by prominent economists and journalists. One of his recent articles highlights a worrying trend in the global panorama: the rise in interest rates and the growing level of debt in economies around the world. The text also emphasizes that persisting in an era of high interest rates for a prolonged period is an imprudent measure, since the burden of interest consumes a substantial part of government budgets, further worsening fiscal deficits. In this context, it is intriguing to consider how Adam Smith , the renowned 18th century economic philosopher , would react to current circumstances.

Adam Smith , I dare say, would highlight that families and individuals have three fundamental ways of generating income at their disposal.

The first of these is through work , which involves the effort and dedication of individuals in carrying out work tasks and functions, resulting in salaries and financial compensation proportional to the work performed. The second alternative is rent , which represents obtaining income through the ownership of assets such as real estate or natural resources, where third parties pay for the use or lease of these assets. Finally, the third way of obtaining income is generating profits , which refers to the ability to undertake and innovate, creating economic value from investments, production and sale of goods or services.

All young people work with the prospect of one day retiring .

Therefore, we can expect that there will be a transition from the role of saver to that of consumer of accumulated savings at some point in the individual's life. When that time arrives, individuals have two options available. The first is to live on rent , while the other is to live off profits.

When this happens, the funds saved represent the main source of income and, therefore, the income that comes from these resources becomes vital. If in an economy, government interest rates are lower than inflation , then individuals will not be able to maintain their standard of living over the years, and their savings tend to run out, bringing great risk to individuals.

Individuals who can no longer work, and see their resources running out due to the lack of adequate remuneration , are compelled to seek gains through profit, which is, without a doubt, the riskiest form of the three, as pointed out by Adam Smith , for income . As a result, the inadequate interest rate pushes individuals and families, who rarely have knowledge in finance , to invest their scarce resources in dubious ventures, thus exposing families and individuals to significant risks in a fragile period of their lives. Consequently, interest rates below the level of inflation create a situation in which ventures that should not be undertaken are supported by funds that should not be lost.

In this way, the failure of individuals to securely provide a living during their years of seniority leaves them with only one alternative: plugging themselves into the system.

This means that the government, in one way or another, will have to support families, which in turn leads to inflationary pressures feeding back into the system until we reach a tipping point.

Interest rates above a certain level, which, in my opinion, is slightly higher than the inflation rate, lead society to preserve its resources and prevent ventures from being undertaken that should not arise. Forcing entrepreneurs and companies to use the scarce resources of our society more prudently.

In response to The Economist article, if Adam Smith were alive in our times he would say that the solution to our problems already exists before he was even born. And the solution is this: We should only accept projects as individuals and as a nation if the return rate is higher than the funding rate.

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